Contraction in New Lows

With the SPX and NDX falling to fresh 5-day lows Friday, it’s noteworthy that new 52-week lows haven’t expanded on either the NYSE or NASDAQ. Current data shows 33 new lows on the NYSE vs. 53 on Thursday and 59 new lows on the NASDAQ vs. 99 on Thursday. That represents a fairly significant contraction considering the lower highs and lower lows for the major indices, and has bullish implications for early next week. The last thirty times that new 52-week lows fell on both exchanges on a day when the SPX and NDX hit fresh 5-day lows are listed in the table below. Note that in 28 out of 30 cases, or 93% of the time, the S&P closed higher (above the setup day’s close) within the next two sessions, significantly above the 68% at-any-time odds for a higher SPX close within two days…

SPX & NDX Hit 5-Day Lows, New 52-week Lows Fail to Expand
01/28/10… Higher SPX close two sessions later
11/20/09… Higher SPX close one session later
08/11/09… Higher SPX close one session later
07/07/09… Higher SPX close two sessions later
02/23/09… Higher SPX close one session later
12/02/08… Higher SPX close one session later
11/21/08… Higher SPX close one session later
10/09/08… Higher SPX close two sessions later
10/07/08… No higher close within two sessions
09/18/08… Higher SPX close one session later
09/17/08… Higher SPX close one session later
08/20/08… Higher SPX close one session later
06/12/08… Higher SPX close one session later
06/03/08… Higher SPX close two sessions later
01/23/08… Higher SPX close one session later
01/07/08… No higher close within two sessions
01/02/08… Higher SPX close one session later
11/21/07… Higher SPX close one session later
11/12/07… Higher SPX close one session later
11/09/07… Higher SPX close two sessions later
07/31/07… Higher SPX close one session later
06/08/07… Higher SPX close one session later
04/12/07… Higher SPX close one session later
12/22/06… Higher SPX close one session later
11/03/06… Higher SPX close one session later
05/18/06… Higher SPX close one session later
01/03/06… Higher SPX close one session later
12/08/05… Higher SPX close one session later
11/30/05… Higher SPX close one session later
08/24/05… Higher SPX close one session later

New 20-day lows across all exchanges are also running well below Thursday’s level, currently 663 vs. 902 yesterday. When S&P futures hit a 5-day low and new 20-day lows drop, it usually leads to a higher S&P close within the next couple of days..

S&P Futures Hit Five-Day Low, New 20-day Lows Drop
02/23/10… Higher S&P close one session later
01/29/10… Higher S&P close one session later
01/28/10… Higher S&P close two sessions later
12/31/09… Higher S&P close one session later
11/20/09… Higher S&P close one session later
10/30/09… Higher S&P close one session later
07/07/09… No close >entry within 1-2 sessions
06/16/09… Higher S&P close two sessions later
05/15/09… Higher S&P close one session later
03/03/09… Higher S&P close one session later
02/23/09… Higher S&P close one session later
02/19/09… No close >entry within 1-2 sessions
11/21/08… 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
10/07/08… No close >entry within 1-2 sessions
09/18/08… Higher S&P close one session later
09/17/08… Higher S&P close one session later
08/20/08… Higher S&P close one session later
07/28/08… Higher S&P close one session later
07/14/08… Higher S&P close two sessions later
07/02/08… Higher S&P close one session later
06/12/08… Higher S&P close one session later
05/09/08… Higher S&P close one session later
04/15/08… Higher S&P close one session later
01/08/08… Higher S&P close one session later
01/07/08… No close >entry within 1-2 sessions
12/18/07… Higher S&P close two sessions later
11/21/07… Higher S&P close one session later
11/09/07… Higher S&P close two sessions later

The positive divergence led to a higher S&P close (above the setup day’s close) within the next two sessions in 26 out of the last 30 cases, or 87% of the time, significantly above the 66% at-any-time odds for a higher S&P close within two sessions in the same time frame.

Volatility indexes are also pointing to potential upside follow-through early next week. VXO ran up to 30.50 this morning, the fifth consecutive session we’ve seen higher highs for the volatility complex. Five higher highs takes advantage of volatility’s mean reverting nature to signal when there’s a better than average chance for a drop in volatility (and a rally in stocks). The last 30 occurrences in which the VXO initially posted five consecutive higher highs are listed below along with the performance of the S&P500 the next session…

Five Consecutive Higher Highs for VXO
06/25/10… S&P500 ??? next session
05/19/10… S&P500 -3.9% next session
09/15/08… S&P500 +1.8%  next session
09/05/08… S&P500 +2.1%  next session
05/27/08… S&P500 +0.4%  next session
01/02/08… S&P500 +0.0% next session
06/26/07… S&P500 +0.9% next session
06/08/07… S&P500 +0.1% next session
09/07/06… S&P500 +0.4% next session
05/12/06… S&P500 +0.3% next session
11/30/05… S&P500 +1.2% next session
05/13/05… S&P500 +1.0% next session
03/14/05… S&P500 -0.8% next session
01/24/05… S&P500 +0.4% next session
12/31/04… S&P500 -0.8% next session
12/08/04… S&P500 +0.5% next session
10/08/04… S&P500 +0.2% next session
04/30/04… S&P500 +0.9% next session
01/02/04… S&P500 +1.2% next session
03/12/03… S&P500 +3.5% next session
01/22/03… S&P500 +1.0% next session
04/26/02… S&P500 -1.0% next session
01/15/02… S&P500 -1.6% next session
09/04/01… S&P500 -0.1% next session
04/03/01… S&P500 -0.3% next session
03/22/01… S&P500 +2.0% next session
02/23/01… S&P500 +1.8% next session
10/12/00… S&P500 +3.3% next session
09/21/00… S&P500 -0.0% next session
04/14/00… S&P500 +3.3% next session
01/04/00… S&P500 +0.2% next session

In 22 out of the last 30 occurrences, or 73% of the time, the S&P500 closed higher the next session, significantly above the 52% random chance for a higher SPX close one day later in the same time frame.

Categories : Archived Intraday Commentary, Intraday Commentary

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