Weakness Begets Weakness

It’s a red flag for the stock market when the S&P500 loses 2% or more in back-to-back weeks. I went back to 1979 to find the last 30 separate occurrences in which the  S&P lost 2%+ during two consecutive weeks. In 24 out of 30 cases, the S&P fell at least 1% at some point over the following week, and in 18 out of 30 cases, or 60% of the time, the S&P fell 2% or more the next week. The random chance of a 2%+ intraweek drop in the same time frame was only 29%, so odds are twice as strong we’ll see some substantial weakness after a pair of big down weeks. I think this could take on greater significance in light of the crash warning pattern that was nearly triggered this past Wednesday…

S&P500 -2% Two Consecutive Weeks
07/02/10… S&P down as much as ??? next week
05/07/10… S&P down as much as 0.0% next week
02/20/09… S&P down as much as 4.6% next week
01/16/09… S&P down as much as 5.4% next week
11/14/08… S&P down as much as 15.1% next week
10/03/08… S&P down as much as 23.6% next week
06/27/08… S&P down as much as 2.1% next week
01/24/03… S&P down as much as 2.4% next week
12/13/02… S&P down as much as 1.0% next week
09/27/02… S&P down as much as 4.0% next week
09/06/02… S&P down as much as 1.9% next week
07/19/02… S&P down as much as 8.5% next week
09/07/01… S&P down as much as 1.2% next week
02/18/00… S&P down as much as 1.3% next week
07/30/99… S&P down as much as 3.1% next week
09/04/98… S&P down as much as 0.5% next week
08/14/98… S&P down as much as 0.7% next week
04/11/97… S&P down as much as 0.6% next week
03/31/94… S&P down as much as 2.2% next week
08/03/90… S&P down as much as 3.7% next week
10/16/87… S&P down as much as 23.5% next week
09/04/87… S&P down as much as 2.6% next week
07/18/86… S&P down as much as 0.4% next week
08/06/82… S&P down as much as 2.2% next week
05/28/82… S&P down as much as 1.7% next week
02/12/82… S&P down as much as 2.0% next week
01/15/82… S&P down as much as 1.8% next week
09/25/81… S&P down as much as 2.3% next week
08/28/81… S&P down as much as 3.9% next week
12/12/80… S&P down as much as 0.0% next week
10/19/79… S&P down as much as 2.5% next week

Along with the Market Vane survey of commodity trading advisors slumping to a new 52-week low, the recent sell signal from the 200-day average of NYSE up volume – down volume and the persistently negative NYSE TICK action, I see little reason for optimism regarding the market’s long-term prospects.

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

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