New 20-day Highs Fail to Expand with Market

TICKscore settled in neutral territory again at +1, Cumulative TICK closed at a positive 44,000, but down again from Tuesday’s level. On a very short-term basis, momentum seems to be stalling out, which could lead to a flat-to-down day on Thursday.

Despite S&P futures posting a solid rally day after an upside gap, with a higher high, low and close, new 20-day highs across all exchanges fell from the previous session while new 20-day lows increased. That suggests a bit of weakness beneath the surface that wasn’t reflected by the S&P on Wednesday. Historically, this type of action has led to sub-par performance the following session. The table below highlights the last thirty instances in which S&P futures posted a ‘rally day’ (higher high, higher low, higher close) and new 20-day highs across all exchanges declined from the previous session. Note the consistent theme of limited upside potential the next day…

Rally Day for S&P Futures, New 20-day Highs Drop
01/06/10… S&P futures ??? next session
12/24/09… S&P futures +0.1% next session
12/22/09… S&P futures +0.2% next session
12/11/09… S&P futures +0.5% next session
11/18/09… S&P futures -1.3%  next session
11/10/09… S&P futures +0.4% next session
10/15/09… S&P futures -0.7% next session
10/09/09… S&P futures +0.3% next session
08/25/09… S&P futures +0.1% next session
08/04/09… S&P futures -0.4% next session
07/24/09… S&P futures +0.2% next session
07/21/09… S&P futures -0.4% next session
06/29/09… S&P futures -0.6% next session
06/02/09… S&P futures -1.2% next session
05/14/09… S&P futures -0.7% next session
05/08/09… S&P futures -1.7% next session
05/05/09… S&P futures +1.5% next session
04/13/09… S&P futures -1.6% next session
03/04/09… S&P futures -3.2% next session
10/13/08… S&P futures -1.4% next session
04/17/08… S&P futures +1.1% next session
12/24/07… S&P futures +0.2% next session
11/23/07… S&P futures -2.3% next session
09/13/07… S&P futures +0.0% next session
08/13/07… S&P futures -1.4% next session
07/13/07… S&P futures -0.0% next session
05/07/07… S&P futures -0.1% next session
04/26/07… S&P futures -0.1% next session
04/17/07… S&P futures +0.1% next session
03/23/07… S&P futures -0.1% next session
02/15/07… S&P futures -0.1% next session

In 18 out of 30 cases, or 60% of the time, the S&P closed lower the following session, which is not significantly greater than the 46% at-any-time odds for a lower S&P close one day later in the same period of time. But note that in only two cases, or 7% of the time, did the S&P gain 0.5%+ the following session, which is significantly below the 32% random chance of a 0.5%+ gain one day later in the same time frame.

Friday’s outlook is looking increasingly mixed at this point given the short-term bearish price pattern drawn by S&P futures the last couple of days (see intraday update). This is in conflict with the short-term bullish ‘higher highs, increasing volume’ setup discussed yesterday, leaving no clear edge for Friday at this time.

From a longer-term perspective, it’s a positive sign to see the S&P500 Equal Weight Index pulling away from the standard cap-weighted S&P. Notice that the spread between the two is making a series of lower lows (reflecting outperformance by the Equal Weight). Since the 2003 bottom, stocks have consistently performed better when the Equal Weight S&P is outperforming the standard S&P500 (see longer-term chart).

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

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