Employment Report Surprise? A Higher High on Thursday Says No
By
Rennie on Thursday, November 4th, 2010 at 3:12 am
As long as the S&P500 trades above today’s high of 1198.30 during Thursday’s session, it would indicate no downside surprise is likely on Friday. Historically, when the S&P touches a 40-day high on the day prior to the Employment Report release, the market has a strong track record of NOT posting a significant selloff. Over the last 30 occurrences stretching back to 1995, not a single instance coincided with a 1% down day for the S&P500, and only 2 out of 30 involved more than a 0.5% drop.
SPX Touches 40-day High Prior to Jobs Report
10/07/10… S&P500 +0.6% next session
01/07/10… S&P500 +0.3% next session
12/03/09… S&P500 +0.6% next session
08/06/09… S&P500 +1.3% next session
05/07/09… S&P500 +2.4% next session
05/01/08… S&P500 +0.3% next session
05/31/07… S&P500 +0.4% next session
05/03/07… S&P500 +0.2% next session
02/01/07… S&P500 +0.2% next session
12/07/06… S&P500 +0.2% next session
10/05/06… S&P500 -0.3% next session
08/03/06… S&P500 -0.1% next session
01/05/06… S&P500 +0.9% next session
03/03/05… S&P500 +1.0% next session
12/02/04… S&P500 +0.1% next session
11/04/04… S&P500 +0.4% next session
01/08/04… S&P500 -0.9% next session (*)
06/05/03… S&P500 -0.2% next session
08/31/00… S&P500 +0.2% next session
07/01/99… S&P500 +0.8% next session
11/04/98… S&P500 +1.3% next session
07/01/98… S&P500 -0.2% next session
04/02/98… S&P500 +0.2% next session
02/05/98… S&P500 +0.9% next session
12/04/97… S&P500 +1.1% next session
07/31/97… S&P500 -0.8% next session (*)
07/02/97… S&P500 +1.4% next session
02/01/96… S&P500 -0.4% next session
07/06/95… S&P500 +0.4% next session
06/01/95… S&P500 -0.2% next session
05/04/95… S&P500 -0.1% next session
There are indications we’ll see a pullback on Thursday. The 2-day RSI for the SPX closed over 98. Since 2000, a cross above the 98 threshold has meant limited upside potential until RSI closes back under 98. Out of 33 occurrences since 2000, 26 led to a lower close (below the setup day’s close) within the next three sessions. See my October 13th column for the recent track record.
Wednesday’s big selloff in bonds gave a boost to equities but also tilts the odds in favor of a lower S&P close Thursday. Historically, a 2%+ down day for TLT precedes a decline in stocks the following day about two-thirds of the time…
TLT Closes Down Over 2%
11/03/10… S&P500 ??? next day
09/01/10… S&P500 +0.9% next day
08/27/10… S&P500 -1.5% next day
05/27/10… S&P500 -1.2% next day
05/10/10… S&P500 -0.3% next day
10/09/09… S&P500 +0.4% next day
08/21/09… S&P500 -0.1% next day
07/15/09… S&P500 +0.9% next day
06/04/09… S&P500 -0.3% next day
06/01/09… S&P500 +0.2% next day
05/21/09… S&P500 -0.2% next day
05/07/09… S&P500 +2.4% next day
04/03/09… S&P500 -0.8% next day
02/13/09… S&P500 -4.6% next day
02/03/09… S&P500 -0.8% next day
01/29/09… S&P500 -2.3% next day
01/28/09… S&P500 -3.3% next day
01/21/09… S&P500 -1.5% next day
01/05/09… S&P500 +0.8% next day
01/02/09… S&P500 -0.5% next day
12/31/08… S&P500 +3.2% next day
11/13/08… S&P500 -4.2% next day
09/30/08… S&P500 -0.5% next day
09/19/08… S&P500 -3.8% next day
04/01/08… S&P500 -0.2% next day
02/07/08… S&P500 -0.4% next day
01/24/08… S&P500 -1.6% next day
04/02/04… S&P500 +0.8% next day
10/03/03… S&P500 +0.4% next day
07/21/03… S&P500 +1.0% next day
07/15/03… S&P500 -0.6% next day
01/02/03… S&P500 -0.1% next day
11/27/02… S&P500 -0.3% next day
11/14/02… S&P500 +0.6% next day
10/15/02… S&P500 -2.4% next day
Out of 34 occurrences since inception of TLT in 2002, 23 (68%) led to a lower S&P close the following session, significantly above the 46% random chance for a lower S&P close one day later in the same time frame.
From an intermediate-term perspective, two noteworthy developments…
Today’s drop to multi-year lows for SPX 10-day historical volatility triggered the two-week buy signal discussed yesterday. This argues for more of the same heading into mid-November.
Recently mentioned sign of a momentum top on the cumulative SPX up-down volume chart is looking a lot less negative after the last couple of sessions. Notice that the cumulative line is nearly back at 10/13 levels. If 10/13 was a momentum top, 10/25 should have represented the subsequent price top on weaker internals. The fact that the S&P closed above the 10/25 highs pretty much invalidates that theory.
