Market Rebounds, but Sharp Drop-off in Volume a Short-term Negative Sign

Friday marked the third time this month that the S&P fell more than 1% without
a 2:1 negative breadth reading on the NYSE. That’s a subtle clue that we’re
entering into a longer-term period of high volatility. It’s taking less of a
lopsided market to send the S&P down 1% or more. This chart illustrates, on a
rolling basis, the number of days in the last year in which the S&P fell 1% or
more and breadth was not 2:1 or better negative. Notice this is the first
uptick since the 2003 bottom. Also interesting to note that when the number of
such sessions last hit zero and began to tick meaningfully higher was in early
1997, right around the time the VIX moved above the 20 level and essentially
held there for the next six years.

The S&P500 gained just over 1% Monday to close at 1416, drawing an inside day
in the process. Breadth settled 2:1 positive, yet big board volume was down
over 20% from Friday’s 1.78 billion shares. It’s generally been a negative
sign for the near-term when volume contracts so sharply on a lopsided positive
breadth session. Over the past decade there have been 23 separate occurrences
of volume declining 20%+ on a 2:1 breadth day, 18 of which led to a lower S&P
close within the next two sessions…

2:1 Positive Breadth & NYSE Volume Down 20%+
01/14/08… ???
12/24/07… Lower S&P close two sessions later
11/23/07… Lower S&P close one session later
06/01/07… Lower S&P close two sessions later
05/25/07… No lower close within next two days
03/19/07… No lower close within next two days
03/15/07… Lower S&P close one session later
07/03/06… Lower S&P close one session later
05/26/06… Lower S&P close one session later
05/25/06… Lower S&P close two sessions later
11/24/04… Lower S&P close two sessions later
05/11/04… No lower close within next two days
03/12/04… Lower S&P close one session later
10/25/02… Lower S&P close one session later
07/05/02… Lower S&P close one session later
06/17/02… Lower S&P close two sessions later
01/31/02… Lower S&P close one session later
11/23/01… Lower S&P close two sessions later
09/24/01… No lower close within next two days
12/22/00… No lower close within next two days
11/24/00… Lower S&P close two sessions later
07/03/00… Lower S&P close one session later
10/12/98… Lower S&P close one session later
07/03/97… Lower S&P close one session later

NYSE TICK action remained positive. TICKscore closed at +14, cumulative
Adjusted TICK closed at +457. Institutional investors remain better buyers,
suggesting the S&P will continue to find support on dips below 1400.

Categories : Archived EOD Commentary, End-of-Day Commentary

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