Trio of Intermediate-term Signals Triggered Monday
By
Rennie on Monday, August 2nd, 2010 at 9:52 pm
The S&P500 powered above its mid-June high on Monday, following the lead of cumulative breadth and new 52-week highs, both of which exceeded their June highs over a week ago. The equity put/call ratio closed lower for a third day in a row, triggering a short-term bullish signal. Market internals were heavily lopsided, with advancers outnumbering decliners by over a 5:1 margin and volume associated with advancing issues accounting for over 90% of total NYSE volume. The positive breadth stats sent the NYSE McClellan Oscillator back over the +200 level. You may recall that we just saw a +200 McClellan reading one week ago. The fact that the market was able to remain on firm footing over the following five sessions bodes well for the market’s intermediate-term outlook. See my July 26th column for a track record of the S&P’s performance when the SPX is up one week after an initial McClellan reading over +200. Out of fifteen signals, only one led to an S&P down over 1% one month later, while eleven led to an S&P up over 1%.
Reinforcing that outlook, the S&P scored a second longer-term bullish signal when the 20-day moving average of NYSE Down Volume % fell below 40%. When the average down volume percentage has been this low in the past, stocks have typically remained on firm footing over the next two months. The table below lists each of the last thirty instances in which the 20-day moving average of NYSE Down Volume fell below 40% for the first time in at least a month…
20day Average of Down Volume <40% First Time in a Month
08/02/10… S&P500 ??? two months later
03/05/10… S&P500 +5.6% two months later
08/03/09… S&P500 +5.8% two months later
04/02/09… S&P500 +13.0% two months later
12/19/08… S&P500 -12.3% two months later (*)
04/16/07… S&P500 +1.7% two months later
11/25/05… S&P500 -0.1% two months later
11/17/04… S&P500 +0.2% two months later
09/07/04… S&P500 +0.8% two months later
01/06/04… S&P500 +2.8% two months later
09/02/03… S&P500 +2.4% two months later
05/09/03… S&P500 +8.0% two months later
11/06/02… S&P500 +0.6% two months later
11/02/98… S&P500 +10.8% two months later
02/09/98… S&P500 +9.8% two months later
05/05/97… S&P500 +7.3% two months later
03/11/97… S&P500 +0.5% two months later
01/10/97… S&P500 +7.1% two months later
11/18/96… S&P500 +4.4% two months later
08/12/96… S&P500 +5.2% two months later
05/09/96… S&P500 +1.1% two months later
02/01/96… S&P500 +1.1% two months later
11/24/95… S&P500 +2.1% two months later
01/09/95… S&P500 +4.6% two months later
07/25/94… S&P500 +2.0% two months later
05/19/94… S&P500 -0.3% two months later
12/27/93… S&P500 +0.2% two months later
10/14/93… S&P500 -0.6% two months later
08/17/93… S&P500 +1.8% two months later
05/20/93… S&P500 -1.0% two months later
03/16/93… S&P500 -1.5% two months later
In 24 out of the last 30 occurrences, or 80% of the time, the S&P was trading at a higher level two months later. While that’s not significantly greater than the 62% at-any-time odds for a higher S&P two months later, I still consider this a worthwhile signal. Notice that a number of losing signals from 1993 will fall off the track record as new signals are generated, suggesting the accuracy will bump back up into the mid-80% range shortly. Also note that even when wrong, downside potential is typically very limited. The S&P was down more than 1.5% two months later only once out of the last thirty signals, or 3% of the time, far below the 27% random chance for a drop of over 1.5% in the next forty trading days. The S&P gained more than 1.5% seventeen times.
Finally, looking out just over the next two weeks we find another bullish signal triggered. Last Monday, our version of Standard & Poors Oscillator closed over 7.0, a high reading from a historical perspective. Note from this long-term chart that readings over 7 are rare. When they do occur, they tend to lead to higher prices over the intermediate-term. You want to trade on the same side as this indicator, long when it’s over zero and short when it’s under zero. This is why unusually high readings are generally not bearish. They merely reflect an unusually strong trend. Two-thirds of the time, the S&P is trading at an even higher level one week later, which is pretty impressive considering that 7+ readings always come at relative high points. What’s especially impressive is the performance of the S&P when it IS higher one week later (in other words, when there’s immediate follow-through), something we just saw from last Monday through this Monday. The table below lists all 30 instances since 1970 in which the S&P closed higher one week after the S&P Oscillator crossed over 7.0. Note the market’s consistently solid performance over the intermediate-term. Gains are not especially large, but the market generally has a consistent underlying bid.
