The first is a nascent tidbit from the deep recesses of my market addled brain that still listens to my gut instincts (rather than relying on any sort of actual quantitative analysis). The second is from an analyst whom I respect a great deal – and who did take the time to provide some actual quantifiable analysis (Thank goodness there’s still a few of those around).
Reason for Optimism #1
OK, I will admit this is just an anecdotal footnote based on a “gut” instinct. But for what it is worth, it struck me as “surprising” that as the selloff on 1/4/16 progressed throughout the day “only” 135 NASDAQ stocks made new 52-week lows. It just seemed to me that in the face of a serious selloff that served to push several trend-following indicators to the bearish side there should have been a lot more stocks breaking down to new lows.
Figure 1 displays the NASDAQ Composite Index and the number of NASDAQ New 52-week Lows for each day since 12/1/14.
Figure 1 – NASDAQ Composite Index and Daily New 52-week lows (12/1/14-1/4/16)
As you can see there have been a number of days with a greater number of new 52-week lows. Given the brutal nature of the 1/4/16 decline I would have expected a higher value.
Bottom Line: Maybe this means something, maybe it’s grasping for straws. But for now at least it, it counts as a potential reason to be hopeful in the short run (at least in my mind).
Reason for Optimism #2
This was first reported by Rob Hanna, the Editor of QuantifiableEdges.com. In a nutshell, since 12/31/1986 there have been 22 time when the S&P 500 Index:
a) Showed a loss on both of the last two trading days of the quarter AND
b) Showed a gain for the quarter
Following 21 of those 22 occurrences (or 95.45% of the time) the S&P 500 showed a subsequent gain 15 trading days later.
But don’t take my word for it, check out the link to Rob’s original work here.
Given:
a) This trend and
b) The fact that the market was down hard on day one of this new quarter
It is fair to speculate that we may be looking at least at a short-term buying opportunity, rather than edge of the precipice.
Here’s hoping.
Jay Kaeppel
