Russell 2000 Hits New High for Year

Major market averages gave back early gains Tuesday, although the Russell 2000 held on to close up nearly 1% after trading above its January high earlier in the session. S&P futures price action indicates the S&P is increasingly likely to follow suit with its own test of the January high in the SPX 1150 area. We saw a number of short-term bullish signals triggered Tuesday that appear to trump the negative indication from Monday’s low volume. Two of the signals based on today’s action in S&P futures (higher high, low & close after an upside gap + two consecutive up opens) were already discussed in today’s intraday update, one which calls for a close above today’s settlement on Wednesday and the other for a close above today’s settlement on Thursday. In addition, the CBOE equity put/call ratio settled at .57 Tuesday, its lowest level in over a month and the third consecutive lower close. Three consecutive drops is a short-term bullish sign that typically leads to a higher S&P three sessions later. The last thirty occurrences are listed below. Note that in 26 cases, or 87% of the time the S&P was higher three sessions later, significantly above the 54% random chance for a higher S&P three sessions later in the same time frame…

CBOE Equity Put/Call Ratio Declines Three Days
03/02/10… S&P500 ??? three sessions later
02/17/10… S&P500 +0.8% three sessions later
02/10/10… S&P500 +2.5% three sessions later
01/08/10… S&P500 +0.1% three sessions later
11/04/09… S&P500 +4.5% three sessions later
08/20/09… S&P500 +2.1% three sessions later
08/05/09… S&P500 +0.4% three sessions later
07/13/09… S&P500 +4.4% three sessions later
04/13/09… S&P500 +0.8% three sessions later
03/10/09… S&P500 +5.1% three sessions later
01/23/09… S&P500 +5.1% three sessions later
12/23/08… S&P500 +0.7% three sessions later
12/17/08… S&P500 -3.6% three sessions later
10/29/08… S&P500 +3.9% three sessions later
08/22/08… S&P500 -0.8% three sessions later
07/18/08… S&P500 +1.7% three sessions later
04/02/08… S&P500 +0.4% three sessions later
03/13/08… S&P500 +1.2% three sessions later
12/28/07… S&P500 -2.1% three sessions later
09/21/07… S&P500 -0.0% three sessions later
08/31/07… S&P500 +0.3% three sessions later
08/17/07… S&P500 +1.3% three sessions later
07/09/07… S&P500 +1.0% three sessions later
06/28/07… S&P500 +1.3% three sessions later
06/14/07… S&P500 +0.7% three sessions later
04/02/07… S&P500 +1.4% three sessions later
02/15/07… S&P500 +0.1% three sessions later
01/11/07… S&P500 +0.5% three sessions later
11/15/06… S&P500 +0.3% three sessions later
10/23/06… S&P500 +0.9% three sessions later
10/12/06… S&P500 +0.1% three sessions later

The short-term bullish outlook would be reinforced if S&P futures hold Tuesday’s low. A quick rejection of an upside gap is usually a short-term negative, so if Tuesday’s gap is filled on Wednesday with a drop down to SPH 1115, it would tend to indicate a bit more downside is in store later in the week or early next week. The last thirty occurrences in which an unfilled upside gap was filled the next day are listed in the table below. Note that in 27 out of 30 cases stretching back to 1997, or 90% of the time, the S&P closed at a subsequently lower level (below the setup day’s close) within the next four sessions. That’s significantly better than the S&P’s 70% at-any-time odds of posting a lower close within four sessions in the same time frame. If this setup is triggered (meaning the large S&P contract trades down to 1115 on Wednesday), it would point to a close below Wednesday’s settlement by next Tuesday at the latest. I’d tend to think that would occur later rather than sooner given the short-term bullish setups just triggered…

S&P Futures Fill an Upside Gap Next Session
12/15/09… Lower S&P close two sessions later
01/29/09… Lower S&P close one session later
11/05/08… Lower S&P close one session later
09/22/08… Lower S&P close one session later
09/09/08… Lower S&P close four sessions later
08/29/08… Lower S&P close one session later
08/25/08… No lower close within four sessions
09/20/07… Lower S&P close two sessions later
07/05/07… Lower S&P close three sessions later
08/03/06… Lower S&P close one session later
06/20/05… Lower S&P close three sessions later
10/05/04… Lower S&P close two sessions later
03/18/04… Lower S&P close one session later
07/15/03… Lower S&P close one session later
10/18/02… Lower S&P close four sessions later
10/12/01… Lower S&P close one session later
04/06/01… No lower close within four sessions
11/28/00… Lower S&P close one session later
03/06/00… Lower S&P close one session later
02/09/00… Lower S&P close two sessions later
01/18/00… Lower S&P close two sessions later
01/11/00… Lower S&P close one session later
10/25/99… Lower S&P close one session later
09/28/99… Lower S&P close one session later
11/30/98… Lower S&P close three sessions later
10/13/98… No lower close within four sessions
09/24/98… Lower S&P close one session later
08/13/98… Lower S&P close one session later
07/17/97… Lower S&P close one session later
07/07/97… Lower S&P close two sessions later

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

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