Over 600 New Highs As SPX Breaks Trendline Resistance

New 52-week highs on the NYSE surged to a dramatic 601, a level I can remember seeing only one other time (2003). In fact, new highs have exceeded 600 in only three other times frames since 1960… December ’03, October ’97 and October ’82, all of which led to further strength over the next year. Prior to Wednesday the number of new 52-week (and 20-day) highs had been making a series of ‘lower highs’, but that’s most definitely no longer the case.

The 14-day RSI for the S&P500 closed above the 75 level Wednesday. While this is traditionally considered an ‘overbought’ level, it’s more accurately been a sign of strength for the intermediate-term. In 22 out of the last 24 occurrences since 1995, the S&P closed higher one month later, with the worst loss only 0.3%…

S&P500 14-day RSI Closes Over 75
03/17/10 RSI >75… S&P ???
08/03/09 RSI >75… S&P +1.8% one month later
10/23/06 RSI >75… S&P +1.7% one month later
11/12/04 RSI >75… S&P +1.2% one month later
01/21/04 RSI >75… S&P -0.0% one month later
01/05/04 RSI >75… S&P +1.2% one month later
11/23/98 RSI >75… S&P +1.3% one month later
04/02/98 RSI >75… S&P +0.1% one month later
03/19/98 RSI >75… S&P +3.0% one month later
06/19/97 RSI >75… S&P +1.9% one month later
06/12/97 RSI >75… S&P +3.8% one month later
11/13/96 RSI >75… S&P -0.3% one month later
11/07/96 RSI >75… S&P +1.6% one month later
10/04/96 RSI >75… S&P +0.3% one month later
02/07/96 RSI >75… S&P +0.6% one month later
12/05/95 RSI >75… S&P +0.0% one month later
09/11/95 RSI >75… S&P +0.8% one month later
06/22/95 RSI >75… S&P +0.5% one month later
05/03/95 RSI >75… S&P +2.5% one month later
04/13/95 RSI >75… S&P +3.2% one month later
04/06/95 RSI >75… S&P +2.8% one month later
03/24/95 RSI >75… S&P +2.4% one month later
02/24/95 RSI >75… S&P +2.6% one month later
02/10/95 RSI >75… S&P +1.8% one month later
02/03/95 RSI >75… S&P +1.5% one month later
08/30/94 RSI >75… S&P -2.4% one month later (*)
02/04/93 RSI >75… S&P -0.8% one month later
12/08/92 RSI >75… S&P -1.4% one month later (*)
01/14/92 RSI >75… S&P -1.6% one month later (*)
12/26/91 RSI >75… S&P +2.6% one month later
02/05/91 RSI >75… S&P +7.1% one month later

In only three instances was the S&P down 1%+ one month later, while it was up 1%+ eighteen times. However, the overall 80% accuracy level isn’t quite enough of an edge above the 61% random chance for a higher S&P one month later in the same time frame.

That table lists every instance when the SPX 14-day RSI crossed from below 75 to above. To eliminate concurrent signals (which occurred a bit in 1995), this second table requires that the RSI has not been above 75 at any point over the past fourteen days. Accuracy is similar although slightly lower as the market didn’t tend to follow-through as well in the ’85-’95 period…

S&P500 14-day RSI Closes Over 75
03/17/10 RSI >75… S&P ???
08/03/09 RSI >75… S&P +1.8% one month later
10/23/06 RSI >75… S&P +1.7% one month later
11/12/04 RSI >75… S&P +1.2% one month later
01/05/04 RSI >75… S&P +1.2% one month later
11/23/98 RSI >75… S&P +1.3% one month later
03/19/98 RSI >75… S&P +3.0% one month later
06/12/97 RSI >75… S&P +3.8% one month later
11/07/96 RSI >75… S&P +1.6% one month later
10/04/96 RSI >75… S&P +0.3% one month later
02/07/96 RSI >75… S&P +0.6% one month later
12/05/95 RSI >75… S&P +0.0% one month later
09/11/95 RSI >75… S&P +0.8% one month later
06/22/95 RSI >75… S&P +0.5% one month later
05/03/95 RSI >75… S&P +2.5% one month later
03/24/95 RSI >75… S&P +2.4% one month later
02/03/95 RSI >75… S&P +1.5% one month later
08/30/94 RSI >75… S&P  -2.4% one month later
02/04/93 RSI >75… S&P  -0.8% one month later
12/08/92 RSI >75…  S&P -1.4% one month later
12/26/91 RSI >75…  S&P +2.6% one month later
02/05/91 RSI >75…  S&P +7.1% one month later
05/21/90 RSI >75…  S&P +0.1% one month later
07/31/89 RSI >75… S&P +1.7% one month later
05/19/89 RSI >75…  S&P +0.2% one month later
01/27/89 RSI >75…  S&P -2.0% one month later
08/10/87 RSI >75…  S&P -4.4% one month later
06/22/87 RSI >75… S&P -0.4% one month later
03/23/87 RSI >75… S&P -2.7% one month later
01/15/87 RSI >75…  S&P +3.8% one month later
02/18/86 RSI >75…  S&P +6.0% one month later

The market’s ability to shrug off recent sell signals and power higher is probably short-term bullish. Today’s second consecutive gap up open triggered a buy signal for Thursday (see intraday update), and as I’ve mentioned previously I tend to overweight buy signals in overbought markets.

The SPX closed at 1166, above long-term trendline resistance (here’s a close-up of that chart). I recalculated the line this morning (not by hand this time) and it’s actually closer to SPX 1161. That’s connecting the 3/6/37 high to the 8/25/87 high. You can see from the close-up that today’s move looks to be a fairly definitive break. I’m not one to normally put much emphasis on trendlines, but this is one of the more interesting ones I’ve come across.

Note from this chart of the 7-day ADX for the S&P500 that the +DI component, which measures the force of up days, closed just below the 50 level on Wednesday. You may recall from this column last October that +DI readings of 50 or higher have a solid track record of leading to a higher S&P two months later. We just missed hitting that level today, but could easily hit it in the next day or two on further strength.

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

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