McClellan Oscillator Set to Close Below -300 Second Consecutive Session

Not a huge fan of either of these signals, primarily because of their reliance on declining volume, almost a given after yesterday’s rout. Nonetheless, here’s what’s set to trigger at today’s close…

The combination of lopsided negative breadth and declining volume is usually a short-term positive sign when it occurs multiple times within a short time frame. The table below lists each of the last thirty instances in which NYSE breadth closed at least 2:1 negative and NYSE volume declined from the previous session on two separate occasions within a three-day time frame.

Breadth 2:1 Negative, Volume Declines Two Days out of Past Three
10/02/09… Higher S&P close one session later
07/07/09… Higher S&P close two sessions later
04/07/09… Higher S&P close one session later
03/03/09… Higher S&P close one session later
01/09/09… No higher close next 1-2 sessions
11/17/08… Higher S&P close one session later
10/27/08… Higher S&P close one session later
10/09/08… Higher S&P close two sessions later
09/23/08… Higher S&P close two sessions later
07/28/08… Higher S&P close one session later
03/10/08… Higher S&P close one session later
11/21/07… Higher S&P close one session later
11/19/07… Higher S&P close one session later
11/12/07… Higher S&P close one session later
07/14/06… Higher S&P close two sessions later
08/05/05… Higher S&P close two sessions later
07/21/03… Higher S&P close one session later
01/27/03… Higher S&P close one session later
10/09/02… Higher S&P close one session later
09/23/02… Higher S&P close two sessions later
08/05/02… Higher S&P close one session later
07/22/02… Higher S&P close two sessions later
01/14/99… Higher S&P close one session later
08/03/98… No higher close next 1-2 sessions
07/27/98… No higher close next 1-2 sessions
06/15/98… Higher S&P close one session later
04/24/98… No higher close next 1-2 sessions
07/21/97… Higher S&P close one session later
05/11/94… Higher S&P close one session later
09/26/90… Higher S&P close two sessions later

In 26 out of 30 cases, or 87% of the time, the S&P500 posted a subsequently higher close within the next two sessions, significantly above the 66% random chance for a higher S&P close within two days in the same time frame. For this setup to be triggered, breadth needs to hold in 2:1 negative territory and NYSE volume needs to come in below yesterday’s 2.58 billion level.

The NYSE McClellan Oscillator is set to close in extreme oversold territory for a third consecutive session Friday, noteworthy given that we’re seeing a contraction in ‘down volume’. The percentage of NYSE volume associated with declining issues is running at 83%, well below Thursday’s 92% level. Listed below are each of the last thirty separate instances in which the NYSE McClellan Oscillator closed in extreme oversold territory (<-200) two consecutive days and the NYSE Down Volume percentage contracted from the previous session. This highlights days in which the market is severely oversold and in the process of losing downside momentum…

NYSE McClellan <-200 Second Day, Down Volume % Contracts
02/05/10… S&P500 +0.4% two sessions later
01/29/10… S&P500 +2.7% two sessions later
01/27/10… S&P500 -2.2% two sessions later
11/02/09… S&P500 +0.4% two sessions later
10/29/09… S&P500 -2.2% two sessions later
10/27/09… S&P500 +0.3% two sessions later
10/02/09… S&P500 +2.9% two sessions later
09/02/09… S&P500 +2.2% two sessions later
06/23/09… S&P500 +2.8% two sessions later
06/17/09… S&P500 +1.2% two sessions later
03/06/09… S&P500 +5.3% two sessions later
03/03/09… S&P500 -2.0% two sessions later
11/20/08… S&P500 +13.2% two sessions later
10/10/08… S&P500 +11.0% two sessions later
10/08/08… S&P500 -8.7% two sessions later
07/03/08… S&P500 +0.9% two sessions later
06/27/08… S&P500 +0.5% two sessions later
06/24/08… S&P500 -2.4% two sessions later
06/12/08… S&P500 +1.5% two sessions later
11/20/07… S&P500 +0.1% two sessions later
11/12/07… S&P500 +2.2% two sessions later
08/16/07… S&P500 +2.4% two sessions later
08/01/07… S&P500 -2.2% two sessions later
07/27/07… S&P500 -0.3% two sessions later
07/25/07… S&P500 -3.9% two sessions later
05/18/06… S&P500 +0.0% two sessions later
10/13/05… S&P500 +1.1% two sessions later
03/23/05… S&P500 +0.2% two sessions later
05/10/04… S&P500 +0.9% two sessions later
04/30/04… S&P500 +1.1% two sessions later

In 22 out of the last 30 occurrences, or 73% of the time, the S&P closed higher two  sessions later, well above the 53% at-any-time odds for a higher S&P two days later in the same time frame.

One caveat is that S&P futures are currently trading near the day’s midpoint (1111.75). If the S&Ps settle above that level and breadth holds in 2:1 negative territory, it would trigger another short-term sell signal identical to the one triggered at Thursday’s close. (see this April 16th column for a recent track record). While this signal wouldn’t negate the potential for a bounce early next week, it would imply we’ll see another lower close over the short-term, perhaps after a Monday bounce.

Categories : Archived Intraday Commentary, Intraday Commentary

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