New 20-day Lows Top 2500, Double Yesterday’s Close

One of the consistent themes this week has been the market’s tendency to stage an afternoon recovery that leaves the S&P above the day’s midpoint. Normally this isn’t such a bad thing, but it is a negative sign when it coincides with lopsided negative breadth. Yesterday my focus was on S&P futures, which managed to just settle below the midpoint due to a selloff post-cash close. I failed to notice that the SPY closed well above the midpoint, which was a warning sign of another bearish ‘recovery day’. Unfortunately, we’re tracing out a very similar pattern today. Breadth remains extremely lopsided at 15:1 negative, yet S&P futures and SPY are both trading above today’s midpoint of 1082.75 and 108.75. A close above those levels would trigger yet another ‘recovery day’ sell signal and point to a lower close within the next 1-2 sessions.

Another negative indication for the short-term is the sharp expansion in new 20-day lows, currently near 2,800 vs. 1,342 yesterday. Historically, when new 20-day lows exceed 2,000, there’s usually a bit more downside in store either immediately or after a short-term bounce. In the table below is every instance over the last six years in which new 20-day lows exceeded 2,000 for the first time in at least three sessions…

New 20-day Lows Top 2,000 First Time in Three Days
05/20/10… ???
05/04/10… Lower S&P close one session later
02/04/10… Lower S&P close two sessions later
01/27/10… Lower S&P close one session later
01/22/10… Lower S&P close four sessions later
10/28/09… Lower S&P close two sessions later
07/08/09… Lower S&P close two sessions later
02/17/09… Lower S&P close one session later
01/15/09… Lower S&P close two sessions later
11/13/08… Lower S&P close one session later
10/24/08… Lower S&P close one session later
09/29/08… Lower S&P close four sessions later
09/05/08… Lower S&P close two sessions later
06/20/08… Lower S&P close two sessions later
06/10/08… Lower S&P close one session later
03/17/08… No lower close within next four days
03/03/08… Lower S&P close one session later
01/16/08… Lower S&P close one  session later
01/04/08… Lower S&P close two sessions later
11/19/07… Lower S&P close two sessions later
10/22/07… No lower close within next four days
08/10/07… Lower S&P close one session later
07/24/07… Lower S&P close two sessions later
02/27/07… Lower S&P close three sessions later
06/08/06… Lower S&P close one session later
05/15/06… Lower S&P close one session later
10/12/05… Lower S&P close one session later
10/06/05… Lower S&P close two sessions later
04/15/05… Lower S&P close three sessions later
03/23/05… Lower S&P close one session later
08/06/04… Lower S&P close four sessions later
07/22/04… Lower S&P close one session later
05/07/04… Lower S&P close one session later
04/29/04… Lower S&P close one session later

Note that in 31 out of 33 cases, or 94% of the time, the S&P500 posted a lower close (below the setup day’s close) within the next four sessions, significantly above the 72% random chance in the same time frame.

We’ll also see a short-term buy signal triggered based on the oversold 2-day RSI for the S&P100 (OEX), which will close under 2.0 today as long as the OEX holds below 501.20. But a close above the midpoint combined with the expanded number of 20-day lows would suggest another lower S&P close in the Friday-Monday time frame.

Categories : Archived Intraday Commentary, Intraday Commentary

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