Checking in with the Original Last Hour Indicator
By
Rennie on Tuesday, June 29th, 2010 at 9:55 pm
Stock futures gapped lower at the open Tuesday and never looked back, immediately coming under heavy distribution that persisted throughout the session. TICKscore closed at -76, Cumulative TICK -112,400. The S&P500 closed down over 3%, opening up the possibility that the ‘crash warning’ pattern discussed in this June 6th column could be triggered at Wednesday’s close. For that to happen, the S&P would have to stage another solid selloff on Wednesday, closing down in excess of 2% but less than today’s 3.1% drop. A drop in excess of 1% would also raise a red flag. There are signs we’ll see further weakness, given the surge in the number of new 20-day lows across all exchanges. That number jumped from 628 on Monday to over 2,000 today. Historically, when new 20-day lows initially exceed 2,000, there’s a bit more downside in store either immediately or after a short-term bounce. 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
06/29/10… ???
06/08/10… Lower S&P close one session later
05/20/10… Lower S&P close four sessions later
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
In 33 out of the last 35 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 for a lower SPX close within four days in the same time frame.
If you regularly check in on the chart of the Last Hour indicator, you may notice it looks slightly different today. For a project I’ve been working on this week I decided to take a look at the Last Hour indicator from the perspective of the original formula, which is (today’s close – today’s 3pm price) – (today’s 10am price – yesterday’s close). A few years ago, I decided the Last Hour indicator made more sense if we utilized the first hour of trading, rather than the first half hour in the calculation, but after comparing the original formula with our modified version, it’s apparent I should have left it alone. Granted, it was a minor change that had little effect on the overall trend of the indicator, as you can see on this comparison chart. The red line is the modified version while the green line is the original Last Hour. Notice how the original Last Hour retraced the entire 2005-2007 selloff in early 2009, clearly signaling the end of the bear market move. I ultimately came to a similar conclusion with the modified Last Hour, even though it missed completing the retracement, but it would have been clearer had I used the original. More importantly for the present, notice how the original Last Hour is displaying even more weakness than what was apparent in the modified version. It’s essentially been headed straight down since topping in early ’09. Over the past nine months, we really haven’t seen a single meaningful attempt at retracing that decline, indicating the longer-term distribution phase remains alive and well.
When you step back to view the longer-term chart, it’s looking particularly ominous as it suggests last year’s trading range was actually just a pause in a larger distribution phase that began over a year ago. Note that the Last Hour actually topped in late April of 2009 and has essentially been moving lower ever since. Historically, that means the outlook remains bearish until the Last Hour has retraced the entire move down since last April. As you can see, the indicator is currently still headed lower and hasn’t even begun the retracement phase. So from the perspective of this indicator, which I would add has correctly forecasted every major market selloff over the past forty years, we’re not even close to the end of this bearish phase for stocks. In fact one could argue we’re closer to the beginning than the end. Usually when the retracement phase finally does kick in, the stock market retraces the entire move made during the distribution phase. Assuming that occurs again, we’re probably looking at Dow 8,000 or lower before all is said and done.
Checking in with the Original Last Hour Indicator
By Rennie on Tuesday, June 29th, 2010 at 9:55 pmStock futures gapped lower at the open Tuesday and never looked back, immediately coming under heavy distribution that persisted throughout the session. TICKscore closed at -76, Cumulative TICK -112,400. The S&P500 closed down over 3%, opening up the possibility that the ‘crash warning’ pattern discussed in this June 6th column could be triggered at Wednesday’s close. For that to happen, the S&P would have to stage another solid selloff on Wednesday, closing down in excess of 2% but less than today’s 3.1% drop. A drop in excess of 1% would also raise a red flag. There are signs we’ll see further weakness, given the surge in the number of new 20-day lows across all exchanges. That number jumped from 628 on Monday to over 2,000 today. Historically, when new 20-day lows initially exceed 2,000, there’s a bit more downside in store either immediately or after a short-term bounce. 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
06/29/10… ???
06/08/10… Lower S&P close one session later
05/20/10… Lower S&P close four sessions later
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
In 33 out of the last 35 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 for a lower SPX close within four days in the same time frame.
If you regularly check in on the chart of the Last Hour indicator, you may notice it looks slightly different today. For a project I’ve been working on this week I decided to take a look at the Last Hour indicator from the perspective of the original formula, which is (today’s close – today’s 3pm price) – (today’s 10am price – yesterday’s close). A few years ago, I decided the Last Hour indicator made more sense if we utilized the first hour of trading, rather than the first half hour in the calculation, but after comparing the original formula with our modified version, it’s apparent I should have left it alone. Granted, it was a minor change that had little effect on the overall trend of the indicator, as you can see on this comparison chart. The red line is the modified version while the green line is the original Last Hour. Notice how the original Last Hour retraced the entire 2005-2007 selloff in early 2009, clearly signaling the end of the bear market move. I ultimately came to a similar conclusion with the modified Last Hour, even though it missed completing the retracement, but it would have been clearer had I used the original. More importantly for the present, notice how the original Last Hour is displaying even more weakness than what was apparent in the modified version. It’s essentially been headed straight down since topping in early ’09. Over the past nine months, we really haven’t seen a single meaningful attempt at retracing that decline, indicating the longer-term distribution phase remains alive and well.
When you step back to view the longer-term chart, it’s looking particularly ominous as it suggests last year’s trading range was actually just a pause in a larger distribution phase that began over a year ago. Note that the Last Hour actually topped in late April of 2009 and has essentially been moving lower ever since. Historically, that means the outlook remains bearish until the Last Hour has retraced the entire move down since last April. As you can see, the indicator is currently still headed lower and hasn’t even begun the retracement phase. So from the perspective of this indicator, which I would add has correctly forecasted every major market selloff over the past forty years, we’re not even close to the end of this bearish phase for stocks. In fact one could argue we’re closer to the beginning than the end. Usually when the retracement phase finally does kick in, the stock market retraces the entire move made during the distribution phase. Assuming that occurs again, we’re probably looking at Dow 8,000 or lower before all is said and done.