Contraction in New Lows

After trading 1% lower early in the session, stocks recovered to close with modest gains Wednesday. Probably the most noteworthy development was the contraction in new lows on both a short and long-term time frame. This triggered a number of short-term signals…

New 20-day lows dropped slightly from Tuesday’s level but still remained quite high at over 2,500 vs. less than 500 new 20-day highs. When the S&P closes higher on a day when new 20-day lows number over 1,000 and more than double the number of new 20-day highs, the market will often give back gains the following session. The last 30 occurrences are listed below…

New 20-day Lows >1000 & 2x New 20-day Highs, SPX Closes Up
08/25/10… S&P500 ??? next day
07/06/10… S&P500 +3.1% next day
06/08/10… S&P500 -0.6% next day
05/25/10… S&P500 -0.6% next day
05/21/10… S&P500 -1.3% next day
02/05/10… S&P500 -0.9% next day
02/01/10… S&P500 +1.3% next day
01/27/10… S&P500 -1.2% next day
01/25/10… S&P500 -0.4% next day
11/02/09… S&P500 +0.2% next day
10/29/09… S&P500 -2.8% next day
07/06/09… S&P500 -2.0% next day
06/23/09… S&P500 +0.7% next day
03/06/09… S&P500 -1.0% next day
03/04/09… S&P500 -4.3% next day
02/24/09… S&P500 -1.1% next day
02/12/09… S&P500 -1.0% next day
01/23/09… S&P500 +0.6% next day
01/21/09… S&P500 -1.5% next day
01/15/09… S&P500 +0.8% next day
11/21/08… S&P500 +6.5% next day
11/18/08… S&P500 -6.1% next day
11/13/08… S&P500 -4.2% next day
10/28/08… S&P500 -1.1% next day
10/23/08… S&P500 -3.5% next day
10/16/08… S&P500 -0.6% next day
09/30/08… S&P500 -0.5% next day
09/26/08… S&P500 -8.8% next day
09/18/08… S&P500 +4.0% next day
09/16/08… S&P500 -4.7% next day
09/10/08… S&P500 +1.4% next day

In 21 out of the last 30 occurrences, or 70% of the time, the S&P closed lower the following session, significantly above the 46% random chance for a lower S&P close one day later in the same time frame.

The fact that new 20-day lows declined despite the S&P trading 0.7% below Tuesday’s low indicates we will see a close back over today’s 1055 close by next Tuesday at the latest. Typically you’ll see an expansion of new 20-day lows when the SPX trades below the previous day’s low given that this is a much more sensitive measure than the 52-week high/low data. When this doesn’t occur, it’s a supportive sign for stocks, and the S&P has a strong record of posting a subsequently higher close within the next four sessions. Of the last 30 occurrences, all 30 led to a higher SPX close (above the setup day’s close) within four days…

S&P500 Trades 0.5%+ Below Yesterday’s Low, New 20-day Lows Contract
08/25/10… S&P500 ???
07/28/10… S&P500 +1.8% three days later
06/30/10… S&P500 +2.9% four days later
02/23/10… S&P500 +1.0% one day later
01/29/10… S&P500 +1.4% one day later
12/31/09… S&P500 +1.6% one day later
10/30/09… S&P500 +0.7% one day later
07/07/09… S&P500 +0.2% two days later
06/16/09… S&P500 +0.7% two days later
06/03/09… S&P500 +1.2% one day later
04/28/09… S&P500 +2.2% one day later
04/14/09… S&P500 +1.3% one day later
04/01/09… S&P500 +2.9% one day later
03/20/09… S&P500 +7.1% one day later
03/03/09… S&P500 +2.4% one day later
02/23/09… S&P500 +4.0% one day later
12/18/08… S&P500 +0.3% one day later
11/21/08… S&P500 +6.5% one day later
10/27/08… S&P500 +10.8% one day later
10/09/08… S&P500 +10.3% two days later
10/07/08… S&P500 +0.7% four days later
09/22/08… S&P500 +0.2% two days later
09/18/08… S&P500 +4.0% one day later
09/17/08… S&P500 +4.3% one day later
08/07/08… S&P500 +2.4% one day later
07/28/08… S&P500 +2.3% one day later
03/27/08… S&P500 +3.4% three days later
01/25/08… S&P500 +1.8% one day later
01/08/08… S&P500 +1.4% one day later
01/07/08… S&P500 +0.3% three days later
12/18/07… S&P500 +0.4% two days later

That outlook is reinforced by the fact that new 52-week lows also declined on both the NYSE and NASDAQ despite the fact that the SPX and NDX both hit one-month lows. Since the inception of the Nasdaq100 in 1985, we’ve seen this combination occur a total of 38 times, all of which are listed in the table below. Note that in 36 out of 38 cases, or 95% of the time, the S&P closed at a subsequently higher level 2-4 trading days later, significantly greater than the 70% at-any-time odds of a higher S&P 2-4 days later…

NDX & SPX Hit One-Month Lows, New 52-week Lows Decline
08/25/10… ???
06/30/10… Higher SPX close four sessions later
01/28/10… Higher SPX close two sessions later
07/07/09… Higher SPX close two sessions later
02/23/09… Higher SPX close two sessions later
11/21/08… Higher SPX close two sessions later
10/09/08… Higher SPX close two sessions later
10/07/08… Higher SPX close four sessions later
09/17/08… Higher SPX close two sessions later
06/12/08… Higher SPX close two sessions later
01/23/08… Higher SPX close three sessions later
01/07/08… Higher SPX close three sessions later
11/12/07… Higher SPX close two sessions later
11/09/07… Higher SPX close two sessions later
07/31/07… Higher SPX close two sessions later
05/18/06… Higher SPX close two sessions later
01/03/06… Higher SPX close two sessions later
08/24/05… Higher SPX close three sessions later
04/18/05… Higher SPX close three sessions later
08/13/04… Higher SPX close two sessions later
07/23/04… Higher SPX close two sessions later
09/29/03… Higher SPX close two sessions later
08/05/03… Higher SPX close two sessions later
12/31/02… Higher SPX close two sessions later
10/08/02… Higher SPX close two sessions later
09/20/02… Higher SPX close four sessions later
09/18/01… No higher SPX close 2-4 sessions later
03/20/01… Higher SPX close four sessions later
12/21/00… Higher SPX close two sessions later
10/13/00… Higher SPX close four sessions later
10/18/99… Higher SPX close two sessions later
09/01/98… Higher SPX close four sessions later
08/28/98… No higher SPX close 2-4 sessions later
06/24/93… Higher SPX close two sessions later
02/17/93… Higher SPX close two sessions later
06/18/92… Higher SPX close two sessions later
06/26/90… Higher SPX close two sessions later
11/11/88… Higher SPX close two sessions later
01/21/88… Higher SPX close two sessions later

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

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