Short-term Outlook (1-5 Days):  Neutral  Since June 24, 1067 SPX

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Equity Indicators - Updates and Extremes

NYSE Up Volume Ratio

I've always been a big fan of thrusts of one sort or another, and we've discussed them from various angles many times over the past decade.  When we get a sharp movement in price or an indicator on one time frame, when emerging from the opposite extreme on a higher time frame, it has very often marked a change in trend.

Many of the thrusts come from breadth figures, and they've been extremely reliable over the years.  I have strong doubts that we can rely on them as much as we used to due to increased volatility and "all or nothing" days that we're seeing now (see this June comment for some background on that), but they're still worth investigating.

We have one now.

During the past month, the 10-day Up Volume Ratio on the NYSE sunk to an extremely low level, but over the past five days it has skyrocketed to one of the highest readings in years as volume has rushed into stocks that are up on the day.  This is equivalent to most of the containers on a cargo ship sliding over to the left, then sharply reversing course and slipping far enough to the right to almost capsize the boat.

Let's go back to 1950 and look for any other time that the 10-day Ratio dropped below 40% during the past month, then the 5-day ratio rose to at least 77% and see how the S&P fared going forward.

Well, the results were positive, as we should probably expect, but there was one major failure.  In November 2008, we saw a similar breadth thrust, but the S&P rolled over immediately and suffered a huge drawdown.

Eventually, those losses were erased, however, and by six months later we show a positive return.  Same for every other instance but two...though those losses were quite modest.

Overall, during the next six months, the median maximum decline was only -3.5%, while the median maximum gain was +12.7%, nearly four times as large.

On a very short-term basis, like the next 2 days, the results were fairly negative, with positive returns only 38% of the time and an average return of -0.3%.  But obviously, that short-term relief of overbought conditions was quickly reversed in the days and weeks following.

Again, I'm a bit leery of reading too much into these breadth extremes anymore, but I do consider the recent "longer-term oversold then shorter-term overbought" pattern to be an intermediate-term positive for the market.  It's just not an automatic buy signal like it used to be.

Intel's Earnings

In April, we took a look at Intel's ability to knee-cap a market rally when we were trading near a new high.  That's not the case now, and as we discussed yesterday, there really isn't much of an edge to these reports when the market isn't sitting near an extreme.

But the stock is on fire this morning, up more than 5% from yesterday's close.  So let's take another look.

There have been 11 times in the past 15 years when Intel gapped up 5% or more the morning after an earnings report, as they're on track to do again this morning.

All 11 times, the S&P 500 SPDR (SPY) also gapped up the following morning, averaging a gain of +1.0%.  So far this morning, the gap has faded substantially and now the S&P is only indicated to open up a few points (obviously, this could change before the actual open).

So let's look at those times when Intel was able to get the broader market excited, versus those times it wasn't.

There were 5 times that the S&P gapped up less than 1%.  All 5 times, the index closed lower by two days later, averaging a return of -1.8%.  It median maximum gain during those two days was only +0.3%, compared to a median maximum loss of -2.2%.

But when SPY gapped up more than +1%, then two days later it was positive 4 of the 6 times and sported a maximum gain (+2.0%) well above the maximum loss (-1.1%).

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