Rally Stats You Need To Know

We begin the day with a large gap up in the pre-market futures as the payroll report was stronger than expected.  Well, at least to those who ignored Goldman Sach’s revision to their estimate yesterday, which just happened to be right on the mark.  Their success with last-minute revisions are certainly something that will not quell the rumors that Goldman is the market. That makes it increasingly difficult to rely on sentiment to help gauge risk/reward going forward.

For only the second time in a month, we managed to get two down closes over the past couple of days, and the first one that was (barely) more than -0.5%.  Our shortest-term model reached oversold territory by yesterday afternoon, and from the looks of this morning’s gap the market is already responding again.

Again, extreme reactions – especially gap openings - to major economic reports tend to be more contrary indicators than anything.  Over the past decade, whenever the S&P 500 futures have gapped up +0.5% or more on the morning of a payroll report, they closed higher than the open 41% of the time and were positive by Monday’s close 38% of the time.  Those times it did manage to score additional gains in the very short-term, it gave those back within three days all but three times. In other words, in 31 out of 34 cases, the market gave back its short-term knee-jerk gains on rallies from a payroll report.

If the gap open was to a new multi-month high, then the S&P was lower by the next day’s close all 7 times it happened, by an average of -1.0%.  The last time it occurred was last month, June 9th, and the time before that was May 2, 2008, both of which marked short-term market peaks.

Frankly, the moves over the past few weeks have been so exceptional that I wouldn’t be surprised if that doesn’t hold this time.  We’ve discussed several reasons, especially over the past week, why 1005 – 1010 should prove to be strong resistance, and so far that has proved to be the case.  But if we see the morning’s gap hold, and especially if we get higher intraday highs after the first hour of trading, I won’t be surprised to see that resistance overtaken.