Last Hour Indicator Hits a Fresh One-Year Low

Over 320 issues hit new 52-week highs Monday on the NYSE. Over 200 hit new highs on the NASDAQ. Breadth closed 4:1 positive, sending the cumulative breadth line into another new high. The S&P closed up 1.6% at 1132.99, a fresh six-month high. I recently reviewed the market’s limited upside potential the day after a new six-month high (see this December 14th column). In only one case out of the last thirty did the S&P gain 0.5%+ the next day, while it fell 0.5%+ eight times.

More than 800 individual issues across the NYSE and NASDAQ closed over their upper bollinger band, a sign of strong upside momentum. In the last few years, readings over 800 have typically translated into at least one subsequently higher S&P close within the next week. Below is every instance since 2006 (when our database begins) in which over 800 issues closed over their upper band…

800+ Stocks Close Over Upper Bollinger Band
01/04/10… ???
10/14/09… Higher S&P close one session later
09/16/09… Higher S&P close four sessions later
07/23/09… Higher S&P close one session later
07/15/09… Higher S&P close one session later
06/01/09… Higher S&P close one session later
05/08/09… No higher S&P close within five days
05/04/09… Higher S&P close two sessions later
04/09/09… Higher S&P close one session later
03/26/09… Higher S&P close five sessions later
03/23/09… Higher S&P close three sessions later
01/02/09… Higher S&P close two sessions later
04/01/08… Higher S&P close three sessions later
12/06/07… Higher S&P close two sessions later
09/18/07… Higher S&P close one session later
04/16/07… Higher S&P close one session later
10/12/06… Higher S&P close one session later

Note that out of sixteen occurrences, all but one led to upside follow-through either immediately or after a shallow pullback.

The Last Hour indicator fell over 150 points to a fresh one-year low Monday given the strong first hour and flat last hour. This increasingly looks to be the beginning of another big move lower, similar to recent periods of major distribution. The implication is bearish as it suggests smart money is selling, but this is a long-term indicator with trends that are measured in months and years. It’s only been about two months since the current leg down began, although it’s already noticeable on the long-term chart. Other periods of major distribution evident on the chart include 1971-72, 1975-76, 1987, 2000, 2002 and 2005-2007, all of which ultimately preceded major market tops. However, it often took a year or more from the start of the distribution phase to when the top was in place, so it’s premature to turn bearish because of this one indicator, particularly given the generally bullish signs discussed in recent columns. Big moves in the Last Hour tend to persist, so the current downtrend could last well into the new year, and it wouldn’t be surprising to see the downtrend accompanied by a rising market. What would be surprising is if the current market rally is the start of a multi-year uptrend. Instead, the severity of the indicator’s drop suggests the current uptrend has another 9-18 months before another major market top.

Categories : Archived EOD Commentary, End-of-Day Commentary

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