Old Highs and Lows are happening places and when given the opportunity, markets will run to these levels to check out what is going on. Old Highs tend to provide initial short-term resistance and then once eventually broken, the previous High then tends to provide support for the next pullback, as those who previously shorted the market at this level, now have an opportunity to break even. The longer in place and more well established the High/Low level is, the more of an obstacle in tends to be.
The February S&P intraday High was a well established 1344.07. It took the S&P 44 trading days, a 7% pullback, and three attempts before taking out the Feb High on April 26. Once broken, I postulated that this 1344 level would require a retest and should provide support for some eventual consolidation. Today, the S&P traded down to 1341.50 before finding support and closing above (1347.32) this important 1344 level.
The general trading rule is to buy the initial test of support, which the traders did today and if the support level is tested a second time, the long should be covered and then if the support level is tested a third time, one should expect the level to give and go short. Therefore, it would probably serve the Bulls well to mosey on along now.
Following up on our 'first two down days of May' study yesterday, Rennie Yang at MarketTells posted a study last night in which he showed that the last 30 times the S&P was down on each of the first two trading days of any month, if the S&P could make it back to breakeven at anytime during the month, the S&P was 26-4 a week later for an average weekly gain of 2.0%. This is inline with our breakeven level thesis for pivot points. Now, if we can get the S&P back to April's close of 1363.61, we could set our sights on 1400. Good stuff, Mr. Yang.
So, for the next couple of days, we have a strong argument to sell a close below 1344.07 and to buy a close above 1363.61 for the next couple of days.
The Seasonals
The first Thursday in May is 10-20, over the last 30 years for a median loss of 0.21%.
The S&P is up 2.64% over the last 10 days. When the last 10 days are +1.66 to +3.63 the First Thursday in May is 2-8 over the last 30 years for a median loss of 0.24%.
Following up yesterday's study, the S&P is down 1.02% over the last two days. When days 2-3 of May are down 1.97-0.07%, the following week is 1-9 for a median loss of 0.61%
Three Day Pullbacks in an Uptrending Market
ADT3 is 35.806 and XMA100 is 1.355. Recall XMA100 is an exponential moving average of price, normalized to 0, representing standard deviations (-3 to +3) from the norm. ADT3 is our three day Breadth measure, ADV/(ADV+DEC) When ADT3 reaches the 35-36 level and XMA is 1.35ish, it has been a good buy for the intermediate time frame. Note, that 19 of the top 20 matches are positive one year later. This is similar to our moving average study listed in the Market Lab, which also suggest buying consolidation type activity in a solidly uptrending market.
BREADTH ANALYSIS FOR ADT3 = 35.149 TO 36.677
WHEN SPT100 = 0.957 TO 1.653
TOP 30 IN ORDER OF BEST MATCH
# DATE RANK ADT3 SP100 1MT 3MT 6MT 12MT
1 19990217 1 35.773 1.448 6.03 9.43 9.81 13.42
2 19710519 2 35.860 1.251 -2.08 -2.88 -9.36 7.83
3 19750321 3 35.737 1.236 4.60 11.06 2.99 20.61
4 19800222 4 35.861 1.218 -11.07 -5.24 9.54 10.03
5 19950526 5 35.677 1.242 3.91 6.96 14.57 29.57
6 19850611 6 35.630 1.255 2.06 -2.12 9.14 27.56
7 19991122 7 35.926 1.496 1.06 -4.84 -1.42 -6.94
8 19860902 8 36.247 1.403 -5.87 2.21 13.87 29.44
9 20030710 9 35.738 1.154 -1.12 5.00 13.47 12.56
10 19961024 10 36.064 1.212 6.61 9.72 9.81 34.08
11 19960409 11 35.914 1.144 0.51 1.96 8.49 18.44
12 19951027 12 36.156 1.216 3.73 7.23 12.72 20.91
13 19960610 13 35.149 1.333 -2.40 -1.24 11.21 28.73
14 19981211 14 35.434 1.496 8.35 11.25 10.90 21.48
15 19961231 15 36.536 1.342 6.13 2.21 19.49 31.01
16 20091217 16 36.327 1.450 3.64 6.40 1.82 13.49
17 20031111 17 35.652 1.118 2.35 10.62 4.67 12.13
18 19890614 18 35.798 1.653 2.47 5.97 8.37 12.06
19 19970829 19 36.389 1.434 5.99 6.22 16.66 14.21
20 19910321 20 36.602 1.347 4.81 3.05 5.82 12.20
21 19890925 21 36.604 1.395 -0.50 0.93 -2.04 -10.45
22 19891207 22 35.840 1.018 1.33 -3.06 4.48 -5.71
23 19990722 23 36.676 1.339 -1.79 -4.36 5.91 8.76
24 19851224 24 35.308 1.520 -0.34 13.61 19.26 19.12
25 19970319 25 36.677 1.332 -2.47 14.28 20.97 38.68
26 20070608 26 35.901 1.005 1.51 -3.59 -0.20 -9.75
27 19860515 27 36.178 1.605 4.82 5.43 4.30 22.61
28 19810330 28 35.802 0.957 -1.09 -2.29 -13.48 -16.39
29 20030911 29 35.270 1.147 2.13 5.39 8.89 10.58
30 19831003 30 36.009 1.010 -1.42 -1.07 -4.92 -2.03
#UP-DN = 19-11 20-10 24- 6 24- 6
AVG%CHG= 1.36 3.63 7.85 16.58
MED%CHG= 1.79 4.02 8.69 13.45
Wayne Whaley is a Systems Engineering graduate from Georgia Tech who takes an engineering approach to tape analysis. He is a registered CTA, co-owner of Witter & Lester and the 2010 MTA Charles Dow Award winner for research surveying various tape measures. For more insight see www.witterlester.com.
