Last Hour Indicator Approaching Key Technical Resistance
By
Rennie on Sunday, August 22nd, 2010 at 4:19 pm
Volume in E-Mini S&P futures was off 26% from Thursday’s level, triggering the short-term bullish setup mentioned Friday. Only five stocks within the OEX closed under their lower bollinger bands Friday vs. 11 on the prior Friday (see chart), setting up a positive divergence with the S&P. We saw a sharp expansion in new 20-day lows, rising from 1,279 on Thursday to just over 2,000 on Friday. Historically, when new 20-day lows initially exceed 2,000, there’s a bit more downside in store either immediately or after a short-term bounce. Below is every instance over the last six years in which new 20-day lows exceeded 2,000 for the first time in at least three sessions…
New 20-day Lows Top 2,000 First Time in Three Days
08/20/10… ???
06/29/10… Lower S&P close one session later
06/08/10… Lower S&P close one session later
05/20/10… Lower S&P close four sessions later
05/04/10… Lower S&P close one session later
02/04/10… Lower S&P close two sessions later
01/27/10… Lower S&P close one session later
01/22/10… Lower S&P close four sessions later
10/28/09… Lower S&P close two sessions later
07/08/09… Lower S&P close two sessions later
02/17/09… Lower S&P close one session later
01/15/09… Lower S&P close two sessions later
11/13/08… Lower S&P close one session later
10/24/08… Lower S&P close one session later
09/29/08… Lower S&P close four sessions later
09/05/08… Lower S&P close two sessions later
06/20/08… Lower S&P close two sessions later
06/10/08… Lower S&P close one session later
03/17/08… No lower close within next four days
03/03/08… Lower S&P close one session later
01/16/08… Lower S&P close one session later
01/04/08… Lower S&P close two sessions later
11/19/07… Lower S&P close two sessions later
10/22/07… No lower close within next four days
08/10/07… Lower S&P close one session later
07/24/07… Lower S&P close two sessions later
02/27/07… Lower S&P close three sessions later
06/08/06… Lower S&P close one session later
05/15/06… Lower S&P close one session later
10/12/05… Lower S&P close one session later
10/06/05… Lower S&P close two sessions later
04/15/05… Lower S&P close three sessions later
03/23/05… Lower S&P close one session later
08/06/04… Lower S&P close four sessions later
07/22/04… Lower S&P close one session later
05/07/04… Lower S&P close one session later
04/29/04… Lower S&P close one session later
In 34 out of the last 36 cases, or 94% of the time, the S&P500 posted a lower close (below the setup day’s close) within the next four sessions, significantly above the 72% random chance for a lower SPX close within four days in the same time frame.
Given the mixed signals, I’m looking for a close both above and below Friday’s settlement during the first few days of this coming week. Hard to say which happens first, although I tend to think up-then-down given that
low-volume selloffs usually lead to a higher S&P close within two days while the elevated number of 20-day lows can take upwards of four days to lead to a subsequently lower close. One approach could be to simply fade however the market closes Monday.
From a longer-term perspective, positive intermediate-term setups have fallen off the board recently and were proven wrong in their forecast for higher prices, a potential sign of weakness. Longer-term indicators remain bearish, with the Last Hour beginning to perk up again as it threatens to begin the retracement of the ’09-’10 decline. Recall that the Last Hour is a long-term lead indicator based on the market’s performance during the last hour vs. the first half-hour (see long-term chart). When it leads the market on the downside, as is the case currently, the retracement phase usually coincides with a steep decline for equities as the Last Hour rallies back to its old high while stocks move steadily lower. By the time the retracement is complete, the market is usually lower than the point when the indicator initially topped. Given that the indicator topped in late April of 2009, this suggests the Dow will be around 8,000 or lower when the retracement is complete.
Also noteworthy that the 200-day moving average of NYSE up volume minus down volume remains in bearish territory since late June despite the 10% move up. Other indicators that remain bearish include the VIX/VXV Ratio, which remains unusually low in the .85 area, a negative sign for stocks until it moves back into average territory. Note as well that the Market Vane survey of commodity trading advisors fell into bearish territory in early May and hasn’t managed to pierce the 50% level since.
There isn’t much on the plus side – the only positive signs I’m seeing is that principal program trading remains relatively high, usually a supportive sign for stocks, and large traders in E-Mini S&P futures shifted back to a net long position this past week. Recall that this group has generally been on the right side of the market since 2007, a notable shift from their usual contra-trend position. Overall, however, the weight of the evidence continues to point lower from a long-term perspective.
