When the Only Stocks to Rally are Utilities
By
Rennie on Wednesday, August 25th, 2010 at 2:22 am
S&P futures posted an unfilled downside gap and a fifth consecutive lower close Tuesday. Five down days for the S&P used to be a reliable short-term buy. From 1992 through 2005 this pattern occurred 27 separate times, all of which led to a higher S&P close within two sessions. But in a sign of the times, this price pattern has barely managed 50% winners since 2006, with 4 out of 9 occurrences post-2006 failing to lead to a higher close within the next couple of sessions.
Declining issues outnumbered advancers by over a 3:1 margin, sending the NYSE McClellan Oscillator back to extreme oversold territory (<-200). In another sign of the times, crosses below the -200 level post-2009 have actually represented a better short-term sell than buy, with 12 out of 14 occurrences leading to a subsequently lower close within the next two sessions.
Tuesday’s selloff sent a large number of stocks to new 52-week lows, wiping out any hopes of a positive divergence. Note from the chart of total new lows across the NYSE and NASDAQ that we’re at the highest level of the year. The large number of individual issues breaking down suggests the S&P may soon follow suit with its own break of the July low.
Every major market average was down Tuesday except for the Dow Utilities. If that seems familiar, it’s because Tuesday marked the third consecutive session that the Utilities have bucked the trend of the general market and closed higher. In recent years, this type of divergent action has been a consistently negative sign looking out one week. Out of 16 separate occurrences since 1996, 13 (81%) led to a lower Dow Industrials one week later, with the average loss of 2.2% more than doubling the 1.0% average gain. I have no explanation as to why this has only been negative for stocks since 1996, but the consistency is nonetheless noteworthy…
Dow Utilities Up Three, Dow Industrials Down Three
08/24/10… Dow Industrials ??? one week later
02/26/07… Dow Industrials -4.6% one week later
01/17/06… Dow Industrials -1.7% one week later
06/22/05… Dow Industrials -2.0% one week later
07/16/04… Dow Industrials -1.8% one week later
02/09/01… Dow Industrials +0.2% one week later
11/09/00… Dow Industrials -1.6% one week later
10/10/00… Dow Industrials -4.1% one week later
09/27/00… Dow Industrials +1.5% one week later
09/11/00… Dow Industrials -3.5% one week later
07/19/00… Dow Industrials -1.7% one week later
06/12/00… Dow Industrials -0.1% one week later
01/21/00… Dow Industrials -4.6% one week later
05/24/99… Dow Industrials -0.6% one week later
12/10/97… Dow Industrials -0.3% one week later
08/26/97… Dow Industrials +1.4% one week later
06/28/96… Dow Industrials -1.8% one week later
When the Only Stocks to Rally are Utilities
By Rennie on Wednesday, August 25th, 2010 at 2:22 amS&P futures posted an unfilled downside gap and a fifth consecutive lower close Tuesday. Five down days for the S&P used to be a reliable short-term buy. From 1992 through 2005 this pattern occurred 27 separate times, all of which led to a higher S&P close within two sessions. But in a sign of the times, this price pattern has barely managed 50% winners since 2006, with 4 out of 9 occurrences post-2006 failing to lead to a higher close within the next couple of sessions.
Declining issues outnumbered advancers by over a 3:1 margin, sending the NYSE McClellan Oscillator back to extreme oversold territory (<-200). In another sign of the times, crosses below the -200 level post-2009 have actually represented a better short-term sell than buy, with 12 out of 14 occurrences leading to a subsequently lower close within the next two sessions.
Tuesday’s selloff sent a large number of stocks to new 52-week lows, wiping out any hopes of a positive divergence. Note from the chart of total new lows across the NYSE and NASDAQ that we’re at the highest level of the year. The large number of individual issues breaking down suggests the S&P may soon follow suit with its own break of the July low.
Every major market average was down Tuesday except for the Dow Utilities. If that seems familiar, it’s because Tuesday marked the third consecutive session that the Utilities have bucked the trend of the general market and closed higher. In recent years, this type of divergent action has been a consistently negative sign looking out one week. Out of 16 separate occurrences since 1996, 13 (81%) led to a lower Dow Industrials one week later, with the average loss of 2.2% more than doubling the 1.0% average gain. I have no explanation as to why this has only been negative for stocks since 1996, but the consistency is nonetheless noteworthy…
Dow Utilities Up Three, Dow Industrials Down Three
08/24/10… Dow Industrials ??? one week later
02/26/07… Dow Industrials -4.6% one week later
01/17/06… Dow Industrials -1.7% one week later
06/22/05… Dow Industrials -2.0% one week later
07/16/04… Dow Industrials -1.8% one week later
02/09/01… Dow Industrials +0.2% one week later
11/09/00… Dow Industrials -1.6% one week later
10/10/00… Dow Industrials -4.1% one week later
09/27/00… Dow Industrials +1.5% one week later
09/11/00… Dow Industrials -3.5% one week later
07/19/00… Dow Industrials -1.7% one week later
06/12/00… Dow Industrials -0.1% one week later
01/21/00… Dow Industrials -4.6% one week later
05/24/99… Dow Industrials -0.6% one week later
12/10/97… Dow Industrials -0.3% one week later
08/26/97… Dow Industrials +1.4% one week later
06/28/96… Dow Industrials -1.8% one week later