Reviewing Market Action over the Holiday Break

The number of new 52-week highs on the NYSE surged to over 400 issues the day after Christmas. Readings over 400 have consistently represented an extreme reading over the last four decades. When the number of new highs has exceeded this level, it’s typically been a bullish sign for the intermediate-term. Every instance in which the number of new 52-week highs exceeded 400 for the first time in at least a month is listed in the table below. Note that out of 18 occurrences, 15 led to a higher S&P thirty days later…

New 52-week Highs >400 First Time in a Month
12/28/09… S&P500 ??? thirty sessions later
10/14/09… S&P500 +1.7% thirty sessions later
05/31/07… S&P500 +1.4% thirty sessions later
04/16/07… S&P500 +3.4% thirty sessions later
02/01/07… S&P500 -4.1% thirty sessions later
12/04/06… S&P500 +1.5% thirty sessions later
10/26/06… S&P500 +1.5% thirty sessions later
01/27/06… S&P500 +0.0% thirty sessions later
07/11/05… S&P500 +0.2% thirty sessions later
02/04/05… S&P500 -1.6% thirty sessions later
11/04/04… S&P500 +2.8% thirty sessions later
09/02/03… S&P500 +2.7% thirty sessions later
05/27/03… S&P500 +5.3% thirty sessions later
09/16/97… S&P500 -2.5% thirty sessions later
06/12/97… S&P500 +6.3% thirty sessions later
02/18/86… S&P500 +6.0% thirty sessions later
05/20/85… S&P500 +1.2% thirty sessions later
10/07/82… S&P500 +7.4% thirty sessions later
02/20/76… S&P500 +0.2% thirty sessions later

That also sets up the potential for another cluster. Should we see another 400+ reading in the next few weeks, it would reinforce the bullish cluster from mid-October. Multiple readings over 400 in a short period of time usually coincide with a momentum top. While the market will usually enter into a consolidation phase after a momentum top for a period of months, the rally invariably resumes over the next year. The table below lists every occurrence since 1970 in which new 52-week highs exceeded the 400 level on more than one occasion in a 20-day time frame…

Cluster of 400+ new 52-week highs
10/19/09… S&P500 ??? one year later
12/05/06… S&P500 +4.5% one year later
03/04/05… S&P500 +4.1% one year later
11/05/04… S&P500 +4.7% one year later
09/03/03… S&P500 +8.8% one year later
06/02/03… S&P500 +16.1% one year later
06/13/97… S&P500 +23.9% one year later
02/21/86… S&P500 +26.4% one year later
10/11/82… S&P500 +26.2% one year later

The S&P500 just posted a third consecutive up quarter. Since 1950, we’ve seen 23 separate instances of three consecutive up quarters. In all but one case, the S&P posted a subsequently higher quarterly close within the next nine months…

S&P500 Rallies Three Consecutive Quarters
12/31/09… ???
03/30/07… Higher Quarterly Close in Three Months
12/30/05… Higher Quarterly Close in Three Months
12/31/03… Higher Quarterly Close in Three Months
06/30/99… Higher Quarterly Close in Six Months
09/29/95… Higher Quarterly Close in Three Months
12/31/92… Higher Quarterly Close in Three Months
06/30/89… Higher Quarterly Close in Three Months
06/30/87… Higher Quarterly Close in Three Months
06/30/86… Higher Quarterly Close in Nine Months
03/29/85… Higher Quarterly Close in Three Months
03/31/83… Higher Quarterly Close in Three Months
12/31/80… Higher Quarterly Close in Three Months
09/28/79… Higher Quarterly Close in Nine Months
06/30/76… Higher Quarterly Close in Three Months
06/30/75… Higher Quarterly Close in Nine Months
03/31/71… Higher Quarterly Close in Nine Months
12/31/68… No Higher Quarterly Close In Nine Months
06/30/67… Higher Quarterly Close in Three Months
03/29/63… Higher Quarterly Close in Three Months
09/30/58… Higher Quarterly Close in Three Months
06/30/54… Higher Quarterly Close in Three Months
03/31/52… Higher Quarterly Close in Three Months
03/31/50… Higher Quarterly Close in Three Months

We’re also just coming off the ninth consecutive higher high on the SPX monthly chart. The pattern of eight higher highs has only occurred nine times since 1950. While the sample size is too small to be considered statistically significant, the stock market’s performance over the next 1,3,6 and 12 months has been remarkably consistent in all previous occurrences…

