SPX Higher, Most Stocks Lower

The S&P500 managed a fractional gain Monday despite declining issues outnumbering advancers by nearly a 2:1 margin. Historically, when the major averages and breadth diverge in this manner, with weak advance/decline data and relatively strong price action, it’s breadth that’s usually the better tell short-term. The S&P will typically close lower the next day, following the lead of general weakness among individual stocks. Since 1990, we’ve seen a total of 29 instances in which the NYSE advance/decline ratio closed below .60 and the SPX managed a gain. In each of the last 14 cases, and in 24 out of 29 occurrences, the S&P500 closed lower the following session. That 83% win rate is a significant edge over the 47% random chance for a lower S&P close one day later…

S&P Closes Up, NYSE Adv/Dec Ratio <.60
07/12/10… S&P500 ??? next day
05/25/10… S&P500 -0.6% next day
03/06/09… S&P500 -1.0% next day
11/18/08… S&P500 -6.1% next day
09/26/08… S&P500 -8.8% next day
07/03/08… S&P500 -0.8% next day
06/23/08… S&P500 -0.3% next day
06/09/08… S&P500 -0.2% next day
12/13/07… S&P500 -1.4% next day
03/23/05… S&P500 -0.1% next day
02/18/05… S&P500 -1.5% next day
04/23/04… S&P500 -0.5% next day
01/29/04… S&P500 -0.3% next day
08/04/03… S&P500 -1.8% next day
09/10/01… S&P500 -4.9% next day
10/18/99… S&P500 +0.6% next day
09/16/99… S&P500 +1.3%  next day
05/17/99… S&P500 -0.5% next day
07/27/98… S&P500 -1.5% next day
06/12/98… S&P500 -2.0% next day
04/03/97… S&P500 +1.0% next day
03/17/97… S&P500 -0.8% next day
06/07/96… S&P500 -0.2% next day
03/06/95… S&P500 -0.7% next day
01/23/95… S&P500 +0.0% next day
10/25/94… S&P500 +0.2% next day
04/19/94… S&P500 -0.1% next day
03/31/94… S&P500 -1.5% next day
03/02/94… S&P500 -0.4% next day
03/15/91… S&P500 -0.4% next day

Interesting to note that the volatile Semiconductor Index (SOX) posted a second consecutive narrow range (NR10) bar Monday, a pattern that often means a big move is right around the corner. The last thirty times that the SOX index posted two consecutive NR10 days are listed in the table below, along with the performance of the SOX over the following two sessions. Note that in 22 out of 30 cases, or 73% of the time, the SOX gained or lost 2% or more over the next two sessions. That’s significantly higher than the 37% random odds for an absolute move of 2%+ over any two-day period…

Back-to-back NR10 Days for the Semiconductor Index (SOX)
07/12/10… SOX ??? two sessions later
11/18/09… SOX -4.2% two sessions later
06/19/09… SOX -4.1% two sessions later
12/26/08… SOX +4.6% two sessions later
10/20/08… SOX -9.9% two sessions later
05/29/08… SOX +0.6% two sessions later
01/30/08… SOX +5.8% two sessions later
12/26/07… SOX -2.0% two sessions later
09/14/07… SOX +2.3% two sessions later
05/29/07… SOX +1.1% two sessions later
01/30/07… SOX +0.4% two sessions later
12/28/06… SOX -0.8% two sessions later
06/26/06… SOX -4.3% two sessions later
02/27/06… SOX +3.5% two sessions later
02/16/06… SOX -4.1% two sessions later
06/22/05… SOX -1.5% two sessions later
02/02/05… SOX +3.0% two sessions later
12/13/04… SOX +2.1% two sessions later
11/26/04… SOX -1.7% two sessions later
08/27/04… SOX -3.0% two sessions later
08/10/04… SOX -7.1% two sessions later
05/21/04… SOX +3.7% two sessions later
12/26/03… SOX +2.2% two sessions later
12/22/03… SOX +1.4% two sessions later
06/30/03… SOX +4.3% two sessions later
02/04/03… SOX -1.4% two sessions later
11/18/02… SOX +5.8% two sessions later
08/12/02… SOX +3.2% two sessions later
07/19/02… SOX -6.8% two sessions later
07/30/01… SOX +5.1% two sessions later
05/02/01… SOX -4.6% two sessions later

Recall from my weekend column that when the market has remained well bid in the days leading up to options expiration week, the uptrend has persisted over the next 2-4 days in 28 out of the last 30 cases. Indications are pointing lower for Tuesday, including another one-day sell based on the fresh two-month low for SPY volume, but this seasonal pattern tells us to expect a resurgence of buying power in the Wednesday-Thursday time frame.

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

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