Today's Reversal

[Billy]

FYI, this is an extract from Bespoke Premium service. We live a definitely rare market behavior.

9593

"First Hour Negative Reversals: Fasten Your Seatbelts
After rallying more than 1% on news of a potential debt deal, today’s weaker than expected
ISM Manufacturing report sent the S&P 500 down as much as 0.86% by 10:30. Going back to
1985, today is only the tenth time the S&P 500 has ever been up 1% or more in the first half
hour of trading, only to give back all of that and more (0.5%) by 10:30 AM ET. In the table below
we highlight each of these days.

Before 2008, these types of negative reversals had only occurred two other times between
1985 and 2007. Since then there have been eight other occurrences with four occurring from
October 2008 to November 2009! While the average intraday return for the S&P 500 from
10:30 to the close has been a gain of 0.25%, that doesn’t tell nearly the entire story as there
was continued volatility throughout the day. In every occurrence, the S&P 500 finished the
day with another move of more than 1% up or down."

[Billy]

And here are some stats from Markettells.com subscription service (posted with permission).:

"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.

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.