Watch for this Price Pattern on the Weekly SPX Chart

Institutional sellers made their presence felt Wednesday afternoon, taking the S&P down over 1% from its intraday high. Selling pressure really accelerated in the 3pm ET timeframe, with the NYSE TICK trading down to a very low -1495. That’s the lowest intraday low since last October. While prices recovered a bit into the close, that heavy selling could precede further weakness heading into the middle of next week. Here’s a look at every instance since the elimination of the uptick rule in July ’07 in which the NYSE TICK hit its lowest level in over two months…

NYSE TICK Hits Lowest Level in Two Months
04/07/10… S&P500 ??? one week later
01/22/10… S&P500 -1.6% one week later
10/26/09… S&P500 -2.3% one week later
09/01/09… S&P500 +3.5% one week later
03/25/09… S&P500 -0.3% one week later
02/20/09… S&P500 -4.5% one week later
02/19/09… S&P500 -3.4% one week later
01/26/09… S&P500 -1.3% one week later
11/13/08… S&P500 -17.4% one week later
10/06/08… S&P500 -5.1% one week later
09/17/08… S&P500 +2.6% one week later
07/14/08… S&P500 +2.6% one week later
07/07/08… S&P500 -1.9% one week later
06/03/08… S&P500 -1.4% one week later
05/21/08… S&P500 +0.5% one week later
03/04/08… S&P500 -0.5% one week later
11/07/07… S&P500 -0.3% one week later
10/17/07… S&P500 -1.7% one week later
07/26/07… S&P500 -0.7% one week later
07/24/07… S&P500 -3.7% one week later

In 14 out of the last 19 occurrences the S&P was lower one week later, a considerable edge over the random odds. Prior to 2007 there was no downside edge to unusually low TICK readings – in fact there was an upside edge – so there’s some question as to how much weight this should be given. However, prior to 2007 the NYSE TICK was artificially constrained on the downside by the uptick rule, so despite the small sample I think it looks promising. With the 20-day moving average of the Cumulative TICK still trending lower and nothing on the board pointing higher at the moment, a selloff doesn’t seem as unlikely as it did a week ago.

While there doesn’t seem to be much reason to jump in front of this selloff yet, next week could be another matter. The S&P is currently working on the sixth consecutive week with higher highs and higher lows. After such a long streak of consistently higher prices, the first week with a lower high and lower low is typically a buying opportunity. The table below lists each of the last thirty instances stretching back 50+ years in which the S&P posted a lower weekly high and low after five weeks of higher highs & lows…

Lower Weekly High & Low After Five Weeks of Higher Highs & Lows
04/24/09… S&P500 +1.3% one week later
11/03/06… S&P500 +1.2% one week later
06/24/05… S&P500 +0.2% one week later
11/01/96… S&P500 +3.9% one week later
12/22/95… S&P500 +0.7% one week later
06/24/94… S&P500 +0.8% one week later
01/24/92… S&P500 -1.6% one week later
03/01/91… S&P500 +1.2% one week later
12/22/89… S&P500 +1.7% one week later
08/18/89… S&P500 +1.3% one week later
09/04/87… S&P500 +1.7% one week later
07/02/87… S&P500 +0.9% one week later
03/07/86… S&P500 +4.9% one week later
12/27/85… S&P500 +0.6% one week later
02/22/85… S&P500 +2.2% one week later
12/28/79… S&P500 -1.2% one week later
09/07/79… S&P500 +1.0% one week later
05/26/78… S&P500 +1.6% one week later
12/22/72… S&P500 +1.9% one week later
01/28/72… S&P500 +0.7% one week later
02/26/71… S&P500 +2.3% one week later
11/01/68… S&P500 +0.9% one week later
08/18/67… S&P500 -2.2% one week later
11/25/66… S&P500 -0.9% one week later
05/21/65… S&P500 -0.4% one week later
10/16/64… S&P500 +0.4% one week later
03/26/64… S&P500 +1.0% one week later
02/08/63… S&P500 +0.4% one week later
02/10/61… S&P500 +1.0% one week later
06/27/58… S&P500 +1.3% one week later

Note that in 25 out of 30 cases, or 83% of the time, the S&P posted a higher weekly close the following week, significantly better than the 56% at-any-time odds for a higher weekly close one week later. Even when wrong, losses were typically limited to 1.5%, reaffirming the notion that after such a long string of up weeks, buyers stand ready to pounce on the first down week.

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

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