SOX, BKX Underperformance Short-term Negatives

Cumulative TICK closed just over +100,000 Tuesday, a fresh two-month high. That comes less than two weeks after the initial two-month high for Cumulative TICK back on July 7th, and I think we have to be cautious about automatically assuming bullish TICK action will lead to intermediate-term follow-through. TICKscore closed at +80, the highest one-day reading since March 12, 2009 when it closed at +100, kick-starting a long-term rally. But look back over the previous six months and you’ll see four other daily TICKscore readings in excess of +75 on 02/24/09, 01/02/09, 11/26/08 and 10/13/08. All four of those instances did not lead to intermediate-term follow-through, in fact all proved to be a much better sell than buy. One thing that differentiated March ’09 from the previous four occurrences is that the market remained on firm footing over the next few sessions, with the S&P higher three and five sessions later. In the other cases there was very little upside follow-through, and the S&P was lower three and five sessions later, so how the market holds up into Friday should be telling.

The SOX barely managed a gain Tuesday, settling up 0.1% vs. a 1.2% gain for the Nasdaq100. Historically, it’s not a short-term positive sign when the SOX underperforms by such a wide margin. In the table below I’ve noted each of the last thirty instances in which the NDX closed up 1% or more and the SOX settled with a gain of less than 0.5% (or closed lower)…

NDX Gains 1%+, SOX Gains Less Than 0.5% or Settles Lower
07/20/10… ???
09/16/09… Lower NDX close one session later
08/07/09… Lower NDX close one session later
04/21/09… No lower close within three sessions
02/03/09… Lower NDX close one session later
01/08/09… Lower NDX close one session later
07/01/08… Lower NDX close one session later
01/31/08… Lower NDX close two sessions later
01/09/08… Lower NDX close two sessions later
12/21/07… Lower NDX close three sessions later
11/16/07… Lower NDX close one session later
10/26/07… No lower close within three sessions
10/23/07… Lower NDX close one session later
08/02/07… Lower NDX close one session later
05/16/07… Lower NDX close one session later
03/14/07… Lower NDX close two sessions later
01/11/07… Lower NDX close three sessions later
09/20/06… Lower NDX close one session later
05/25/06… Lower NDX close two sessions later
10/19/05… Lower NDX close one session later
11/22/04… Lower NDX close one session later
04/22/04… Lower NDX close two sessions later
09/02/03… Lower NDX close one session later
06/11/03… Lower NDX close two sessions later
02/21/03… Lower NDX close one session later
12/06/02… Lower NDX close one session later
10/14/02… No lower close within three sessions
09/09/02… Lower NDX close three sessions later
08/29/02… Lower NDX close one session later
08/22/02… Lower NDX close one session later
07/26/02… No lower close within three sessions

Note that in 26 out of 30 cases, or 87% of the time, the NDX posted a subsequently lower close (below the setup day) within the next three sessions (and usually within the next two). That’s significantly above the 68% at-any-time odds for a lower NDX close within three days, suggesting we’ll probably see some of today’s gains given back over the short-term.

On the positive side, we did see a contraction in new 20-day and 52-week lows despite the SPX and NDX both hitting 5-day lows. This tells us we’re likely to see a bit of upside follow-through over the short-term. The mixed signals suggest leaning in the opposite direction of Wednesday’s session, with a preference towards fading a higher close. The last thirty times we’ve seen the SPX and NDX hit 5-day lows along with a drop in new 52-week lows are listed in the table below. Note that in 28 out of 30 cases, or 93% of the time, the S&P closed higher (above the setup day’s close) within the next two days, significantly above the 68% at-any-time odds for a higher SPX close within two days…

SPX & NDX Hit 5-Day Lows, New 52-week Lows Decline
07/20/10…???
06/30/10… Higher SPX close one session later
01/28/10… Higher SPX close two sessions later
11/20/09… Higher SPX close one session later
07/07/09… Higher SPX close two sessions later
02/23/09… Higher SPX close one session later
12/02/08… Higher SPX close one session later
11/21/08… Higher SPX close one session later
10/09/08… Higher SPX close two sessions later
10/07/08… No higher close within two sessions
09/18/08… Higher SPX close one session later
09/17/08… Higher SPX close one session later
08/20/08… Higher SPX close one session later
06/12/08… Higher SPX close one session later
06/03/08… Higher SPX close two sessions later
01/23/08… Higher SPX close one session later
01/07/08… No higher close within two sessions
11/21/07… Higher SPX close one session later
11/12/07… Higher SPX close one session later
11/09/07… Higher SPX close two sessions later
07/31/07… Higher SPX close one session later
06/08/07… Higher SPX close one session later
04/12/07… Higher SPX close one session later
12/22/06… Higher SPX close one session later
11/03/06… Higher SPX close one session later
05/18/06… Higher SPX close one session later
01/03/06… Higher SPX close one session later
12/08/05… Higher SPX close one session later
11/30/05… Higher SPX close one session later
08/24/05… Higher SPX close one session later
04/18/05… Higher SPX close one session later

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

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