New Highs Fail To Expand

In a complete reverse of Tuesday’s session, institutional buyers were out in force Wednesday. Cumulative TICK trended straight up off the open, closing at its highest level in over two months. That’s usually a positive sign from an intermediate-term perspective, although I would note we came very close to seeing significant losing signals from this indicator in mid-April and again in mid-June. Cumulative TICK just missed hitting a two-month high in both of those cases, which preserves the overall track record but serves as a warning that conditions remain treacherous. I think that’s especially true considering the bearish weekly and monthly chart patterns discussed this past weekend. Here’s a look at the last 30 instances of a two-month high for Cumulative TICK…

NYSE Cumulative TICK Hits a Two-Month High
07/07/10… S&P500 ??? two weeks later
03/05/10… S&P500 +1.9% two weeks later
02/02/10… S&P500 -0.4% two weeks later
12/23/09… S&P500 +2.2% two weeks later
12/01/09… S&P500 -0.1% two weeks later
07/15/09… S&P500 +4.6%  two weeks later
03/12/09… S&P500 +10.9% two weeks later
03/10/09… S&P500 +12.0% two weeks later
01/02/09… S&P500 -8.8% two weeks later (*)
10/13/08… S&P500 -15.4% two weeks later (*)
07/29/08… S&P500 +2.1% two weeks later
07/16/08… S&P500 +3.1% two weeks later
04/16/08… S&P500 +1.5% two weeks later
03/18/08… S&P500 +2.8% two weeks later
11/28/07… S&P500 +1.2% two weeks later
06/27/07… S&P500 +2.8% two weeks later
05/02/07… S&P500 +1.2% two weeks later
04/05/07… S&P500 +2.8% two weeks later
03/20/07… S&P500 +1.9% two weeks later
10/12/06… S&P500 +1.9% two weeks later
10/04/06… S&P500 +1.2% two weeks later
07/19/06… S&P500 +1.5% two weeks later
06/01/06… S&P500 -2.3% two weeks later (*)
04/18/06… S&P500 +0.4% two weeks later
01/03/06… S&P500 +0.7% two weeks later
11/02/05… S&P500 +1.4% two weeks later
05/18/05… S&P500 +1.6% two weeks later
02/04/05… S&P500 -0.1% two weeks later
01/31/05… S&P500 +2.1% two weeks later
11/04/04… S&P500 +1.9% two weeks later
05/25/04… S&P500 +1.6% two weeks later

In 24 out of the last 30 occurrences, or 80% of the time, the S&P was trading higher two weeks later, significantly better than the 57% at-any-time odds for a higher S&P ten trading days later in the same time frame. In only three cases was the S&P down 1%+ two weeks later, while it was up 1%+ twenty-two times.

That said, we also saw two separate signals triggered Wednesday that indicate the market is likely to trade sideways-to-down over the next 2-3 sessions. This tells us there’s no reason to chase today’s move, as we’ll likely see similar or better prices in the Friday-Monday time frame. Both signals were triggered due to the inability of new highs to expand on either a short-term (20-day) or longer-term (52-week) time frame. New 52-week highs fell on the NYSE and only inched higher on the NASDAQ. The combined number of new highs on both exchanges was 66 on Wednesday, down from Tuesday’s 73 reading despite the market’s big 3% up day. In the table below are the last 30 instances in which the S&P gained 1%+ with a higher high and higher low and the total number of new 52-week highs declined from the previous day. Note that in 20 out of 30 cases, or 67% of the time, the S&P closed lower three sessions later, significantly greater than the 46% random chance for a lower S&P close three days later in the same time frame. ..

