Secondary ‘Recovery’ Signals Triggered Friday

The bearish recovery signal discussed in Friday’s intraday update wasn’t technically triggered given the S&P’s 1.5% closing gain, however there are other indications pointing to a similar outcome. For instance, Friday was only the 14th time that a 3:1+ positive breadth session on the NYSE coincided with a lower high for S&P futures. All previous instances led to a subsequently lower close (below the setup day’s close) within the next four sessions…

3:1 Positive Breadth and Lower Highs for S&P Futures
08/26/11… ???
03/08/11… Lower S&P close one session later
05/21/10… Lower S&P close one session later
05/03/10… Lower S&P close one session later
02/01/10… Lower S&P close three sessions later
04/21/09… Lower S&P close one session later
02/24/09… Lower S&P close one session later
01/21/09… Lower S&P close one session later
12/02/08… Lower S&P close two sessions later
10/30/08… Lower S&P close four sessions later
09/30/08… Lower S&P close two sessions later
01/31/08… Lower S&P close two sessions later
01/28/08… Lower S&P close two sessions later
05/11/07… Lower S&P close one session later

I’d also note that SPY traded below Steenbarger’s volatility-adjusted S2 target before closing up 1% but below R2. Of the last 17 times this pattern has occurred, all but one led to a lower SPY close (below the setup day’s close) 2-3 sessions later…

SPY Trades Below Steenbab S2, Closes Up 1% But Below R2
08/26/11… SPY ??? *
05/21/10… SPY -1.2% two sessions later *
10/22/09… SPY -2.2% two sessions later *
02/05/09… SPY -1.7% three sessions later *
12/12/08… SPY +2.2% three sessions later
09/30/08… SPY -3.6% two sessions later
09/18/08… SPY -1.3% three sessions later
09/16/08… SPY -1.7% two sessions later *
09/11/08… SPY -4.3% two sessions later
01/31/08… SPY -2.4% three sessions later
01/09/08… SPY -0.2% two sessions later  *
08/06/07… SPY -0.6% three sessions later
02/28/07… SPY -1.6% two sessions later
01/30/02… SPY -1.8% three sessions later
03/13/01… SPY -2.0% two sessions later
01/25/00… SPY -1.2% two sessions later *
12/01/98… SPY -1.9% two sessions later
09/01/98… SPY -1.5% two sessions later
08/05/98… SPY +0.0% three sessions later  *
01/12/98… SPY +1.0% three sessions later

Friday’s session was actually more extreme than that, as SPY traded below S3 and didn’t even close above R1. That’s only occurred seven times in the history of the SPY (marked with an asterisk in the table above).

From a longer-term perspective…

The S&P has only three sessions to get back over the 1200 level. Failure to do so would trigger the longer-term sell signal based on a cross of the 20-month moving average (see 6/26/11 column).

The Last Hour indicator remains at its highest level of the year, a danger sign for stocks as it suggests the retracement of the 2009-2011 decline is underway.

Commodity trading advisors remain bearish on stocks as evidenced by the Market Vane survey hitting a new low for the year.

Keep an eye on the cumulative TICKscore line. It’s still about 100 points away from making a higher high, which will be noteworthy whenever that does occur considering the straight-down path it’s been on this year.

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

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