Higher Highs – Taking Another Look

Higher highs and increasing volume over a three-day period doesn’t sound particularly unusual, so it’s interesting to note that Wednesday represented only the second time in three years that S&P futures posted three consecutive higher highs on increasing NYSE volume. Granted, volume is still below-average, but it has been steadily on the rise since bottoming out last Friday. This price/volume pattern has been especially accurate over the last decade, leading to a higher S&P three days later in 19 out of the past 21 occurrences. The last 30 signals are shown below…

S&P Futures Three Higher Highs on Increasing NYSE Volume
06/16/10… S&P futures ??? three sessions later
01/05/10… S&P futures +0.8% three sessions later
05/31/07… S&P futures +0.1% three sessions later
04/18/07… S&P futures +0.5% three sessions later
08/16/06… S&P futures +0.3% three sessions later
07/27/06… S&P futures +0.4% three sessions later
03/16/06… S&P futures -0.7% three sessions later
06/15/05… S&P futures +0.7% three sessions later
12/16/04… S&P futures +0.1% three sessions later
04/02/04… S&P futures +0.0% three sessions later
12/03/03… S&P futures +0.4% three sessions later
07/09/03… S&P futures +0.2% three sessions later
06/06/03… S&P futures +1.0% three sessions later
08/15/02… S&P futures +1.0% three sessions later
11/07/01… S&P futures -0.2% three sessions later
05/17/01… S&P futures +1.7% three sessions later
01/19/01… S&P futures +1.6% three sessions later
01/11/01… S&P futures +0.5% three sessions later
07/13/00… S&P futures +0.1% three sessions later
06/28/00… S&P futures +1.3% three sessions later
06/01/00… S&P futures +0.8% three sessions later
02/03/00… S&P futures +0.7% three sessions later
08/25/99… S&P futures -4.1% three sessions later (*)
06/30/99… S&P futures +1.6% three sessions later
04/08/99… S&P futures +0.5% three sessions later
12/30/98… S&P futures +0.9% three sessions later
11/23/98… S&P futures +0.0% three sessions later
04/15/98… S&P futures +0.1% three sessions later
01/29/98… S&P futures +2.4% three sessions later
08/07/97… S&P futures -3.0% three sessions later (*)
01/23/97… S&P futures -1.1% three sessions later (*)

The nearly 90% accuracy since 1998 makes a compelling argument in opposition to the negative ‘six higher highs’ pattern discussed earlier today. At the least, it’s a good indication not to press bets on the short side. I’d also note that the recent upside persistence has coincided with options expiration week. Historically, a one-way move during the first three days of options expiration week will see follow-through during the last two days. Since inception of the S&P futures contract, there have been 18 instances in which the S&Ps posted a higher high, low and close during the first three days of OpEx, all of which are listed below…

S&P Futures Higher High, Low & Close First Three Days of OpEx
06/16/10… S&P futures ??? two sessions later
07/15/09… S&P futures +1.1% two sessions later
11/15/06… S&P futures +0.2% two sessions later
08/16/06… S&P futures +0.6% two sessions later
03/15/06… S&P futures +0.2% two sessions later
12/14/05… S&P futures -0.6% two sessions later
05/18/05… S&P futures +0.3% two sessions later
12/15/04… S&P futures -0.7% two sessions later
03/18/98… S&P futures +1.2% two sessions later
05/15/96… S&P futures +0.6% two sessions later
12/14/94… S&P futures +0.8% two sessions later
05/18/94… S&P futures +0.2% two sessions later
08/18/93… S&P futures +0.0% two sessions later
10/16/91… S&P futures -0.0% two sessions later
04/19/89… S&P futures +0.6% two sessions later
12/16/87… S&P futures -0.1% two sessions later
06/17/87… S&P futures +0.4% two sessions later
08/13/86… S&P futures +0.7% two sessions later
04/13/83… S&P futures +1.2% two sessions later

Note that in 14 out of 18 cases the S&Ps closed above Wednesday’s settlement at Friday’s close, and even when wrong losses were mild. This indicates any downside should be limited over the next couple of sessions, suggesting weakness could prove to be a buying opportunity heading into early next week. The S&P hasn’t posted more than two consecutive lower closes since mid-May, and I’d look for that trend to continue for the time being.

Also note if the SPX trades above today’s high of 1118.74 during Thursday’s session. That would represent the second higher high after Tuesday’s 90%+ up volume session, triggering a buy signal that would call for a close above 1118.74 on Thursday or Friday. Recall that this signal was just triggered Monday following the consecutive higher highs after last Thursday’s 90%+ up volume session (see note at end of Sunday’s column).

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

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