S&P Oscillator Over 7.0, SPX Higher One Week Later
08/02/10… S&P ??? two weeks later
03/16/10… S&P +1.2% two weeks later
09/22/09… S&P -1.6% two weeks later
08/12/09… S&P +2.2% two weeks later
07/28/09… S&P +1.5% two weeks later
05/11/09… S&P +0.1% two weeks later
04/13/09… S&P -0.1% two weeks later
03/26/09… S&P +2.8% two weeks later
06/08/04… S&P +0.5% two weeks later
01/07/04… S&P +0.9% two weeks later
06/10/03… S&P +0.6% two weeks later
03/15/02… S&P -2.3% two weeks later
10/30/98… S&P +3.8% two weeks later
05/16/97… S&P +1.3% two weeks later
01/08/92… S&P +1.6% two weeks later
02/06/91… S&P +2.2% two weeks later
01/20/87… S&P +3.0% two weeks later
02/28/86… S&P +4.9% two weeks later
01/28/85… S&P -0.1% two weeks later
08/13/84… S&P +0.6% two weeks later
10/19/82… S&P +0.8% two weeks later
08/30/82… S&P +3.3% two weeks later
08/11/78… S&P +0.5% two weeks later
05/02/78… S&P +1.7% two weeks later
11/23/77… S&P -4.3% two weeks later
01/13/76… S&P +4.9% two weeks later
02/04/75… S&P +4.0% two weeks later
01/14/75… S&P +7.1% two weeks later
10/02/73… S&P +1.1% two weeks later
12/15/71… S&P +2.9% two weeks later
12/10/70… S&P +0.9% two weeks later
In 25 out of the last 30 occurrences, or 83% of the time, the S&P was higher two weeks later, significantly above the 57% at-any-time odds for a higher S&P two weeks later.
Trio of Intermediate-term Signals Triggered Monday
By Rennie on Monday, August 2nd, 2010 at 9:52 pmThe S&P500 powered above its mid-June high on Monday, following the lead of cumulative breadth and new 52-week highs, both of which exceeded their June highs over a week ago. The equity put/call ratio closed lower for a third day in a row, triggering a short-term bullish signal. Market internals were heavily lopsided, with advancers outnumbering decliners by over a 5:1 margin and volume associated with advancing issues accounting for over 90% of total NYSE volume. The positive breadth stats sent the NYSE McClellan Oscillator back over the +200 level. You may recall that we just saw a +200 McClellan reading one week ago. The fact that the market was able to remain on firm footing over the following five sessions bodes well for the market’s intermediate-term outlook. See my July 26th column for a track record of the S&P’s performance when the SPX is up one week after an initial McClellan reading over +200. Out of fifteen signals, only one led to an S&P down over 1% one month later, while eleven led to an S&P up over 1%.