Last Hour Indicator Approaching Key Technical Resistance
By Rennie on Sunday, August 22nd, 2010 at 4:19 pmVolume in E-Mini S&P futures was off 26% from Thursday’s level, triggering the short-term bullish setup mentioned Friday. Only five stocks within the OEX closed under their lower bollinger bands Friday vs. 11 on the prior Friday (see chart), setting up a positive divergence with the S&P. We saw a sharp expansion in new 20-day lows, rising from 1,279 on Thursday to just over 2,000 on Friday. Historically, when new 20-day lows initially exceed 2,000, there’s a bit more downside in store either immediately or after a short-term bounce. Below is every instance over the last six years in which new 20-day lows exceeded 2,000 for the first time in at least three sessions…
New 20-day Lows Top 2,000 First Time in Three Days
08/20/10… ???
06/29/10… Lower S&P close one session later
06/08/10… Lower S&P close one session later
05/20/10… Lower S&P close four sessions later
05/04/10… Lower S&P close one session later
02/04/10… Lower S&P close two sessions later
01/27/10… Lower S&P close one session later
01/22/10… Lower S&P close four sessions later
10/28/09… Lower S&P close two sessions later
07/08/09… Lower S&P close two sessions later
02/17/09… Lower S&P close one session later
01/15/09… Lower S&P close two sessions later
11/13/08… Lower S&P close one session later
10/24/08… Lower S&P close one session later
09/29/08… Lower S&P close four sessions later
09/05/08… Lower S&P close two sessions later
06/20/08… Lower S&P close two sessions later
06/10/08… Lower S&P close one session later
03/17/08… No lower close within next four days
03/03/08… Lower S&P close one session later
01/16/08… Lower S&P close one session later
01/04/08… Lower S&P close two sessions later
11/19/07… Lower S&P close two sessions later
10/22/07… No lower close within next four days
08/10/07… Lower S&P close one session later
07/24/07… Lower S&P close two sessions later
02/27/07… Lower S&P close three sessions later
06/08/06… Lower S&P close one session later
05/15/06… Lower S&P close one session later
10/12/05… Lower S&P close one session later
10/06/05… Lower S&P close two sessions later
04/15/05… Lower S&P close three sessions later
03/23/05… Lower S&P close one session later
08/06/04… Lower S&P close four sessions later
07/22/04… Lower S&P close one session later
05/07/04… Lower S&P close one session later
04/29/04… Lower S&P close one session later
In 34 out of the last 36 cases, or 94% of the time, the S&P500 posted a lower close (below the setup day’s close) within the next four sessions, significantly above the 72% random chance for a lower SPX close within four days in the same time frame.
Given the mixed signals, I’m looking for a close both above and below Friday’s settlement during the first few days of this coming week. Hard to say which happens first, although I tend to think up-then-down given that
low-volume selloffs usually lead to a higher S&P close within two days while the elevated number of 20-day lows can take upwards of four days to lead to a subsequently lower close. One approach could be to simply fade however the market closes Monday.
From a longer-term perspective, positive intermediate-term setups have fallen off the board recently and were proven wrong in their forecast for higher prices, a potential sign of weakness. Longer-term indicators remain bearish, with the Last Hour beginning to perk up again as it threatens to begin the retracement of the ’09-’10 decline. Recall that the Last Hour is a long-term lead indicator based on the market’s performance during the last hour vs. the first half-hour (see long-term chart). When it leads the market on the downside, as is the case currently, the retracement phase usually coincides with a steep decline for equities as the Last Hour rallies back to its old high while stocks move steadily lower. By the time the retracement is complete, the market is usually lower than the point when the indicator initially topped. Given that the indicator topped in late April of 2009, this suggests the Dow will be around 8,000 or lower when the retracement is complete.
Also noteworthy that the 200-day moving average of NYSE up volume minus down volume remains in bearish territory since late June despite the 10% move up. Other indicators that remain bearish include the VIX/VXV Ratio, which remains unusually low in the .85 area, a negative sign for stocks until it moves back into average territory. Note as well that the Market Vane survey of commodity trading advisors fell into bearish territory in early May and hasn’t managed to pierce the 50% level since.
There isn’t much on the plus side – the only positive signs I’m seeing is that principal program trading remains relatively high, usually a supportive sign for stocks, and large traders in E-Mini S&P futures shifted back to a net long position this past week. Recall that this group has generally been on the right side of the market since 2007, a notable shift from their usual contra-trend position. Overall, however, the weight of the evidence continues to point lower from a long-term perspective.