WR7 on the Weekly S&P

This past week, the S&P500 closed at a new high for the year but also posted its widest range (34.5) since the first week of December.  When the weekly S&P posts a WR7 (wide range 7) bar and closes at its highest level in seven weeks, the market’s performance over the next month has been sub-par with a tendency towards lower prices. The table below lists each of the last 42 instances since 1990 in which the weekly S&P500’s range was the largest in seven weeks and the S&P closed at a seven-week high…

Weekly SPX Largest Range in Seven Weeks & Seven-Week High
02/04/11… S&P500 ??? four weeks later
11/05/10… S&P500 -0.1% four weeks later
04/23/10… S&P500 -10.6% four weeks later
02/02/07… S&P500 -4.2% four weeks later
04/21/06… S&P500 -3.4% four weeks later
01/06/06… S&P500 -1.7% four weeks later
11/05/04… S&P500 +2.1% four weeks later (*)
01/16/04… S&P500 +0.5% four weeks later
09/19/03… S&P500 +0.3% four weeks later
06/06/03… S&P500 -0.2% four weeks later
05/30/03… S&P500 +1.3% four weeks later
03/21/03… S&P500 -0.3% four weeks later
03/17/00… S&P500 -7.4% four weeks later
07/02/99… S&P500 -4.5% four weeks later
04/23/99… S&P500 -2.0% four weeks later
01/08/99… S&P500 -2.8% four weeks later
04/03/98… S&P500 -0.2% four weeks later
07/25/97… S&P500 -1.6% four weeks later
07/03/97… S&P500 +3.3%  four weeks later (*)
05/02/97… S&P500 +4.3%  four weeks later (*)
02/14/97… S&P500 -1.9% four weeks later
11/08/96… S&P500 +1.2% four weeks later
02/09/96… S&P500 -3.5% four weeks later
10/13/95… S&P500 +1.4% four weeks later
09/29/95… S&P500 -0.8% four weeks later
09/15/95… S&P500 +0.2% four weeks later
06/02/95… S&P500 +2.3% four weeks later (*)
02/03/95… S&P500 +1.4% four weeks later
08/26/94… S&P500 -3.0% four weeks later
01/28/94… S&P500 -2.6% four weeks later
10/15/93… S&P500 -0.9% four weeks later
08/27/93… S&P500 -0.6% four weeks later
12/18/92… S&P500 -0.9% four weeks later
07/31/92… S&P500 -2.2%  four weeks later
12/27/91… S&P500 +2.2% four weeks later (*)
10/18/91… S&P500 -2.5% four weeks later
08/23/91… S&P500 -1.6% four weeks later
05/31/91… S&P500 -4.8% four weeks later
04/19/91… S&P500 -3.1% four weeks later
04/05/91… S&P500 +1.5% four weeks later
01/18/91… S&P500 +11.1% four weeks later (*)
07/13/90… S&P500 -8.7% four weeks later
05/11/90… S&P500 +1.9% four weeks later

Nearly two-thirds of the time the S&P500 was lower four weeks later, indicating the wide-range bar often represents a final flood of buyers before an intermediate-term top. The random chance for a lower S&P four weeks later is only 40%, so the 64% rate over the last 42 occurrences represents a significant downside edge over random. In only one case out of the last 17 and only six cases out of 42 was the S&P up 2%+ four weeks later, while it was down 2%+ fifteen times.

At the same time, we should keep in mind that the S&P also just posted ten consecutive higher highs on its weekly chart, a pattern that invariably leads to a higher weekly close at some point over the next 4-7 weeks. In addition, S&P futures just posted a second unfilled upside gap in less than a week, a pattern that usually leads to a flat-to-up market one month later (see this January 13th post for the recent track record). In light of last week’s wide-range bar I’d say the intermediate-term outlook is mixed, and the notion of a generally range-bound market over the next four weeks sounds about right. Connecting the weekly highs off the December 3rd  bar points to the SPX 1340 area as resistance this coming week that will likely hold over the next four weeks if the WR7 study proves accurate. On the downside, 1290 is an area to watch for support given that the S&P is rarely down much more than 1% in the month following two unfilled upside gaps.

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

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