Mixed Signs From This Candlestick Pattern

After three days of higher closes and white candlesticks (close > open), S&P futures posted a fourth consecutive higher close Tuesday but settled below the open. Looking back at times when S&P futures formed a similar pattern of three rally days (higher closes, white candles) followed by a fourth higher close that coincided with a black candle, the settlement below the open typically ushered in a very short-term change of trend. Since 1995 we’ve seen this specific pattern a total of 25 times, only one of which led to a meaningful gain the following session…

Higher Close, Black Candle After Three Rally Days
07/27/10… S&P futures ??? next session
03/12/10… S&P futures -0.1% next session
02/22/10… S&P futures -0.9% next session
01/11/10… S&P futures -0.8% next session
12/23/09… S&P futures +0.6% next session
11/11/09… S&P futures -0.8% next session
10/12/09… S&P futures -0.3% next session
07/21/09… S&P futures -0.4% next session
01/06/09… S&P futures -2.7% next session
05/30/08… S&P futures -1.1% next session
11/30/07… S&P futures -0.6% next session
04/09/07… S&P futures +0.1% next session
11/16/06… S&P futures -0.0% next session
09/15/06… S&P futures +0.2% next session
04/21/06… S&P futures -0.2% next session
03/17/06… S&P futures -0.2% next session
07/14/05… S&P futures -0.0% next session
11/01/04… S&P futures -0.0% next session
05/28/03… S&P futures -0.3% next session
10/20/98… S&P futures -0.1% next session
01/30/98… S&P futures +1.6% next session (*)
06/16/97… S&P futures -0.2% next session
12/20/96… S&P futures -0.4% next session
05/15/96… S&P futures -0.1% next session
02/07/95… S&P futures -0.1% next session
01/27/95… S&P futures -0.3% next session

Interestingly, the same candlestick pattern has positive implications when the time frame is expanded from one session to three. Below is the same table except with a three-day horizon. Note that performance is nearly a mirror image of the next-day performance, with the market rallying in the majority of cases…

Higher Close, Black Candle After Three Rally Days
07/27/10… S&P futures ??? three sessions later
03/12/10… S&P futures +1.3% three sessions later
02/22/10… S&P futures -0.5% three sessions later
01/11/10… S&P futures +0.2% three sessions later
12/23/09… S&P futures +0.6% three sessions later
11/11/09… S&P futures +0.9% three sessions later
10/12/09… S&P futures +1.7% three sessions later
07/21/09… S&P futures +2.6% three sessions later
01/06/09… S&P futures -4.8% three sessions later
05/30/08… S&P futures -1.6% three sessions later
11/30/07… S&P futures +0.2% three sessions later
04/09/07… S&P futures +0.1% three sessions later
11/16/06… S&P futures +0.1% three sessions later
09/15/06… S&P futures +0.3% three sessions later
04/21/06… S&P futures -0.6% three sessions later
03/17/06… S&P futures -0.2% three sessions later
07/14/05… S&P futures +0.1% three sessions later
11/01/04… S&P futures +2.6% three sessions later
05/28/03… S&P futures +1.7% three sessions later
10/20/98… S&P futures +0.0% three sessions later
01/30/98… S&P futures +2.2% three sessions later
06/16/97… S&P futures +0.4% three sessions later
12/20/96… S&P futures +1.0% three sessions later
05/15/96… S&P futures +1.3% three sessions later
02/07/95… S&P futures +0.1% three sessions later
01/27/95… S&P futures +0.1% three sessions later

Daily NYSE TICK posted a second consecutive lower high on Tuesday. The ability of S&P futures to continue posting higher highs and higher closes without higher TICK highs has been a short-term positive sign in recent years. Of the last 30 occurrences, 27 led to a higher S&P close 2-3 trading days later…

S&P Futures Higher High & Close, NYSE TICK Lower High Two Days
07/27/10… ???
07/13/10… Higher S&P close two sessions later
06/03/10… No higher S&P close next 2-3 sessions
02/17/10… Higher S&P close two sessions later
02/16/10… Higher S&P close two sessions later
01/06/10… Higher S&P close two sessions later
12/22/09… Higher S&P close two sessions later
12/11/09… Higher S&P close two sessions later
11/10/09… Higher S&P close three sessions later
11/09/09… Higher S&P close two sessions later
10/12/09… Higher S&P close two sessions later
07/27/09… Higher S&P close three sessions later
06/10/09… Higher S&P close two sessions later
11/30/07… Higher S&P close three sessions later
09/27/07… Higher S&P close two sessions later
09/13/07… Higher S&P close three sessions later
09/12/07… Higher S&P close two sessions later
08/22/07… Higher S&P close two sessions later
06/14/07… Higher S&P close two sessions later
05/07/07… Higher S&P close two sessions later
05/04/07… Higher S&P close two sessions later
04/16/07… Higher S&P close two sessions later
03/20/07… Higher S&P close two sessions later
02/15/07… Higher S&P close two sessions later
02/02/07… Higher S&P close three sessions later
12/05/06… No higher close 2-3 sessions later
10/24/06… Higher S&P close two sessions later
08/17/06… Higher S&P close two sessions later
02/16/06… Higher S&P close three sessions later
01/27/06… No higher close 2-3 sessions later
01/05/06… Higher S&P close two sessions later

S&P futures posted a sixth consecutive session of higher highs Tuesday. In 26 out of the last 30 initial occurrences of ‘six higher highs’, or 87% of the time, the S&Ps closed lower 2-4 sessions later. That’s significantly greater than the 64% random chance for a lower S&P 2-4 days later.

Six Higher Highs for S&P Futures
07/27/10… ???
07/13/10… Lower S&P close three sessions later
06/16/10… Lower S&P close four sessions later
03/12/10… No lower S&P close 2-4 sessions later
02/19/10… Lower S&P close two sessions later
01/08/10… Lower S&P close two sessions later
12/29/09… Lower S&P close two sessions later
11/11/09… Lower S&P close two sessions later
09/11/09… No lower S&P close 2-4 sessions later
08/25/09… Lower S&P close four sessions later
07/27/09… Lower S&P close two sessions later
07/01/09… Lower S&P close two sessions later
03/17/09… Lower S&P close three sessions later
05/19/08… Lower S&P close four sessions later
07/05/07… Lower S&P close three sessions later
03/15/06… Lower S&P close four sessions later
06/17/05… Lower S&P close four sessions later
05/23/05… Lower S&P close two sessions later
12/16/04… Lower S&P close two sessions later
11/02/04… No lower S&P close 2-4 sessions later
04/01/04… No lower S&P close 2-4 sessions later
01/22/04… Lower S&P close three sessions later
01/08/04… Lower S&P close two sessions later
12/02/03… Lower S&P close three sessions later
05/16/03… Lower S&P close two sessions later
03/20/03… Lower S&P close two sessions later
07/31/02… Lower S&P close two sessions later
03/08/02… Lower S&P close three sessions later
02/14/02… Lower S&P close two sessions later
11/07/01… Lower S&P close three sessions later
08/08/00… Lower S&P close two sessions later

Indications are somewhat mixed for the short-term and suggest the potential for consolidation, but it’s an encouraging sign that short-term buys outnumber sells despite overbought conditions.

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

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