Thursday’s Recovery Day Sends Last Hour Indicator Up 185
By
Rennie on Friday, February 26th, 2010 at 2:41 am
Pull up today’s relative volume chart for E-mini S&P futures and note the sharp pickup in volume around 2pm ET. Prior to that point Thursday’s volume was running below the 30-day median, but once it crossed the median it never looked back. That was a good indication the afternoon rally had legs.
NYSE TICK action provided another good indication early in the day that conditions were not consistent with a trend day down. Cumulative TICK was in and out of positive territory in the morning session despite the sharply lower market, unlike a trend day down in which the Cumulative TICK trends consistently lower.
TICKscore closed at +19, its twelfth consecutive session in positive territory. The winning streak has sent the Cumulative TICKscore line to just below its January high. A break of that high would call into question the longer-term negative divergence, although I’d want to see it take out the October highs as well. I’d look for that added confirmation given that the divergence is consistent with long-term trendline resistance a bit above January’s highs and the bearish Last Hour, not to mention a bearish seasonal pattern still in play. For reference, Cumulative TICKscore closed at 2837 today, the January high is at 2841 and the October high is 2911.
The CBOE equity put/call ratio spiked higher Thursday, closing at .81, its highest level since October 2nd. Since the market top in 2007, spikes in this put/call ratio have not been short-term positive signs. Since mid-2007, there have been 22 instances in which the equity put/call ratio spiked to a two-month high, 20 of which led to a lower S&P close within the next two sessions. That’s contrary to what you’d expect and isn’t true prior to 2007, but it’s an interesting trend to monitor in terms of investor sentiment. When spikes in the put/call ratio consistently correspond with immediate market bottoms, it will reflect a more bullish environment.
The combination of Thursday’s sharply lower open and firm afternoon session sent the Last Hour indicator up 185 points. It’s now cleared its January high, calling into question whether the indicator remains in a long-term downtrend. Recall that this indicator has been longer-term bearish on stocks since it sold off sharply in October-November of last year, suggesting heavy distribution among the smart money crowd. Whether that distribution occurs over the course of a few months or a couple of years is the key question. As long as the distribution phase remains in effect the market can continue to grind its way higher. But when it ends, the market is likely at a significant top, and we’ll see the Last Hour and price switch direction, with price moving steadily lower while the Last Hour trends steadily higher. This accumulation phase is typically the most bearish time for the market, and it remains bearish until the entire decline of the Last Hour has been retraced (see the long-term chart for examples). In this case that means a move back up to late-September levels. It’s premature to say we’re shifting into that phase now – in fact I would look for the Last Hour to shift back into a downtrend – but this recent uptick bears watching.
One reason to check a bearish intermediate-term outlook is a monthly buy signal that’s set to trigger at Friday’s close. We’re just coming off the most persistent rally on the SPX monthly chart since late ‘06/early ’07, with six consecutive months of higher highs. The first month to follow with a lower monthly high is usually a buy, with the S&P closing higher the following month in 22 out of 26 occurrences and posting a higher monthly close within six months in all 26 occurrences (see this February 4th column for the track record). That’s a good indication we’ll see buyers emerge in March to keep the S&P in its sideways-to-up trend, with a monthly close above February’s settlement likely in the March-August time frame.
On a short-term basis, new 52-week lows settled at 9 on the NYSE, just above Wednesday’s level and therefore nullifying the potential buy signal outlined in this intraday update. Thursday’s late-session comeback left the S&P up 0.76% from its two-day ago close, a short-term negative development given that new 20-day highs came in at 750 Thursday, down from Tuesday’s 786 reading. When the S&P is up more than 0.75% from its two-day ago close and 20-day highs fail to expand, the market typically trades lower the following session…
S&P +0.75% over Two Days, 20-day Highs Contract
02/25/10… S&P500 ??? next session
11/03/09… S&P500 +0.1% next session
08/10/09… S&P500 -1.3% next session
07/17/09… S&P500 +1.1% next session (*)
06/12/09… S&P500 -2.4% next session
05/08/09… S&P500 -2.2% next session
05/06/09… S&P500 -1.3% next session
03/17/09… S&P500 +2.1% next session (*)
03/04/09… S&P500 -4.3% next session
02/25/09… S&P500 -1.6% next session
02/12/09… S&P500 -1.0% next session
01/22/09… S&P500 +0.5% next session
10/14/08… S&P500 -9.0% next session
10/13/08… S&P500 -0.5% next session
10/01/08… S&P500 -4.0% next session
09/26/08… S&P500 -8.8% next session
09/25/08… S&P500 +0.3% next session
09/11/08… S&P500 +0.2% next session
01/10/08… S&P500 -1.4% next session
09/14/07… S&P500 -0.5% next session
08/24/07… S&P500 -0.9% next session
08/20/07… S&P500 +0.1% next session
08/02/07… S&P500 -2.7% next session
05/17/07… S&P500 +0.7% next session (*)
03/15/07… S&P500 -0.4% next session
07/31/06… S&P500 -0.5% next session
07/24/06… S&P500 +0.6% next session
04/05/06… S&P500 -0.2% next session
04/04/06… S&P500 +0.4% next session
12/14/05… S&P500 -0.1% next session
08/03/05… S&P500 -0.7% next session
In 20 out of the last 30 occurrences, or 67% of the time, the S&P500 closed lower the following session, significantly above the 46% random chance for a lower SPX close one day later in the same time frame. In only three cases did the S&P gain more than 0.6%, while it fell more than 0.6% fourteen times.
