NYSE Breadth Closes 4:1 Negative Second Consecutive Session

TICKscore closed in solidly negative territory Wednesday at -31, the fifth double-digit negative reading in the last seven sessions (vs. two single-digit positive readings). NYSE TICK has clearly been having an easy time hitting extreme negative territory on down days and a difficult time hitting extreme positive territory on up days, a trend that needs to change quickly if the market’s going to successfully hold trendline support. Indications are pointing higher short-term, so we’ll want to pay close attention to the level of institutional participation on a bounce. A final TICKscore above the tepid single-digit readings on 4/29 and 5/3 would be a good start.

18 stocks within the S&P100 closed under their lower bollinger band Wednesday, nullifying the potential momentum low discussed in Tuesday evening’s commentary. Additionally, we’ve seen two consecutive sessions with an equity put/call ratio back over the .65 level, reflecting some cracks in the state of euphoria investors have adopted over the past few months.

Breadth closed in 4:1 negative territory for the second consecutive session, a pattern that’s only occurred ten times since 1990 and which sometimes led to explosive moves over the short-term…

NYSE Breadth 4:1 Negative Two Days
05/05/10… S&P500 ??? next day
11/20/08… S&P500 +6.3% next day
11/12/08… S&P500 +6.9% next day
11/06/08… S&P500 +2.9% next day
10/07/08… S&P500 -1.1% next day
06/07/07… S&P500 +1.1% next day
05/10/04… S&P500 +0.8% next day
05/07/04… S&P500 -1.1% next day
07/23/02… S&P500 +5.7% next day
03/30/94… S&P500 +0.1% next day
08/06/90… S&P500 +0.1% next day

One potentially ominous sign from a longer-term perspective is that in each of those cases, the back-to-back days of extreme negative breadth never marked a longer-term bottom. In every case the S&P ended up trading at a lower level at some point over the next 2-3 months.

Despite Wednesday’s lopsided negative breadth, NYSE TICK did manage to put in a higher low, a positive sign for the short-term. When NYSE breadth closes 3:1 negative and the NYSE TICK does not violate the previous day’s low, it tends to lead to a higher S&P 2-3 trading days later. The last thirty occurrences are shown below…

NYSE Breadth 3:1 Negative, NYSE TICK Posts Higher Low
05/05/10… ???
11/12/09… Higher SPX close two sessions later
10/01/09… Higher SPX close two sessions later
08/17/09… Higher SPX close two sessions later
04/07/09… Higher SPX close two sessions later
03/20/09… Higher SPX close two sessions later
02/23/09… Higher SPX close two sessions later
11/14/08… No higher close next 2-3 sessions
11/11/08… Higher SPX close two sessions later
11/06/08… Higher SPX close two sessions later
10/24/08… Higher SPX close two sessions later
10/08/08… Higher SPX close three sessions later
10/07/08… No higher close next 2-3 sessions
06/26/08… Higher SPX close three sessions later
06/11/08… Higher SPX close two sessions later
03/17/08… Higher SPX close two sessions later
02/29/08… Higher SPX close three sessions later
08/28/07… Higher SPX close two sessions later
08/15/07… Higher SPX close two sessions later
06/06/07… No higher close next 2-3 sessions
05/24/07… Higher SPX close two sessions later
04/15/05… Higher SPX close two sessions later
03/23/05… Higher SPX close two sessions later
01/04/05… No higher close next 2-3 sessions
05/10/04… Higher SPX close two sessions later
04/28/04… No higher close next 2-3 sessions
04/14/04… Higher SPX close two sessions later
10/07/02… Higher SPX close three sessions later
09/21/01… Higher SPX close two sessions later
09/20/01… Higher SPX close two sessions later
04/03/01… Higher SPX close two sessions later

In 25 out of the last 30 occurrences, or 83% of the time, the S&P closed at a higher level 2-3 sessions later, well above the 63% random chance for a higher S&P close 2-3 sessions later in the same time frame.

S&P futures nearly settled above the day’s midpoint, missing by the slimmest of margins (two ticks). Historically it’s a short-term negative sign when the S&Ps settle above the day’s midpoint on a session with 2:1+ negative breadth (see this April 16th column). While we just missed triggering that signal Wednesday, this does suggest we may see some backing and filling over the next couple of sessions.

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

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