Volatility Indexes Down for Seventh Consecutive Session

It may have only happened 14 times in the history of the index, but it’s nonetheless noteworthy that on Wednesday VXO posted its seventh consecutive lower close. It’s rare to see VXO trend in one direction for a sustained period of time, but when it does occur there’s usually important longer-term implications. Of the 14 separate times VXO closed down seven days in a row, the S&P500 was higher two months (forty trading days) later every time, averaging a gain of 4%…

VXO Down Seven Consecutive Sessions
10/12/11… S&P500 ??? two months later
03/25/11… S&P500 +0.3% two months later
11/10/09… S&P500 +4.8% two months later
07/17/09… S&P500 +11.6% two months later
08/24/07… S&P500 +1.8% two months later
05/24/05… S&P500 +2.8% two months later
10/19/98… S&P500 +9.5%  two months later
07/14/94… S&P500 +3.3%  two months later
12/23/93… S&P500 +0.1% two months later
01/18/93… S&P500 +3.3% two months later
07/16/92… S&P500 +0.5% two months later
01/31/91… S&P500 +8.0%  two months later
11/19/90… S&P500 +2.7% two months later
12/21/87… S&P500 +3.4% two months later
05/06/87… S&P500 +3.4% two months later

This study is at odds with most of my longer-term work, recently outlined in last Friday’s column, but since Monday’s 2% up day following three higher lows, I’ve been more open to the possibility that this move may not end like previous rally attempts over the last couple of months. Heading into the end of October, the bullish case would be strengthened if we…

1) close out October above SPX 1210 (back over the 20-month average),

2) see the Market Vane survey back over 50%.

3) see the Last Hour indicator rally back near the 6,000 level

4) see a reduction in the number of lopsided breadth days

On a short-term basis, we’re seeing some signs of a short-term top, but also signs that conditions could turn choppy around current levels. A negative sign for Thursday’s session is that S&P futures closed below the day’s midpoint despite 3:1 positive breadth on the NYSE. That’s only happened sixteen times since 1990, all of which were in the last few years. In most cases, the relatively weak close in spite of the lopsided positive breadth usually led to a flat-to-down day the next session. Only once did the S&Ps close up more than 0.5%…

S&P Futures Close <Midpoint, NYSE Breadth 3:1+ Positive
10/12/11… S&P futures ??? next day
09/27/11… S&P futures -1.8% next day
10/13/10… S&P futures -0.1% next day
08/17/10… S&P futures -0.2% next day
07/13/10… S&P futures +0.1% next day
02/09/10… S&P futures -0.3% next day
11/23/09… S&P futures -0.1% next day
10/06/09… S&P futures +0.5% next day
08/07/09… S&P futures +0.1% next day
07/30/09… S&P futures +0.2% next day
03/31/09… S&P futures +1.8% next day (*)
03/04/09… S&P futures -3.2% next day
01/06/09… S&P futures -2.7% next day
12/08/08… S&P futures -1.7% next day
09/19/08… S&P futures -2.6% next day
04/18/08… S&P futures +0.0% next day
06/15/07… S&P futures -0.1% next day

S&P futures posted its sixth higher high Wednesday, a price pattern that tends to lead to a lower S&P 2-4 trading days later. Since 2000 we’ve seen 33 separate instances of six higher highs, 28 (85%) of which led to a lower S&P 2-4 sessions later, a decent edge over the 63% random chance…

Six Higher Highs for S&P Futures
10/12/11… ???
03/30/11… No lower S&P close 2-4 sessions later
07/27/10… Lower S&P close two sessions later
07/13/10… Lower S&P close three sessions later
06/16/10… Lower S&P close four sessions later
03/12/10… No lower S&P close 2-4 sessions later
02/19/10… Lower S&P close two sessions later
01/08/10… Lower S&P close two sessions later
12/29/09… Lower S&P close two sessions later
11/11/09… Lower S&P close two sessions later
09/11/09… No lower S&P close 2-4 sessions later
08/25/09… Lower S&P close four sessions later
07/27/09… Lower S&P close two sessions later
07/01/09… Lower S&P close two sessions later
03/17/09… Lower S&P close three sessions later
05/19/08… Lower S&P close four sessions later
07/05/07… Lower S&P close three sessions later
03/15/06… Lower S&P close four sessions later
06/17/05… Lower S&P close four sessions later
05/23/05… Lower S&P close two sessions later
12/16/04… Lower S&P close two sessions later
11/02/04… No lower S&P close 2-4 sessions later
04/01/04… No lower S&P close 2-4 sessions later
01/22/04… Lower S&P close three sessions later
01/08/04… Lower S&P close two sessions later
12/02/03… Lower S&P close three sessions later
05/16/03… Lower S&P close two sessions later
03/20/03… Lower S&P close two sessions later
07/31/02… Lower S&P close two sessions later
03/08/02… Lower S&P close three sessions later
02/14/02… Lower S&P close two sessions later
11/07/01… Lower S&P close three sessions later
08/08/00… Lower S&P close two sessions later
07/14/00… Lower S&P close two sessions later

One short-term positive Wednesday was the fact that NYSE TICK was unusually subdued, with not a single intraday reading above +1000. That makes today’s high the lowest high in two months. Below I’ve extracted every instance since 2007 in which the NYSE TICK posted its lowest intraday high in at least two months. In only 2 cases out of 32 did the SPX not post a subsequently higher close (above the setup day’s close) within the next three sessions…

NYSE TICK Posts Lowest High in Two Months
10/12/11… ???
06/13/11… Higher S&P close one session later
12/29/10… Higher S&P close three sessions later
12/13/10… Higher S&P close one session later
12/06/10… Higher S&P close one session later
11/09/10… Higher S&P close one session later
09/13/10… Higher S&P close two sessions later
08/05/10… Higher S&P close two sessions later
04/15/10… No higher close within four sessions
02/04/10… Higher S&P close one session later
12/22/09… Higher S&P close one session later
12/21/09… Higher S&P close one session later
10/28/09… Higher S&P close one session later
07/02/09… Higher S&P close one session later
06/22/09… Higher S&P close one session later
06/16/09… Higher S&P close two sessions later
03/02/09… Higher S&P close two sessions later
12/24/08… Higher S&P close one session later
09/09/08… Higher S&P close one session later
06/11/08… Higher S&P close one session later
05/30/08… Higher S&P close four sessions later
05/07/08… Higher S&P close one session later
03/06/08… Higher S&P close three sessions later
02/21/08… Higher S&P close one session later
10/19/07… Higher S&P close one session later
10/08/07… Higher S&P close one session later
07/24/07… Higher S&P close one session later
07/16/07… Higher S&P close three sessions later
07/11/07… Higher S&P close one session later
07/10/07… Higher S&P close one session later
07/03/07… Higher S&P close one session later
05/07/07… Higher S&P close two sessions later
04/30/07… Higher S&P close one session later

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

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