Oversold (Again)

Today marks the sixth consecutive session that S&P futures have traded below the prior day’s low, the third time this year we’ve seen this oversold price pattern (2002 was the only other year since 1990 w/ three separate occurrences of six lower lows.) Historically, this has been an indication that a short-term bottom is nearby. Since 1990, we’ve seen six consecutive lower lows a total of 28 separate times, 23 of which led to a higher S&P two sessions later. That 82% rate is well above the 53% random odds of a higher S&P two sessions later. Of the five losing signals, three led to a higher S&P the next session, so only 2 out of 28 failed to lead to any short-term strength…

Six Consecutive Lower Lows for S&P Futures
08/01/11… S&P futures ??? two sessions later
06/08/11… S&P futures -0.6% two sessions later
04/14/11… S&P futures -0.7% two sessions later
01/14/09… S&P futures +1.1% two sessions later
10/09/08… S&P futures +11.4% two sessions later
06/25/07… S&P futures +0.4% two sessions later
11/03/06… S&P futures +1.5% two sessions later
05/24/06… S&P futures +1.7% two sessions later
01/22/03… S&P futures -2.0% two sessions later
12/09/02… S&P futures +1.4% two sessions later
10/10/02… S&P futures +4.9% two sessions later
09/24/02… S&P futures +4.1% two sessions later
07/24/02… S&P futures +1.2% two sessions later
04/29/02… S&P futures +2.2% two sessions later
12/14/01… S&P futures +1.7% two sessions later
08/10/01… S&P futures +0.1% two sessions later
07/26/99… S&P futures +1.0% two sessions later
07/27/98… S&P futures -2.1% two sessions later (*)
04/03/97… S&P futures +1.8% two sessions later
10/29/96… S&P futures +0.5% two sessions later
03/01/96… S&P futures +1.6% two sessions later
10/25/94… S&P futures +1.0% two sessions later
03/31/94… S&P futures +0.4% two sessions later
10/25/93… S&P futures +0.3% two sessions later
01/07/93… S&P futures +0.2% two sessions later
04/02/92… S&P futures +1.6% two sessions later
01/09/91… S&P futures +1.1% two sessions later
09/18/90… S&P futures -2.2% two sessions later (*)
04/24/90… S&P futures +0.9% two sessions later

I’d also note that S&P futures are currently sporting the largest open-to-close percentage loss in months. If that sticks into the close it would also suggest the potential for a short-term bounce. See this March 2nd column for more.

Looking beyond the next 1-2 days, we saw oversold conditions from other indicators around the end of last week and the market has failed to bounce. That’s a worrisome sign that further downside lies in store. Last Wednesday the NYSE McClellan Oscillator closed under -200, generally an indication of limited downside potential over the next few sessions, yet the S&P is currently set to close roughly 2% lower than last Wednesday. A McClellan below -200 followed by an S&P down 0.5% or more three sessions later has only occurred 14 times since 1970…

NYSE McClellan <-200, S&P Down 0.5% Three Days Later
08/01/11… S&P500 ??? one week later
05/19/10… S&P500 -4.2% one week later
05/10/10… S&P500 -2.0% one week later
01/29/10… S&P500 -0.7% one week later
03/05/09… S&P500 +10.0% one week later
02/23/09… S&P500 -5.7% one week later
10/09/08… S&P500 +4.0% one week later
06/26/08… S&P500 -1.6% one week later
11/12/07… S&P500 -0.4% one week later
07/27/07… S&P500 -1.8% one week later
05/22/06… S&P500 -0.2% one week later
09/02/98… S&P500 -1.0% one week later
07/31/98… S&P500 -2.8% one week later
10/21/87… S&P500 -9.7% one week later
10/25/78… S&P500 -0.5% one week later

Considering the market is already short-term oversold when the signal is triggered, the fact that only two instances led to a higher S&P one week later is noteworthy.

Categories : Archived Intraday Commentary, Intraday Commentary

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