Bounce Is Losing Steam – What That’s Meant In The Past

The S&P 500 rose today for the 3rd day in a row. As I showed on May 30th, when the S&P is trading below its 200-day moving average and without the proper pattern of increasing volume, this has provided a short-run negative expectancy over the last 35 years. What was interesting about today’s rise is that it was so weak from a price perspective. This can be a sign that the bulls are losing momentum and the short-term tide is ready to turn back to the bears.

Below I show the results of buying at the close on a day where the S&P is below its 200-day moving average, has risen at least 3 days in a row and today’s rise in the smallest in percentage terms of any day during the rise.

This shows a negative expectancy greater than a normal 3-day rise in a long term downtrend. On May 30th I showed that volume rising two days in a row turned the 3-up days pattern from bearish to bullish. If I exclude those instances with bullish volume patterns the results are even more negative:

Also notable from today is that the Capitulative Breadth Indicator (CBI) returned to “3”. This is what I consider a neutral state. In other words, it is no longer suggesting an upside edge. For those keeping score, the “buy at 7 – sell at 3 or lower” trade would have netted about 2 S&P points from the “7” signal on the 10th to the close today.