Positive Indications Despite Institutional Buyers’ Strike
By
Rennie on Wednesday, June 23rd, 2010 at 10:21 pm
Wednesday was the first Fed day of 2010 and only the seventh Fed day since 2007 that the S&P closed lower. Historically, a down close on an FOMC announcement day has a tendency to lead to a higher close (above the setup day’s close) within the next few sessions. The last thirty instances are noted below…
S&P500 Closes Lower on an FOMC Announcement Day
06/23/10 Down day… ???
09/23/09 Down day… Higher S&P close three sessions later
10/29/08 Down day… Higher S&P close one session later
04/30/08 Down day… Higher S&P close one session later
01/30/08 Down day… Higher S&P close one session later
12/11/07 Down day… Higher S&P close one session later
06/28/07 Down day… Higher S&P close two sessions later
12/12/06 Down day… Higher S&P close one session later
08/08/06 Down day… Higher S&P close two sessions later
05/10/06 Down day… No higher close within three sessions
03/28/06 Down day… Higher S&P close one session later
01/31/06 Down day… Higher S&P close one session later
11/01/05 Down day… Higher S&P close one session later
09/20/05 Down day… No higher close within three sessions
06/30/05 Down day… Higher S&P close one session later
05/03/05 Down day… Higher S&P close one session later
03/22/05 Down day… Higher S&P close one session later
11/10/04 Down day… Higher S&P close one session later
01/28/04 Down day… Higher S&P close one session later
12/09/03 Down day… Higher S&P close two sessions later
06/25/03 Down day… Higher S&P close one session later
09/24/02 Down day… Higher S&P close one session later
08/13/02 Down day… Higher S&P close one session later
06/26/02 Down day… Higher S&P close one session later
05/07/02 Down day… Higher S&P close one session later
12/11/01 Down day… Higher S&P close one session later
08/21/01 Down day… Higher S&P close one session later
06/27/01 Down day… Higher S&P close one session later
03/20/01 Down day… No higher close within three sessions
01/31/01 Down day… Higher S&P close one session later
12/19/00 Down day… Higher S&P close three sessions later
In 27 out of the last 30 occurrences, or 90% of the time, the SPX posted a subsequently higher close within the next three sessions. That sounds more impressive than it actually is, however, given the 73% random chance for a higher S&P close within the next three days in the same time frame. This doesn’t qualify as a significant edge on its own.
That said, I think today’s session has a better than average chance of leading to a typical post-Fed bounce. There are a few reasons, two of which I mentioned earlier today via twitter…
The percentage of stocks above their 20-day average remained above 50% Wednesday. That’s a positive sign given the sharp downside break on Tuesday. When this percentage holds above 50% the day immediately following a 90%+ down volume session, it indicates most stocks remain in an intermediate-term uptrend despite heavy selling pressure the previous day. This pattern has only occurred ten times over the last five years, but it’s noteworthy that in every case but one the S&P was higher three sessions later…
% of stocks >20d Avg >50% Day after 90%+ Down Volume
06/23/10… S&P500 ??? three sessions later
04/28/10… S&P500 +0.9% three sessions later
04/19/10… S&P500 +0.9% three sessions later
11/30/09… S&P500 +0.4% three sessions later
08/18/09… S&P500 +3.7% three sessions later
05/14/09… S&P500 +1.7% three sessions later
04/21/09… S&P500 +1.9% three sessions later
03/31/09… S&P500 +5.6% three sessions later
12/12/07… S&P500 -2.7% three sessions later
09/10/07… S&P500 +2.2% three sessions later
08/29/07… S&P500 +1.8% three sessions later
Also encouraging to see a contraction in E-mini S&P futures volume on Wednesday. The decline was less than our initial estimate, but ES volume still fell 2% compared with the previous session, a short-term bullish sign. Since 2000, there have only been six instances in which ES volume dropped on a Fed day and the S&P500 closed lower. In all six cases the market rallied over the next few days…
SPX Down, ES Volume Down on Fed Day
06/23/10… S&P500 ??? three sessions later
10/29/08… S&P500 +3.9% three sessions later
06/28/07… S&P500 +1.3% three sessions later
11/01/05… S&P500 +1.5% three sessions later
05/07/02… S&P500 +0.5% three sessions later
06/27/01… S&P500 +2.1% three sessions later
02/02/00… S&P500 +1.1% three sessions later
Finally, I’ve discussed in the past how monitoring the performance of the VXO (or VIX) from open to close on the day of an FOMC announcement can provide useful information. When it closes up in excess of 5% from the open, it reflects a market caught off guard by the announcement, a bearish longer-term indication (see this column from last November). Fortunately for market bulls, VXO closed below today’s open, a positive sign for Thursday’s session. This is particularly true considering S&P futures closed below the day’s open as well. In the table below are each of the last 30 instances in which VXO and S&P futures both closed below the open on an FOMC announcement day…
