Short-term Risk Level: 5
Bottom Line
Many stocks had hearty moves on Friday, but most
of the price changes took place immediately after the open. Our short-term
guides remain neutral or mixed, with no particularly compelling sentiment
extremes.
Sentiment
Traders, yet again, got a jump start on the day by
pushing prices hard before the open of regular trading hours. And then
they left.
We almost always see reduced volume when the bond
market is closed. For institutional investors, trading stocks without
seeing how bonds trade is like trying to drive with one eye closed.
Today was the 17th time in the past 3 months that
the S&P 500 SPDR (SPY) gapped by more than +/- 1% at the open and then didn't
close that gap during the day. This means that the S&P didn't reverse
enough to kiss the previous day's close.
As
we can see from the
chart to the right, this level of "unclosed gap" behavior has been seen only
4 other times. All occurred while the market was forming a major bottom.
From 1993 - 1996, there had never been more than 6
unfilled gaps within 3 months. Using the S&P 500 futures back to 1982, the
only other time that even remotely equaled this was January 1988, with 18 such
unfilled gaps during a 3-month span. Again, that proved to be a major
market bottom.
Technicals, Seasonality, Etc.
Speaking of unfilled 1% gaps, Friday was only the
2nd time in the history of SPY that it managed such a feat on the lowest volume
in three months. The other was 7/17/09, which happened to lead to
excellent gains going forward.
There were 7 times in happened with the lowest
volume in one month. After those, the next day was positive 5 of
the 7 times, but three days later SPY was positive only 1 of the 7 times.
Earnings season will be wrapping up next week,
preliminarily with a gain of more than +5% for the S&P. Since 1950, when
the S&P gained 5% or more during earnings, then the following off-season was
positive 64% of the time, averaging +2.0%.
When it did not gain that much during
earnings, then the following off-season was also positive 64% of the time,
averaging +0.9%. So it doesn't look like a particularly predictive sign.