Thursday’s Recovery Day Sends Last Hour Indicator Up 185
By Rennie on Friday, February 26th, 2010 at 2:41 amPull up today’s relative volume chart for E-mini S&P futures and note the sharp pickup in volume around 2pm ET. Prior to that point Thursday’s volume was running below the 30-day median, but once it crossed the median it never looked back. That was a good indication the afternoon rally had legs.
NYSE TICK action provided another good indication early in the day that conditions were not consistent with a trend day down. Cumulative TICK was in and out of positive territory in the morning session despite the sharply lower market, unlike a trend day down in which the Cumulative TICK trends consistently lower.
TICKscore closed at +19, its twelfth consecutive session in positive territory. The winning streak has sent the Cumulative TICKscore line to just below its January high. A break of that high would call into question the longer-term negative divergence, although I’d want to see it take out the October highs as well. I’d look for that added confirmation given that the divergence is consistent with long-term trendline resistance a bit above January’s highs and the bearish Last Hour, not to mention a bearish seasonal pattern still in play. For reference, Cumulative TICKscore closed at 2837 today, the January high is at 2841 and the October high is 2911.
The CBOE equity put/call ratio spiked higher Thursday, closing at .81, its highest level since October 2nd. Since the market top in 2007, spikes in this put/call ratio have not been short-term positive signs. Since mid-2007, there have been 22 instances in which the equity put/call ratio spiked to a two-month high, 20 of which led to a lower S&P close within the next two sessions. That’s contrary to what you’d expect and isn’t true prior to 2007, but it’s an interesting trend to monitor in terms of investor sentiment. When spikes in the put/call ratio consistently correspond with immediate market bottoms, it will reflect a more bullish environment.
The combination of Thursday’s sharply lower open and firm afternoon session sent the Last Hour indicator up 185 points. It’s now cleared its January high, calling into question whether the indicator remains in a long-term downtrend. Recall that this indicator has been longer-term bearish on stocks since it sold off sharply in October-November of last year, suggesting heavy distribution among the smart money crowd. Whether that distribution occurs over the course of a few months or a couple of years is the key question. As long as the distribution phase remains in effect the market can continue to grind its way higher. But when it ends, the market is likely at a significant top, and we’ll see the Last Hour and price switch direction, with price moving steadily lower while the Last Hour trends steadily higher. This accumulation phase is typically the most bearish time for the market, and it remains bearish until the entire decline of the Last Hour has been retraced (see the long-term chart for examples). In this case that means a move back up to late-September levels. It’s premature to say we’re shifting into that phase now – in fact I would look for the Last Hour to shift back into a downtrend – but this recent uptick bears watching.
One reason to check a bearish intermediate-term outlook is a monthly buy signal that’s set to trigger at Friday’s close. We’re just coming off the most persistent rally on the SPX monthly chart since late ‘06/early ’07, with six consecutive months of higher highs. The first month to follow with a lower monthly high is usually a buy, with the S&P closing higher the following month in 22 out of 26 occurrences and posting a higher monthly close within six months in all 26 occurrences (see this February 4th column for the track record). That’s a good indication we’ll see buyers emerge in March to keep the S&P in its sideways-to-up trend, with a monthly close above February’s settlement likely in the March-August time frame.
On a short-term basis, new 52-week lows settled at 9 on the NYSE, just above Wednesday’s level and therefore nullifying the potential buy signal outlined in this intraday update. Thursday’s late-session comeback left the S&P up 0.76% from its two-day ago close, a short-term negative development given that new 20-day highs came in at 750 Thursday, down from Tuesday’s 786 reading. When the S&P is up more than 0.75% from its two-day ago close and 20-day highs fail to expand, the market typically trades lower the following session…
S&P +0.75% over Two Days, 20-day Highs Contract
02/25/10… S&P500 ??? next session
11/03/09… S&P500 +0.1% next session
08/10/09… S&P500 -1.3% next session
07/17/09… S&P500 +1.1% next session (*)
06/12/09… S&P500 -2.4% next session
05/08/09… S&P500 -2.2% next session
05/06/09… S&P500 -1.3% next session
03/17/09… S&P500 +2.1% next session (*)
03/04/09… S&P500 -4.3% next session
02/25/09… S&P500 -1.6% next session
02/12/09… S&P500 -1.0% next session
01/22/09… S&P500 +0.5% next session
10/14/08… S&P500 -9.0% next session
10/13/08… S&P500 -0.5% next session
10/01/08… S&P500 -4.0% next session
09/26/08… S&P500 -8.8% next session
09/25/08… S&P500 +0.3% next session
09/11/08… S&P500 +0.2% next session
01/10/08… S&P500 -1.4% next session
09/14/07… S&P500 -0.5% next session
08/24/07… S&P500 -0.9% next session
08/20/07… S&P500 +0.1% next session
08/02/07… S&P500 -2.7% next session
05/17/07… S&P500 +0.7% next session (*)
03/15/07… S&P500 -0.4% next session
07/31/06… S&P500 -0.5% next session
07/24/06… S&P500 +0.6% next session
04/05/06… S&P500 -0.2% next session
04/04/06… S&P500 +0.4% next session
12/14/05… S&P500 -0.1% next session
08/03/05… S&P500 -0.7% next session
In 20 out of the last 30 occurrences, or 67% of the time, the S&P500 closed lower the following session, significantly above the 46% random chance for a lower SPX close one day later in the same time frame. In only three cases did the S&P gain more than 0.6%, while it fell more than 0.6% fourteen times.