S&P +1% w/ Higher High & Low, Combined # of New 52-week Highs Declines
07/07/10… S&P500 ??? three sessions later
06/15/10… S&P500 +0.2% three sessions later
06/02/10… S&P500 -4.4% three sessions later
05/06/09… S&P500 -1.1% three sessions later
03/04/09… S&P500 -5.1% three sessions later
02/03/09… S&P500 +3.6% three sessions later
01/28/09… S&P500 -5.6% three sessions later
01/02/09… S&P500 -2.7% three sessions later
11/24/08… S&P500 +5.2% three sessions later
11/04/08… S&P500 -7.4% three sessions later
10/13/08… S&P500 -5.7% three sessions later
05/15/08… S&P500 -0.7% three sessions later
05/12/08… S&P500 +1.4% three sessions later
02/13/08… S&P500 -1.4% three sessions later
01/24/08… S&P500 +0.8% three sessions later
05/16/05… S&P500 +2.2% three sessions later
03/30/05… S&P500 -0.5% three sessions later
09/02/04… S&P500 -0.2% three sessions later
09/25/02… S&P500 -2.9% three sessions later
08/22/02… S&P500 -2.9% three sessions later
08/06/02… S&P500 +5.7% three sessions later
08/24/01… S&P500 -3.1% three sessions later
04/19/01… S&P500 -3.5% three sessions later
01/18/01… S&P500 +0.9% three sessions later
07/03/00… S&P500 +0.7% three sessions later
11/18/99… S&P500 -1.4% three sessions later
08/17/99… S&P500 -0.6% three sessions later
10/09/98… S&P500 +2.2% three sessions later
07/08/98… S&P500 -0.1% three sessions later
10/07/97… S&P500 -1.6% three sessions later
06/13/97… S&P500 -0.5% three sessions later

New 20-day highs across all exchanges also declined to 517 from 536 on Tuesday, a noteworthy divergence considering S&P futures never looked back from the open and closed over 1.5% above Tuesday’s high. When today’s S&P futures low is greater than the previous day’s close and 20-day highs fail to expand, the market usually enters into a sideways-to-down trend over the next two sessions.  The last thirty occurrences are listed below…

S&P Futures Low > Prev day’s close, New 20-day Highs Contract
07/07/10… S&P futures ??? two sessions later
05/03/10… S&P futures -3.0% two sessions later
02/01/10… S&P futures +0.9% two sessions later
12/24/09… S&P futures -0.0% two sessions later
12/22/09… S&P futures +0.8% two sessions later
08/25/09… S&P futures +0.3% two sessions later
05/08/09… S&P futures -1.9% two sessions later
03/04/09… S&P futures -2.9% two sessions later
12/02/08… S&P futures -0.2% two sessions later
11/07/08… S&P futures -4.6% two sessions later
10/13/08… S&P futures -11.2% two sessions later
09/30/08… S&P futures -3.7% two sessions later
05/30/08… S&P futures -1.6% two sessions later
12/24/07… S&P futures -1.1% two sessions later
11/27/07… S&P futures +3.2% two sessions later
11/23/07… S&P futures -1.1% two sessions later
09/13/07… S&P futures -0.6% two sessions later
08/13/07… S&P futures -2.8% two sessions later
05/25/07… S&P futures +1.1% two sessions later
02/28/07… S&P futures -1.6% two sessions later
11/16/06… S&P futures +0.0% two sessions later
09/01/06… S&P futures -0.8% two sessions later
06/20/06… S&P futures +0.3% two sessions later
05/02/06… S&P futures -0.1% two sessions later
02/08/06… S&P futures +0.0% two sessions later
01/23/06… S&P futures +0.1% two sessions later
08/25/05… S&P futures +0.1% two sessions later
08/09/05… S&P futures +0.3% two sessions later
07/01/05… S&P futures -0.1% two sessions later
03/01/05… S&P futures -0.0% two sessions later
02/23/05… S&P futures +1.6% two sessions later

While the chances of a higher or lower S&P two days later has been about even, note that the market’s average loss of 1.8% more than doubled the 0.7% average gain. That leads to a fairly consistent negative equity curve, illustrating the difficulty in trading from the long side after S&P futures gap higher (from the previous close) and 20-day highs fail to expand.

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

 Print This Post