S&P Futures & VXO Close Below Open on Fed Day
06/23/10… S&P futures ??? next day
01/30/08… S&P futures +2.2% next day
06/28/07… S&P futures -0.1% next day
12/12/06… S&P futures +0.1% next day
08/08/06… S&P futures -0.4% next day
11/01/05… S&P futures +1.0% next day
11/10/04… S&P futures +0.8% next day
05/04/04… S&P futures +0.6% next day
06/25/03… S&P futures +1.2% next day
09/24/02… S&P futures +2.5% next day
08/13/02… S&P futures +3.7% next day
05/07/02… S&P futures +3.7% next day
12/11/01… S&P futures +0.1% next day
06/27/01… S&P futures +0.7% next day
01/31/01… S&P futures +0.7% next day
12/19/00… S&P futures -2.9% next day (*)
06/28/00… S&P futures -0.9% next day (*)
02/02/00… S&P futures +1.5% next day
10/05/99… S&P futures +1.4% next day
05/18/99… S&P futures +0.6% next day
03/25/97… S&P futures +0.4% next day
08/20/96… S&P futures -0.3% next day
07/03/96… S&P futures -2.2% next day (*)
09/26/95… S&P futures -0.1% next day
02/01/95… S&P futures +0.6% next day
12/20/94… S&P futures +1.0% next day
11/15/94… S&P futures +0.3% next day
12/21/93… S&P futures +0.4% next day
05/18/93… S&P futures +1.9% next day
12/22/92… S&P futures -0.2% next day
11/17/92… S&P futures +0.9% next day
Note that in 22 of the last 30 occurrences, or 73% of the time S&P futures closed higher the next day, significantly above the 53% random chance for a higher futures close one day later. In only three cases did the S&P close down more than 0.5% the next day, while it rallied 0.5%+ seventeen times.
The above isn’t meant to imply all is well, only that for the time being indications are pointing higher despite the lousy NYSE TICK action. TICKscore closed at -7 Wednesday as the institutional buyers strike that’s been in effect for the past few weeks showed no signs of ending. Over the last 15 sessions, we’ve seen only two days with a closing TICKscore over +5 while there have been nine days with a close under -20. This indicator measures extremes in intraday NYSE TICK readings to gauge institutional buy/sell pressure, and currently it’s reflecting very little buying interest. With cumulative TICKscore breaking to new lows for the year on Monday, the implication is that the market will ultimately follow suit. I expect that will be put off for the time being given a number of intermediate-term bullish signals calling for higher prices into month-end (see summary), but the start of Q3 could be rocky indeed.
Positive Indications Despite Institutional Buyers’ Strike
By Rennie on Wednesday, June 23rd, 2010 at 10:21 pmWednesday was the first Fed day of 2010 and only the seventh Fed day since 2007 that the S&P closed lower. Historically, a down close on an FOMC announcement day has a tendency to lead to a higher close (above the setup day’s close) within the next few sessions. The last thirty instances are noted below…
S&P500 Closes Lower on an FOMC Announcement Day
06/23/10 Down day… ???
09/23/09 Down day… Higher S&P close three sessions later
10/29/08 Down day… Higher S&P close one session later
04/30/08 Down day… Higher S&P close one session later
01/30/08 Down day… Higher S&P close one session later
12/11/07 Down day… Higher S&P close one session later
06/28/07 Down day… Higher S&P close two sessions later
12/12/06 Down day… Higher S&P close one session later
08/08/06 Down day… Higher S&P close two sessions later
05/10/06 Down day… No higher close within three sessions
03/28/06 Down day… Higher S&P close one session later
01/31/06 Down day… Higher S&P close one session later
11/01/05 Down day… Higher S&P close one session later
09/20/05 Down day… No higher close within three sessions
06/30/05 Down day… Higher S&P close one session later
05/03/05 Down day… Higher S&P close one session later
03/22/05 Down day… Higher S&P close one session later
11/10/04 Down day… Higher S&P close one session later
01/28/04 Down day… Higher S&P close one session later
12/09/03 Down day… Higher S&P close two sessions later
06/25/03 Down day… Higher S&P close one session later
09/24/02 Down day… Higher S&P close one session later
08/13/02 Down day… Higher S&P close one session later
06/26/02 Down day… Higher S&P close one session later
05/07/02 Down day… Higher S&P close one session later
12/11/01 Down day… Higher S&P close one session later
08/21/01 Down day… Higher S&P close one session later
06/27/01 Down day… Higher S&P close one session later
03/20/01 Down day… No higher close within three sessions
01/31/01 Down day… Higher S&P close one session later
12/19/00 Down day… Higher S&P close three sessions later
In 27 out of the last 30 occurrences, or 90% of the time, the SPX posted a subsequently higher close within the next three sessions. That sounds more impressive than it actually is, however, given the 73% random chance for a higher S&P close within the next three days in the same time frame. This doesn’t qualify as a significant edge on its own.
