Breach of Support Leads to Afternoon Crash, Recovery Underway

Market coming under a tremendous amount of selling pressure, with TICKscore screaming lower (currently -119) and breadth running in excess of 10:1 negative. Today’s action invalidates that long-term trendline channel, as we’ve seen too many crosses above/below the upper line now. It also suggests the whole ‘emerging bubble’ theory was incorrect. More on this in an upcoming column.

On a short-term basis, S&P futures are set to close below the previous day’s low for a third consecutive session, tilting the odds in favor of a higher close on Friday. Every occurrences of this pattern since 2002 is listed in the table below. Note that in 25 out of 32 occurrences, or 78% of the time, the S&Ps closed higher the next day, significantly above the 53% at-any-time odds for a higher S&P one session later in the same time frame…

S&P Futures Close < Previous Day’s Low x3
05/06/10… S&P futures ??? next day
10/28/09… S&P futures +2.2% next day
10/02/09… S&P futures +1.4% next day
09/02/09… S&P futures +0.8% next day
06/17/09… S&P futures +0.9% next day
03/03/09… S&P futures +2.7% next day
10/06/08… S&P futures -4.5% next day
03/28/08… S&P futures +0.4% next day
03/10/08… S&P futures +3.8% next day
01/17/08… S&P futures -1.1% next day
10/12/05… S&P futures -0.0% next day
10/06/05… S&P futures +0.3% next day
08/08/05… S&P futures +0.6% next day
01/24/05… S&P futures +0.3% next day
01/05/05… S&P futures +0.4% next day
10/14/04… S&P futures +0.5% next day
07/16/04… S&P futures -0.4% next day
05/10/04… S&P futures +0.8% next day
04/30/04… S&P futures +0.9% next day
03/10/04… S&P futures -1.3% next day
02/20/04… S&P futures -0.3% next day
11/18/03… S&P futures +0.8% next day
09/26/03… S&P futures +1.0% next day
01/22/03… S&P futures +0.6% next day
11/11/02… S&P futures +0.8% next day
10/07/02… S&P futures +1.6% next day
09/19/02… S&P futures +0.1% next day
08/05/02… S&P futures +3.2% next day
07/22/02… S&P futures -2.8% next day
06/21/02… S&P futures +0.5% next day
05/30/02… S&P futures +0.2% next day
05/07/02… S&P futures +3.7% next day
04/24/02… S&P futures +0.1% next day

I’d also note that the NDX and SPX are both currently off in excess of 4% but the NDX is outperforming (edit: currently not – things are moving so fast). If that outperformance holds up into the close, it would tend to reinforce the positive implications for Friday. Listed below are all instances since 1990 in which the NDX & SPX closed down more than 0.5% two consecutive sessions and the NDX outperformed the SPX both days. Note that in 17 out of 18 cases, the NDX closed at a subsequently higher level in the next 1-2 days…

NDX & SPX -0.5% Two Days, NDX Outperforms
09/24/09… Nasdaq100 +0.9% two sessions later
06/16/09… Nasdaq100 +0.9% next session
03/02/09… Nasdaq100 +0.4% next session
01/30/09… Nasdaq100 +1.3% next session
11/20/08… Nasdaq100 +4.7% next session
11/12/08… Nasdaq100 +6.5% next session
10/27/08… Nasdaq100 +10.9% next session
07/27/07… Nasdaq100 +0.9% next session
05/10/04… Nasdaq100 +1.8% next session
03/11/04… Nasdaq100 +2.1% next session
03/11/03… Nasdaq100 +1.2% next session
10/07/02… Nasdaq100 +0.9% next session
07/22/02… Nasdaq100 +1.3% two sessions later
07/10/02… Nasdaq100 +4.1% next session
08/30/99… Nasdaq100 +1.3% next session
08/08/97… Nasdaq100 -2.2% two sessions later
01/15/90… Nasdaq100 +2.1% next session
01/05/90… Nasdaq100 +0.2% next session

One problem with the bullish setups above is that S&P futures are currently trading above the day’s midpoint of 1112.50. If we settle above that level, it would also trigger a 1-2 day sell signal (this same signal was almost triggered yesterday). This would represent one remarkable ‘recovery day’, and as I’ve mentioned in the past recovery days do not usually mark the ultimate bottom. Odds are tilted in favor of a rally Friday, but only if we settle back under the midpoint.

Categories : Archived Intraday Commentary, Intraday Commentary

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