SPX Recovers from Intraday Weakness To Close Higher, But…

Friday’s session brought to mind a post from late 2008 entitled ‘Nothing Positive about Recovery Days’. Specifically, there was a price pattern discussed in that column that was triggered Friday based on the market’s sharp intraday selloff and late-day recovery. Historically, when the S&P trades down 1.5%+ intraday but manages to close with a modest gain (<1%), sellers typically regain the upper hand short-term. Each of the last thirty occurrences is listed in the table below.  Note that in 24 cases, or 80% of the time, the recovery day was followed by a lower S&P close (below the setup day’s close) within the next two sessions. That’s significantly above the 59% random chance for a lower S&P close within two days in the same time frame…

S&P Down 1.5%+ Intraday, Closes Up Less Than 1%
02/05/10… ???
03/25/09… No lower close within two sessions
03/06/09… Lower SPX close one session later
02/12/09… Lower SPX close one session later
01/23/09… No lower close within two sessions
01/16/09… Lower SPX close one session later
01/15/09… Lower SPX close two sessions later
12/12/08… Lower SPX close one session later
11/25/08… No lower close within two sessions
11/18/08… Lower SPX close one session later
09/26/08… Lower SPX close one session later
09/05/08… Lower SPX close two sessions later
07/01/08… Lower SPX close one session later
03/13/08… Lower SPX close one session later
08/16/07… No lower close within two sessions
08/10/07… Lower SPX close one session later
06/08/06… Lower SPX close one session later
05/12/04… Lower SPX close one session later
03/20/03… Lower SPX close two sessions later
02/25/03… Lower SPX close one session later
10/23/02… Lower SPX close one session later
08/09/02… Lower SPX close one session later
07/30/02… Lower SPX close two sessions later
07/11/02… Lower SPX close one session later
06/24/02… Lower SPX close one session later
10/05/01… Lower SPX close one session later
03/01/01… Lower SPX close one session later
04/27/00… Lower SPX close one session later
01/05/00… No lower close within two sessions
05/12/99… Lower SPX close two sessions later
09/21/98… No lower close within two sessions

This signal is reinforced by three other short-term sells – one based on the surge in new 20-day lows last Thursday and two based on Friday’s weak market internals (negative TICKscore, negative breadth – see intraday updates), all of which are essentially calling for a close in new lows early this week. We still have some intermediate-term bullish signals on the board, so ideally the early week selloff will coincide with decreasing downside momentum, which will likely set the stage for a rally heading into mid-week.

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

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