That said, I think today’s session has a better than average chance of leading to a typical post-Fed bounce. There are a few reasons, two of which I mentioned earlier today via twitter…
The percentage of stocks above their 20-day average remained above 50% Wednesday. That’s a positive sign given the sharp downside break on Tuesday. When this percentage holds above 50% the day immediately following a 90%+ down volume session, it indicates most stocks remain in an intermediate-term uptrend despite heavy selling pressure the previous day. This pattern has only occurred ten times over the last five years, but it’s noteworthy that in every case but one the S&P was higher three sessions later…
% of stocks >20d Avg >50% Day after 90%+ Down Volume
06/23/10… S&P500 ??? three sessions later
04/28/10… S&P500 +0.9% three sessions later
04/19/10… S&P500 +0.9% three sessions later
11/30/09… S&P500 +0.4% three sessions later
08/18/09… S&P500 +3.7% three sessions later
05/14/09… S&P500 +1.7% three sessions later
04/21/09… S&P500 +1.9% three sessions later
03/31/09… S&P500 +5.6% three sessions later
12/12/07… S&P500 -2.7% three sessions later
09/10/07… S&P500 +2.2% three sessions later
08/29/07… S&P500 +1.8% three sessions later
Also encouraging to see a contraction in E-mini S&P futures volume on Wednesday. The decline was less than our initial estimate, but ES volume still fell 2% compared with the previous session, a short-term bullish sign. Since 2000, there have only been six instances in which ES volume dropped on a Fed day and the S&P500 closed lower. In all six cases the market rallied over the next few days…
SPX Down, ES Volume Down on Fed Day
06/23/10… S&P500 ??? three sessions later
10/29/08… S&P500 +3.9% three sessions later
06/28/07… S&P500 +1.3% three sessions later
11/01/05… S&P500 +1.5% three sessions later
05/07/02… S&P500 +0.5% three sessions later
06/27/01… S&P500 +2.1% three sessions later
02/02/00… S&P500 +1.1% three sessions later
Finally, I’ve discussed in the past how monitoring the performance of the VXO (or VIX) from open to close on the day of an FOMC announcement can provide useful information. When it closes up in excess of 5% from the open, it reflects a market caught off guard by the announcement, a bearish longer-term indication (see this column from last November). Fortunately for market bulls, VXO closed below today’s open, a positive sign for Thursday’s session. This is particularly true considering S&P futures closed below the day’s open as well. In the table below are each of the last 30 instances in which VXO and S&P futures both closed below the open on an FOMC announcement day…
S&P Futures & VXO Close Below Open on Fed Day
06/23/10… S&P futures ??? next day
01/30/08… S&P futures +2.2% next day
06/28/07… S&P futures -0.1% next day
12/12/06… S&P futures +0.1% next day
08/08/06… S&P futures -0.4% next day
11/01/05… S&P futures +1.0% next day
11/10/04… S&P futures +0.8% next day
05/04/04… S&P futures +0.6% next day
06/25/03… S&P futures +1.2% next day
09/24/02… S&P futures +2.5% next day
08/13/02… S&P futures +3.7% next day
05/07/02… S&P futures +3.7% next day
12/11/01… S&P futures +0.1% next day
06/27/01… S&P futures +0.7% next day
01/31/01… S&P futures +0.7% next day
12/19/00… S&P futures -2.9% next day (*)
06/28/00… S&P futures -0.9% next day (*)
02/02/00… S&P futures +1.5% next day
10/05/99… S&P futures +1.4% next day
05/18/99… S&P futures +0.6% next day
03/25/97… S&P futures +0.4% next day
08/20/96… S&P futures -0.3% next day
07/03/96… S&P futures -2.2% next day (*)
09/26/95… S&P futures -0.1% next day
02/01/95… S&P futures +0.6% next day
12/20/94… S&P futures +1.0% next day
11/15/94… S&P futures +0.3% next day
12/21/93… S&P futures +0.4% next day
05/18/93… S&P futures +1.9% next day
12/22/92… S&P futures -0.2% next day
11/17/92… S&P futures +0.9% next day
Note that in 22 of the last 30 occurrences, or 73% of the time S&P futures closed higher the next day, significantly above the 53% random chance for a higher futures close one day later. In only three cases did the S&P close down more than 0.5% the next day, while it rallied 0.5%+ seventeen times.
The above isn’t meant to imply all is well, only that for the time being indications are pointing higher despite the lousy NYSE TICK action. TICKscore closed at -7 Wednesday as the institutional buyers strike that’s been in effect for the past few weeks showed no signs of ending. Over the last 15 sessions, we’ve seen only two days with a closing TICKscore over +5 while there have been nine days with a close under -20. This indicator measures extremes in intraday NYSE TICK readings to gauge institutional buy/sell pressure, and currently it’s reflecting very little buying interest. With cumulative TICKscore breaking to new lows for the year on Monday, the implication is that the market will ultimately follow suit. I expect that will be put off for the time being given a number of intermediate-term bullish signals calling for higher prices into month-end (see summary), but the start of Q3 could be rocky indeed.