Reinforcing that outlook, the S&P scored a second longer-term bullish signal when the 20-day moving average of NYSE Down Volume % fell below 40%. When the average down volume percentage has been this low in the past, stocks have typically remained on firm footing over the next two months. The table below lists each of the last thirty instances in which the 20-day moving average of NYSE Down Volume fell below 40% for the first time in at least a month…
20day Average of Down Volume <40% First Time in a Month
08/02/10… S&P500 ??? two months later
03/05/10… S&P500 +5.6% two months later
08/03/09… S&P500 +5.8% two months later
04/02/09… S&P500 +13.0% two months later
12/19/08… S&P500 -12.3% two months later (*)
04/16/07… S&P500 +1.7% two months later
11/25/05… S&P500 -0.1% two months later
11/17/04… S&P500 +0.2% two months later
09/07/04… S&P500 +0.8% two months later
01/06/04… S&P500 +2.8% two months later
09/02/03… S&P500 +2.4% two months later
05/09/03… S&P500 +8.0% two months later
11/06/02… S&P500 +0.6% two months later
11/02/98… S&P500 +10.8% two months later
02/09/98… S&P500 +9.8% two months later
05/05/97… S&P500 +7.3% two months later
03/11/97… S&P500 +0.5% two months later
01/10/97… S&P500 +7.1% two months later
11/18/96… S&P500 +4.4% two months later
08/12/96… S&P500 +5.2% two months later
05/09/96… S&P500 +1.1% two months later
02/01/96… S&P500 +1.1% two months later
11/24/95… S&P500 +2.1% two months later
01/09/95… S&P500 +4.6% two months later
07/25/94… S&P500 +2.0% two months later
05/19/94… S&P500 -0.3% two months later
12/27/93… S&P500 +0.2% two months later
10/14/93… S&P500 -0.6% two months later
08/17/93… S&P500 +1.8% two months later
05/20/93… S&P500 -1.0% two months later
03/16/93… S&P500 -1.5% two months later
In 24 out of the last 30 occurrences, or 80% of the time, the S&P was trading at a higher level two months later. While that’s not significantly greater than the 62% at-any-time odds for a higher S&P two months later, I still consider this a worthwhile signal. Notice that a number of losing signals from 1993 will fall off the track record as new signals are generated, suggesting the accuracy will bump back up into the mid-80% range shortly. Also note that even when wrong, downside potential is typically very limited. The S&P was down more than 1.5% two months later only once out of the last thirty signals, or 3% of the time, far below the 27% random chance for a drop of over 1.5% in the next forty trading days. The S&P gained more than 1.5% seventeen times.
Finally, looking out just over the next two weeks we find another bullish signal triggered. Last Monday, our version of Standard & Poors Oscillator closed over 7.0, a high reading from a historical perspective. Note from this long-term chart that readings over 7 are rare. When they do occur, they tend to lead to higher prices over the intermediate-term. You want to trade on the same side as this indicator, long when it’s over zero and short when it’s under zero. This is why unusually high readings are generally not bearish. They merely reflect an unusually strong trend. Two-thirds of the time, the S&P is trading at an even higher level one week later, which is pretty impressive considering that 7+ readings always come at relative high points. What’s especially impressive is the performance of the S&P when it IS higher one week later (in other words, when there’s immediate follow-through), something we just saw from last Monday through this Monday. The table below lists all 30 instances since 1970 in which the S&P closed higher one week after the S&P Oscillator crossed over 7.0. Note the market’s consistently solid performance over the intermediate-term. Gains are not especially large, but the market generally has a consistent underlying bid.
S&P Oscillator Over 7.0, SPX Higher One Week Later
08/02/10… S&P ??? two weeks later
03/16/10… S&P +1.2% two weeks later
09/22/09… S&P -1.6% two weeks later
08/12/09… S&P +2.2% two weeks later
07/28/09… S&P +1.5% two weeks later
05/11/09… S&P +0.1% two weeks later
04/13/09… S&P -0.1% two weeks later
03/26/09… S&P +2.8% two weeks later
06/08/04… S&P +0.5% two weeks later
01/07/04… S&P +0.9% two weeks later
06/10/03… S&P +0.6% two weeks later
03/15/02… S&P -2.3% two weeks later
10/30/98… S&P +3.8% two weeks later
05/16/97… S&P +1.3% two weeks later
01/08/92… S&P +1.6% two weeks later
02/06/91… S&P +2.2% two weeks later
01/20/87… S&P +3.0% two weeks later
02/28/86… S&P +4.9% two weeks later
01/28/85… S&P -0.1% two weeks later
08/13/84… S&P +0.6% two weeks later
10/19/82… S&P +0.8% two weeks later
08/30/82… S&P +3.3% two weeks later
08/11/78… S&P +0.5% two weeks later
05/02/78… S&P +1.7% two weeks later
11/23/77… S&P -4.3% two weeks later
01/13/76… S&P +4.9% two weeks later
02/04/75… S&P +4.0% two weeks later
01/14/75… S&P +7.1% two weeks later
10/02/73… S&P +1.1% two weeks later
12/15/71… S&P +2.9% two weeks later
12/10/70… S&P +0.9% two weeks later
In 25 out of the last 30 occurrences, or 83% of the time, the S&P was higher two weeks later, significantly above the 57% at-any-time odds for a higher S&P two weeks later.