S&P Futures Settle Below Midpoint Despite Lopsided Market Internals

Update: Final # of new 20-day highs on Tuesday was 294, above Friday’s 278 level. That nullifies the short-term sell setup outlined in Tuesday’s intraday update.

Shortly after 12:15 ET there was a clue that buying pressure may have reached a short-term exhaustion point. The NYSE TICK jumped to a very high +1368, its highest reading in over two months as buyers scrambled on word of a Greece bailout. Looking back at previous instances in which the NYSE TICK initially recorded its highest reading in two months, there’s a definitive tendency for the market to trade lower short-term. The last thirty occurrences are listed in the table below along with the performance of the S&P500 over the next two sessions…

NYSE TICK Hits Two-Month High
02/09/10… S&P500 ??? two sessions later
11/27/09… S&P500 +1.6% two sessions later
09/04/09… S&P500 +1.7% two sessions later
08/27/09… S&P500 -1.0% two sessions later
08/21/09… S&P500 +0.2% two sessions later
05/18/09… S&P500 -0.7% two sessions later
02/24/09… S&P500 -2.6% two sessions later
10/17/08… S&P500 +1.5% two sessions later
09/18/08… S&P500 +0.1% two sessions later
09/05/08… S&P500 -1.4% two sessions later
07/08/08… S&P500 -1.6% two sessions later
03/26/08… S&P500 -1.9% two sessions later
01/23/08… S&P500 -0.6% two sessions later
06/27/07… S&P500 -0.2% two sessions later
06/12/07… S&P500 +2.0% two sessions later
06/08/07… S&P500 -1.0% two sessions later
03/21/07… S&P500 +0.1% two sessions later
03/12/07… S&P500 -1.4% two sessions later
12/20/06… S&P500 -0.9% two sessions later
11/30/06… S&P500 +0.6% two sessions later
08/29/06… S&P500 -0.0% two sessions later
05/19/06… S&P500 -0.8% two sessions later
01/03/06… S&P500 +0.4% two sessions later
04/12/05… S&P500 -2.2% two sessions later
04/07/05… S&P500 -0.8% two sessions later
07/12/04… S&P500 -0.3% two sessions later
05/14/04… S&P500 -0.4% two sessions later
05/12/04… S&P500 -0.2% two sessions later
03/05/04… S&P500 -1.4% two sessions later
02/02/04… S&P500 -0.8% two sessions later
08/26/03… S&P500 +0.6% two sessions later

Note that the S&P was twice as likely to trade lower over the next two sessions. In 20 out of the last 30 occurrences, or 67% of the time, the S&P closed lower two days after a session in which the NYSE TICK recorded a two-month high. That’s significantly above the 47% at-any-time odds for a lower S&P two days later in the same time frame. In general, unusually high intraday TICK readings often means buying power is spent for the short-term.

Interesting to note that S&P futures settled below the day’s midpoint, a possible sign of weakness coming on a 3:1 positive breadth day. Looking for similar sessions, I found only eleven days since 1990 in which the market traded similarly, all of which were in the last few years. In most cases, the relatively weak close in spite of the lopsided positive breadth usually led to a flat-to-down day the next session. Only once did the S&Ps close up more than 0.5%…

S&P Futures Close <Midpoint on 3:1 Positive Breadth
02/09/10… S&P futures ??? next day
11/23/09… S&P futures -0.1% next day
10/06/09… S&P futures +0.5% next day
08/07/09… S&P futures +0.1% next day
07/30/09… S&P futures +0.2% next day
03/31/09… S&P futures +1.8% next day (*)
03/04/09… S&P futures -3.2% next day
01/06/09… S&P futures -2.7% next day
12/08/08… S&P futures -1.7% next day
09/19/08… S&P futures -2.6% next day
04/18/08… S&P futures +0.0% next day
06/15/07… S&P futures -0.1% next day

The CBOE equity put/call ratio closed at .71 Tuesday, its second consecutive down day. A close below this level tomorrow would trigger a 3-day buy setup (see this January 10th column), so we’ll want to keep an eye on this indicator Wednesday.

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

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