S&P Performance 1,3,6 & 12 months after Eight Monthly Higher Highs
11/30/09… S&P +1.8%, ???, ???, ???
05/28/99… S&P +5.5%, +1.4%, +6.7%, +9.1%
08/31/95… S&P +4.0%, +7.7%, +14.0%, +16.0%
05/30/86… S&P +1.4%, +2.3%, +0.8%, +17.3%
03/31/83… S&P +7.5%, +9.9%, +8.6%, +4.1%
05/31/67… S&P +1.8%, +5.1%, +5.5%, +10.8%
06/28/63… S&P -0.4%, +3.4%, +8.1%, +17.8%
07/31/58… S&P +1.2%, +8.8%, +17.4%, +28.2%
05/28/54… S&P +0.1%, +2.2%, +17.3%, +29.9%
02/28/50… S&P +0.4%, +9.1%, +7.0%, +26.6%

Just prior to the Christmas break, the 5-week RSI for the Nasdaq100 closed above the 80 level, signaling an unusually strong intermediate-term uptrend. Historically, the NDX has a good track record of posting a subsequently higher weekly close within the next four weeks. Out of  the last thirty separate occurrences since 1996, all but two led to a higher weekly close (above the setup week’s close) within the next four weeks. That’s not significantly better than the 78% random odds of a higher weekly close within four weeks, but it’s still noteworthy, particularly considering all thirty occurrences led to a higher weekly close within six weeks…

Nasdaq100 5-week RSI Closes over 80
12/24/09… ???
07/24/09… Higher weekly close one week later
06/05/09… Higher weekly close six weeks later (*)
05/01/09… Higher weekly close four weeks later
10/05/07… Higher weekly close one week later
07/13/07… Higher weekly close one week later
06/01/07… Higher weekly close two weeks later
11/17/06… Higher weekly close one week later
10/13/06… Higher weekly close four weeks later
11/25/05… Higher weekly close one week later
11/05/04… Higher weekly close one week later
01/09/04… Higher weekly close one week later
09/19/03… Higher weekly close three weeks later
07/11/03… Higher weekly close six weeks later (*)
06/06/03… Higher weekly close two weeks later
11/22/02… Higher weekly close one week later
03/03/00… Higher weekly close one week later
01/21/00… Higher weekly close two weeks later
11/12/99… Higher weekly close one week later
07/09/99… Higher weekly close one week later
04/01/99… Higher weekly close one week later
11/27/98… Higher weekly close one week later
07/02/98… Higher weekly close one week later
04/03/98… Higher weekly close three weeks later
02/20/98… Higher weekly close one week later
07/11/97… Higher weekly close one week later
06/20/97… Higher weekly close two weeks later
05/23/97… Higher weekly close three weeks later
11/08/96… Higher weekly close one week later
09/20/96… Higher weekly close one week later
05/17/96… Higher weekly close two weeks later

On a short-term basis, it was interesting to note that new 20-day lows contracted on Thursday despite the S&P trading well below Wednesday’s lows. Typically you’ll see an expansion of new 20-day lows when the SPX trades 0.5%+ below the previous day’s low. In the five-year history we have on this data, this pattern has only occurred 26 times, 18 of which led to a bounce the following session…

S&P500 Trades 0.5%+ Below Yesterday’s Low, New 20-day Lows Contract
12/31/09… S&P500 ??? next day
10/30/09… S&P500 +0.7% next day
07/07/09… S&P500 -0.2% next day
06/16/09… S&P500 -0.1% next day
06/03/09… S&P500 +1.2% next day
04/28/09… S&P500 +2.2% next day
04/14/09… S&P500 +1.3% next day
04/01/09… S&P500 +2.9% next day
03/20/09… S&P500 +7.1% next day
03/03/09… S&P500 +2.4% next day
02/23/09… S&P500 +4.0% next day
12/18/08… S&P500 +0.3% next day
11/21/08… S&P500 +6.5% next day
10/27/08… S&P500 +10.8% next day
10/09/08… S&P500 -1.2% next day
10/07/08… S&P500 -1.1% next day
09/22/08… S&P500 -1.6% next day
09/18/08… S&P500 +4.0% next day
09/17/08… S&P500 +4.3% next day
08/07/08… S&P500 +2.4% next day
07/28/08… S&P500 +2.3% next day
03/27/08… S&P500 -0.8% next day
01/25/08… S&P500 +1.8% next day
01/08/08… S&P500 +1.4% next day
01/07/08… S&P500 -1.8% next day
12/18/07… S&P500 -0.1% next day
11/12/07… S&P500 +2.9% next day

These were some of the more noteworthy developments during the holiday break. Technically there were no new signals triggered as the studies above lack a large enough sample size and/or edge over random. Still, the implications remain generally bullish.

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

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