Employment Report Surprise? A Higher High on Thursday Says No
By Rennie on Thursday, November 4th, 2010 at 3:12 amAs long as the S&P500 trades above today’s high of 1198.30 during Thursday’s session, it would indicate no downside surprise is likely on Friday. Historically, when the S&P touches a 40-day high on the day prior to the Employment Report release, the market has a strong track record of NOT posting a significant selloff. Over the last 30 occurrences stretching back to 1995, not a single instance coincided with a 1% down day for the S&P500, and only 2 out of 30 involved more than a 0.5% drop.
SPX Touches 40-day High Prior to Jobs Report
10/07/10… S&P500 +0.6% next session
01/07/10… S&P500 +0.3% next session
12/03/09… S&P500 +0.6% next session
08/06/09… S&P500 +1.3% next session
05/07/09… S&P500 +2.4% next session
05/01/08… S&P500 +0.3% next session
05/31/07… S&P500 +0.4% next session
05/03/07… S&P500 +0.2% next session
02/01/07… S&P500 +0.2% next session
12/07/06… S&P500 +0.2% next session
10/05/06… S&P500 -0.3% next session
08/03/06… S&P500 -0.1% next session
01/05/06… S&P500 +0.9% next session
03/03/05… S&P500 +1.0% next session
12/02/04… S&P500 +0.1% next session
11/04/04… S&P500 +0.4% next session
01/08/04… S&P500 -0.9% next session (*)
06/05/03… S&P500 -0.2% next session
08/31/00… S&P500 +0.2% next session
07/01/99… S&P500 +0.8% next session
11/04/98… S&P500 +1.3% next session
07/01/98… S&P500 -0.2% next session
04/02/98… S&P500 +0.2% next session
02/05/98… S&P500 +0.9% next session
12/04/97… S&P500 +1.1% next session
07/31/97… S&P500 -0.8% next session (*)
07/02/97… S&P500 +1.4% next session
02/01/96… S&P500 -0.4% next session
07/06/95… S&P500 +0.4% next session
06/01/95… S&P500 -0.2% next session
05/04/95… S&P500 -0.1% next session
There are indications we’ll see a pullback on Thursday. The 2-day RSI for the SPX closed over 98. Since 2000, a cross above the 98 threshold has meant limited upside potential until RSI closes back under 98. Out of 33 occurrences since 2000, 26 led to a lower close (below the setup day’s close) within the next three sessions. See my October 13th column for the recent track record.
Wednesday’s big selloff in bonds gave a boost to equities but also tilts the odds in favor of a lower S&P close Thursday. Historically, a 2%+ down day for TLT precedes a decline in stocks the following day about two-thirds of the time…
TLT Closes Down Over 2%
11/03/10… S&P500 ??? next day
09/01/10… S&P500 +0.9% next day
08/27/10… S&P500 -1.5% next day
05/27/10… S&P500 -1.2% next day
05/10/10… S&P500 -0.3% next day
10/09/09… S&P500 +0.4% next day
08/21/09… S&P500 -0.1% next day
07/15/09… S&P500 +0.9% next day
06/04/09… S&P500 -0.3% next day
06/01/09… S&P500 +0.2% next day
05/21/09… S&P500 -0.2% next day
05/07/09… S&P500 +2.4% next day
04/03/09… S&P500 -0.8% next day
02/13/09… S&P500 -4.6% next day
02/03/09… S&P500 -0.8% next day
01/29/09… S&P500 -2.3% next day
01/28/09… S&P500 -3.3% next day
01/21/09… S&P500 -1.5% next day
01/05/09… S&P500 +0.8% next day
01/02/09… S&P500 -0.5% next day
12/31/08… S&P500 +3.2% next day
11/13/08… S&P500 -4.2% next day
09/30/08… S&P500 -0.5% next day
09/19/08… S&P500 -3.8% next day
04/01/08… S&P500 -0.2% next day
02/07/08… S&P500 -0.4% next day
01/24/08… S&P500 -1.6% next day
04/02/04… S&P500 +0.8% next day
10/03/03… S&P500 +0.4% next day
07/21/03… S&P500 +1.0% next day
07/15/03… S&P500 -0.6% next day
01/02/03… S&P500 -0.1% next day
11/27/02… S&P500 -0.3% next day
11/14/02… S&P500 +0.6% next day
10/15/02… S&P500 -2.4% next day
Out of 34 occurrences since inception of TLT in 2002, 23 (68%) led to a lower S&P close the following session, significantly above the 46% random chance for a lower S&P close one day later in the same time frame.
From an intermediate-term perspective, two noteworthy developments…
Today’s drop to multi-year lows for SPX 10-day historical volatility triggered the two-week buy signal discussed yesterday. This argues for more of the same heading into mid-November.
Recently mentioned sign of a momentum top on the cumulative SPX up-down volume chart is looking a lot less negative after the last couple of sessions. Notice that the cumulative line is nearly back at 10/13 levels. If 10/13 was a momentum top, 10/25 should have represented the subsequent price top on weaker internals. The fact that the S&P closed above the 10/25 highs pretty much invalidates that theory.