Positive Divergences

Only four stocks within the S&P100 closed under their lower bollinger band Tuesday, a notable improvement from May 20th when 58 OEX stocks settled under their lower band. Five other times over the past eighteen months we’ve seen a similar pattern unfold in which the S&P has made a lower low while the number of OEX stocks closing under their lower band has posted a higher low. These instances are marked on this chart with a red line. Note that in each case, the decreasing number of stocks closing in technically oversold territory despite lower index prices was a bullish sign for the intermediate-term. With the S&P ending Tuesday’s session below its May 20th close, the current pattern is looking very similar to the divergences seen in Jan/Feb 2010 and Feb/Mar 2009.

Cumulative TICK closed at -11,000, its first negative close in seven sessions. Keep in mind that the 20-day moving average is trending higher and will likely continue to do so given that big negative readings from the first week of May are falling off the average this week. Cumulative TICKscore is also in a pattern of higher highs. The recent trend of positive NYSE TICK action indicates a bullish shift in institutional sentiment.

The S&P found significant support when it breached the ‘flash crash’ intraday low at SPX 1065 on May 21st and 25th. With the 20-day moving average of NYSE up volume % holding in extreme territory (<40%), I’d look for those buyers to emerge again on this current drop.

We saw a number of short-term buy setups triggered at Tuesday’s close, primarily based on the Nasdaq’s outperformance relative to the S&P and the relative outperformance of large cap indices over their broader-market counterparts. Here’s the rundown…

Tuesday marked only the 19^th time since 1990 that the NDX closed down more than 0.5% two consecutive days and outperformed the S&P both days. Historically, this has been a bullish sign for the Nasdaq looking out 1-2 sessions. Listed below are all instances since 1990 in which the NDX & SPX closed down more than 0.5% two consecutive sessions and the NDX outperformed the SPX both days. Note that in 17 out of 18 cases, the NDX closed at a subsequently higher level one or two sessions later…

NDX -0.5% Two Consecutive Days, Outperforms SPX
06/01/10… Nasdaq100 ???
09/24/09… Nasdaq100 +0.9% two sessions later
06/16/09… Nasdaq100 +0.9% next session
03/02/09… Nasdaq100 +0.4% next session
01/30/09… Nasdaq100 +1.3% next session
11/20/08… Nasdaq100 +4.7% next session
11/12/08… Nasdaq100 +6.5% next session
10/27/08… Nasdaq100 +10.9% next session
07/27/07… Nasdaq100 +0.9% next session
05/10/04… Nasdaq100 +1.8% next session
03/11/04… Nasdaq100 +2.1% next session
03/11/03… Nasdaq100 +1.2% next session
10/07/02… Nasdaq100 +0.9% next session
07/22/02… Nasdaq100 +1.3% two sessions later
07/10/02… Nasdaq100 +4.1% next session
08/30/99… Nasdaq100 +1.3% next session
08/08/97… Nasdaq100 -2.2% two sessions later (*)
01/15/90… Nasdaq100 +2.1% next session
01/05/90… Nasdaq100 +0.2% next session

Another short-term positive sign to emerge from Tuesday’s selloff was the outperformance of the Nasdaq100 (NDX) relative to the Nasdaq Composite. When the NDX closes down 0.5%+ two consecutive sessions and outperforms the Composite on both sessions, it’s usually a bullish sign for the short-term. The last 30 occurrences are listed below…

NDX -0.5%, Outperforms Nasdaq Composite Two Consecutive Days
06/01/10… ???
05/20/10… Higher NDX close one session later
05/19/10… No higher NDX close next 1-2 days
05/06/10… Higher NDX close two sessions later
09/24/09… Higher NDX close two sessions later
08/06/09… Higher NDX close one session later
06/16/09… Higher NDX close one session later
03/30/09… Higher NDX close one session later
03/02/09… Higher NDX close one session later
01/30/09… Higher NDX close one session later
01/12/09… Higher NDX close one session later
11/20/08… Higher NDX close one session later
11/12/08… Higher NDX close one session later
11/11/08… Higher NDX close two sessions later
10/27/08… Higher NDX close one session later
10/07/08… Higher NDX close one session later
10/06/08… No higher NDX close next 1-2 days
08/19/08… Higher NDX close one session later
06/24/08… Higher NDX close one session later
06/18/08… Higher NDX close one session later
03/17/08… Higher NDX close one session later
06/07/07… Higher NDX close one session later
09/22/06… Higher NDX close one session later
06/19/06… Higher NDX close two sessions later
10/05/05… No higher NDX close next 1-2 days
01/05/05… Higher NDX close two sessions later
05/10/04… Higher NDX close one session later
05/07/04… Higher NDX close two sessions later
04/29/04… No higher NDX close next 1-2 days
09/26/03… Higher NDX close one session later
10/07/02… Higher NDX close one session later

In 26 out of the last 30 occurrences, or 87% of the time, the NDX closed at a subsequently higher level 1-2 days later, significantly above the 65% random chance for an NDX close above today’s settlement within the next two days.

The NDX wasn’t the only large cap index to outperform. The S&P100 (OEX)  only fell 1.38% Tuesday vs. a 1.71% drop for the S&P500, indicating relative strength among large cap S&P issues. The table below highlights every instance since 1983 (when the OEX began trading) in which both the OEX and SPX closed down 1%+ and the OEX outperformed by more than 0.3%…

OEX & SPX Down 1%+, OEX outperforms by >0.3%
06/01/10… ???
10/28/09… Higher SPX close one session later
05/13/09… Higher SPX close one session later
03/02/09… Higher SPX close two sessions later
01/22/09… Higher SPX close one session later
01/20/09… Higher SPX close one session later
01/12/09… Higher SPX close one session later
12/22/08… Higher SPX close three sessions later
12/11/08… Higher SPX close one session later
12/01/08… Higher SPX close one session later
11/20/08… Higher SPX close one session later
11/14/08… No higher SPX close within three sessions
11/11/08… Higher SPX close two sessions later
10/27/08… Higher SPX close one session later
10/22/08… Higher SPX close one session later
10/15/08… Higher SPX close one session later
10/02/08… No higher SPX close within three sessions
09/09/08… Higher SPX close one session later
07/02/08… Higher SPX close one session later
12/11/07… Higher SPX close one session later
10/09/02… Higher SPX close one session later
03/13/97… Higher SPX close one session later
04/02/93… Higher SPX close one session later
09/21/87… Higher SPX close one session later
04/14/87… Higher SPX close one session later
04/13/87… Higher SPX close three sessions later
11/18/86… Higher SPX close one session later

In 20 out of 26 occurrences since 1983, or 77% of the time, the S&P closed higher one day later.

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

 Print This Post