More Intermediate-term Buy Signals Set to Trigger

From a bullish perspective, it would be best to see S&P futures settle below today’s midpoint given the lopsided negative breadth stats. When the S&Ps rally above the midpoint on a day when most stocks are trending lower, it signals a weak recovery that usually doesn’t stick. Here’s a look at each of the last thirty instances in which S&P futures closed above the day’s midpoint despite 2:1 negative breadth.

S&P Futures Close >Midpoint Despite 2:1 Negative Breadth
01/20/10… Lower S&P close one session later
01/12/10… No lower close within next two sessions
11/27/09… No lower close within next two sessions
11/19/09… Lower S&P close one session later
08/31/09… Lower S&P close one session later
08/14/09… Lower S&P close one session later
06/03/09… No lower close within next two sessions
05/21/09… Lower S&P close one session later
04/06/09… Lower S&P close one session later
03/27/09… Lower S&P close one session later
02/20/09… Lower S&P close one session later
01/22/09… Lower S&P close one session later
12/22/08… Lower S&P close one session later
12/15/08… No lower close within next two sessions
10/22/08… Lower S&P close two sessions later
10/06/08… Lower S&P close one session later
09/26/08… Lower S&P close one session later
04/22/08… Lower S&P close one session later
03/17/08… No lower close within next two sessions
03/04/08… Lower S&P close two sessions later
11/05/07… Lower S&P close two sessions later
09/07/07… Lower S&P close one session later
09/05/07… Lower S&P close two sessions later
06/05/07… Lower S&P close one session later
03/27/07… Lower S&P close one session later
07/05/06… Lower S&P close two sessions later
03/07/06… Lower S&P close two sessions later
10/06/05… Lower S&P close two sessions later
09/19/05… Lower S&P close one session later
05/25/05… No lower close within next two sessions

In 24 out of the last 30 occurrences, or 80% of the time, S&P futures posted a subsequently lower close one or two trading days later, significantly above the 58% random odds for a lower S&P close 1-2 days later in the same time frame. Today’s midpoint for June S&Ps is 1194.30.

Even if the setup above is triggered, keep in mind it’s facing off against a flurry of buy signals that remain on the board. In fact we have two more bullish signals set to trigger today – a short-term buy based on the fact that today is the first down day after a series of 5+ up days, and an intermediate-term buy given that the 14-day RSI for the S&P is set to close under 70 after exceeding 75 on Wednesday. Here are the last thirty times this signal has been triggered…

S&P500 14-day RSI Closes <70 after closing >75 Within Last Ten Days
04/14/10 RSI >75… 04/16/10 RSI <70… ???
03/17/10 RSI >75… 03/19/10 RSI <70… Higher S&P five sessions later
08/03/09 RSI >75… 08/06/09 RSI <70… Higher S&P five sessions later
10/23/06 RSI >75… 10/27/06 RSI <70… Higher S&P six sessions later
11/12/04 RSI >75… 11/16/04 RSI <70… Higher S&P five sessions later
01/05/04 RSI >75… 01/09/04 RSI <70… Higher S&P five sessions later
11/23/98 RSI >75… 11/30/98 RSI <70… Higher S&P five sessions later
03/19/98 RSI >75… 03/27/98 RSI <70… Higher S&P five sessions later
06/12/97 RSI >75… 06/23/97 RSI <70… Higher S&P five sessions later
10/04/96 RSI >75… 10/09/96 RSI <70… Higher S&P five sessions later
02/07/96 RSI >75… 02/15/96 RSI <70… Higher S&P five sessions later
12/05/95 RSI >75… 12/07/95 RSI <70… Higher S&P five sessions later
09/11/95 RSI >75… 09/22/95 RSI <70… Higher S&P five sessions later
06/22/95 RSI >75… 06/26/95 RSI <70… Higher S&P five sessions later
03/24/95 RSI >75… 03/31/95 RSI <70… Higher S&P five sessions later
02/03/95 RSI >75… 02/17/95 RSI <70… Higher S&P five sessions later
08/30/94 RSI >75… 09/01/94 RSI <70… Higher S&P nine sessions later
02/04/93 RSI >75… 02/08/93 RSI <70… No higher S&P 5-10 sessions later
12/08/92 RSI >75… 12/10/92 RSI <70… Higher S&P five sessions later
02/05/91 RSI >75… 02/20/91 RSI <70… Higher S&P five sessions later
05/21/90 RSI >75… 05/25/90 RSI <70… Higher S&P five sessions later
07/31/89 RSI >75… 08/04/89 RSI <70… Higher S&P five sessions later
05/19/89 RSI >75… 05/23/89 RSI <70… Higher S&P five sessions later
01/27/89 RSI >75… 02/09/89 RSI <70… Higher S&P six sessions later
08/10/87 RSI >75… 08/18/87 RSI <70… Higher S&P five sessions later
06/22/87 RSI >75… 06/24/87 RSI <70… Higher S&P eight sessions later
03/23/87 RSI >75… 03/27/87 RSI <70… Higher S&P five sessions later
01/15/87 RSI >75… 01/23/87 RSI <70… Higher S&P five sessions later
02/18/86 RSI >75… 02/19/86 RSI <70… Higher S&P five sessions later
05/20/85 RSI >75… 05/22/85 RSI <70… Higher S&P six sessions later
08/07/84 RSI >75… 08/15/84 RSI <70… Higher S&P five sessions later

In 29 out of 30 occurrences stretching back to 1984, the S&P bounced back from its first sub-70 RSI reading to close at a higher level 5-10 trading days later. That 97% accuracy level is significantly greater than the 76% random chance for a higher S&P close 5-10 sessions later in the same period of time

Despite all the hoopla surrounding the GS news, nothing has changed regarding the market’s dominant uptrend. We’re seeing no spike in the CBOE equity put/call ratio (currently .53), the S&P is still set to close out the week around unchanged levels, and if we do trade a bit lower next week, it will only trigger another bullish intermediate-term signal. Recall that the first week with lower highs and lower lows after 5+ weeks of higher highs and lows is a buy – see this April 8th column for the track record.

Categories : Archived Intraday Commentary, Intraday Commentary

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