CTA’s Bail as SPX Breaks 1200

The S&P500 has run into resistance around the 1200 level the last two sessions. Recall that this could prove a difficult area to overcome given the S&P’s 13% drop earlier this month (see this August 11th column for details). Over the last 30 occurrences stretching back fifty years, the S&P has recovered from a 10%+ intra-month drawdown to close with better than a 5% loss (~SPX 1225) only two times, and has never recovered to finish the month with better than a 3% loss (~SPX 1250).

Noteworthy that the Market Vane survey of commodity trading advisors turned bearish as the SPX fell below 1200 during the first week of August. Market Vane registered less than 50% bulls during the week ending 8/5 and came in even lower last week at 44%. That’s a negative sign until this survey moves back over 50% given this group’s tendency to be on the right side of the market.

The S&P500 recouped the big selloff of 8/10 at the end of last week, suggesting we’ll see the SPX close back under 1178 in the Tuesday-Thursday time frame of this week (see 8/12 column). This indicates the potential for further weakness over the next 1-2 sessions.

The intriguing point from an intermediate-term perspective is that on Monday, Cumulative TICK closed over +100,000, its highest close of the year, and that coincided with the S&P closing just over 1200. Historically, a Cumulative TICK at a two-month high usually leads to higher prices two weeks later…

NYSE Cumulative TICK Hits a Two-Month (40 trading day) High
08/15/11… S&P500 ??? two weeks later
06/30/11… S&P500 -0.3% two weeks later
04/26/11… S&P500 +0.7% two weeks later
02/01/11… S&P500 +1.6% two weeks later
10/08/10… S&P500 +1.5% two weeks later
10/05/10… S&P500 +0.4% two weeks later
07/22/10… S&P500 +2.9% two weeks later
07/20/10… S&P500 +3.4% two weeks later
07/07/10… S&P500 +0.9% two weeks later
03/05/10… S&P500 +1.9% two weeks later
02/02/10… S&P500 -0.4% two weeks later
12/23/09… S&P500 +2.2% two weeks later
12/01/09… S&P500 -0.1% two weeks later
07/15/09… S&P500 +4.6% two weeks later
03/12/09… S&P500 +10.9% two weeks later
03/10/09… S&P500 +12.0% two weeks later
01/02/09… S&P500 -8.8% two weeks later
10/13/08… S&P500 -15.4% two weeks later
07/29/08… S&P500 +2.1% two weeks later
07/16/08… S&P500 +3.1% two weeks later
04/16/08… S&P500 +1.5% two weeks later
03/18/08… S&P500 +2.8% two weeks later
11/28/07… S&P500 +1.2% two weeks later
06/27/07… S&P500 +2.8% two weeks later
05/02/07… S&P500 +1.2% two weeks later
04/05/07… S&P500 +2.8% two weeks later
03/20/07… S&P500 +1.9% two weeks later
10/12/06… S&P500 +1.9% two weeks later
10/04/06… S&P500 +1.2% two weeks later
07/19/06… S&P500 +1.5% two weeks later
06/01/06… S&P500 -2.3% two weeks later

In 24 out of the last 30 occurrences, or 80% of the time, the S&P was trading higher two weeks later, significantly better than the 59% random odds for a higher S&P ten trading days later in the same time frame. In only 3 cases out of the last 30 was the S&P down more than 1% two weeks later, while it was up 1% 21 times.

I have my doubts about whether the S&P will manage to end the month over 1200 given that it would be an unusually strong comeback on the heels of a 13% intra-month drawdown, not to mention that CTA’s turned bearish on the break of 1200. But given Monday’s strong TICK and the recent string of three 90% up volume sessions on 8/9, 8/11 and 8/15, a bullish argument can be made. The Last Hour indicator has also settled down recently. If it doesn’t vault into new highs for the year, it would support the bullish case. Let’s see if we gain any additional insight over the next 1-2 days that would further justify buying into weakness.

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

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