Implications of Persistently Flat NYSE Volume

It sure has been quiet recently. Big board volume came in at 1.47 billion
shares Wednesday. If that sounds familiar, it should - the past eight sessions
have seen practically identical volume. Here's a quick rundown of total NYSE
volume over the last eight days, including today... 1.5 billion, 1.4 billion,
1.5 billion, 1.4 billion, 1.4 billion, 1.5 billion, 1.4 billion, 1.4 billion.

During each of the last ten sessions, NYSE volume hasn't changed by more than
20% from the two-week ago level. Looking back at recent times when this same
pattern occurred, there's been a notable tendency for higher stock prices one
month later. The table below lists the last thirty occurrences. Note that the
pattern occurs fairly frequently at times, so the table only reflects those
instances in which the setup was triggered for the first time in at least ten
sessions...

No change of >20% for NYSE Volume over Ten-Day Period
02/20/08... S&P500 ??? one month later
09/05/07... S&P500 +4.6% one month later
05/03/07... S&P500 +2.3% one month later
04/02/07... S&P500 +4.3% one month later
01/19/07... S&P500 +1.8% one month later
10/20/06... S&P500 +2.4% one month later
09/26/06... S&P500 +3.1% one month later
09/06/06... S&P500 +3.8% one month later
07/27/06... S&P500 +2.6% one month later
01/18/06... S&P500 +0.2% one month later
12/13/05... S&P500 +1.5% one month later
10/25/05... S&P500 +5.4% one month later
10/04/05... S&P500 -1.0% one month later
07/12/05... S&P500 +0.8% one month later
05/02/05... S&P500 +2.5% one month later
04/06/05... S&P500 -0.7% one month later
01/18/05... S&P500 +1.2% one month later
12/14/04... S&P500 -1.3% one month later
10/27/04... S&P500 +5.0% one month later
07/20/04... S&P500 -2.4% one month later
05/14/04... S&P500 +3.3% one month later
03/24/04... S&P500 +4.5% one month later
01/20/04... S&P500 +1.2% one month later
12/15/03... S&P500 +5.9% one month later
10/30/03... S&P500 +1.1% one month later
09/22/03... S&P500 +2.1% one month later
07/21/03... S&P500 +2.1% one month later
06/25/03... S&P500 +0.6% one month later
05/02/03... S&P500 +4.0% one month later
03/26/03... S&P500 +4.8% one month later
01/21/03... S&P500 -4.8% one month later

In recent years, a two-week period of flat volume has had a strong track
record of leading to higher prices one month later. In only four cases out of
the last thirty was the S&P down 1% or more one month later, while it was up
1% or more twenty-two times. That's pretty impressive for a pattern completely
independent of price action.

It should be noted, however, that this pattern of flat volume leading to
higher prices works especially well in a low-volatility environment. That's
why the recent performance has been so impressive. From the years 1998-2002,
when volatility was high, the pattern's effectiveness was much less
impressive... the S&P was up 1% or more 16 times but down 1% or more 13 times.

Currently we're in a period of above-average volatility, calling into question
whether the above pattern will continue to function as effectively. But I
would note that while the VXO is high from an absolute level, it has declined
by more than 10% in the last ten sessions. The table below notes every
instance since 1990 in which the 'flat volume' setup above was triggered and
the VXO was down 10% or more from its ten-day ago close. There have been a
total of 24 occurrences, 19 of which led to a higher S&P one month later...

Flat Volume (setup above) & VXO -10% Over Last Ten Days
02/20/08... S&P500 ??? one month later
01/19/07... S&P500 +1.8% one month later
07/27/06... S&P500 +2.6% one month later
10/25/05... S&P500 +5.4% one month later
05/02/05... S&P500 +2.5% one month later
01/18/05... S&P500 +1.2% one month later
01/20/04... S&P500 +1.2% one month later
03/26/03... S&P500 +4.8% one month later
10/30/02... S&P500 +5.4% one month later
08/23/02... S&P500 -11.4% one month later
01/24/01... S&P500 -8.2% one month later
01/20/00... S&P500 -4.0% one month later
10/07/99... S&P500 +3.4% one month later
11/20/98... S&P500 +3.4% one month later
11/04/98... S&P500 +2.8% one month later
01/20/98... S&P500 +5.5% one month later
04/26/96... S&P500 +3.8% one month later
04/03/96... S&P500 -1.9% one month later
01/18/95... S&P500 +3.2% one month later
05/04/94... S&P500 +1.3% one month later
12/13/93... S&P500 +1.8% one month later
03/03/93... S&P500 +0.5% one month later
01/14/92... S&P500 -1.6% one month later
12/16/91... S&P500 +9.4% one month later
05/02/90... S&P500 +8.0% one month later

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

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