Nasdaq Holds Its Own in the Face of Lopsided Negative Breadth

The 20-day moving average of the Nasdaq/NYSE Volume Ratio is on the verge of
exceeding 1.50. Historically, when the average has exceeded this level, it's
been a longer-term red flag for stocks. Usually the Nasdaq has been ramping
higher prior to this high a reading, reflecting speculative money chasing
performance. This time around we began seeing spikes in the ratio at the
beginning of February, and it's remained high ever since. That appears to
reflect more of a real contraction in big board volume than it does excessive
speculative activity, but either way it's not a longer-term positive. This
chart illustrates the ratio's activity over the last decade.

While the S&P settled down over 1% Thursday, it's noteworthy that the index
posted both a higher high and higher low. It's unusual to see the S&P post a
session with higher highs and higher lows when breadth closes better than 2:1
negative (as it did Thursday). In fact it's only happened seven other times
since 1990, all of which are noted below...

SPX Higher High & Higher Low Despite 2:1 Neg Breadth
02/21/08... S&P500 ??? three sessions later
07/16/07... S&P500 +0.2% three sessions later
07/20/06... S&P500 +1.6% three sessions later
10/26/05... S&P500 +1.3% three sessions later
10/20/05... S&P500 +1.6% three sessions later
10/02/02... S&P500 -5.2% three sessions later
08/06/99... S&P500 +0.1% three sessions later
09/09/98... S&P500 +2.3% three sessions later

The small sample size is not statistically significant. But it's noteworthy
that breadth on the NASDAQ was better than 2:1 negative as well. And the NDX
also managed to post higher highs and higher lows. Historically, the ability
of the NDX to shrug off weak breadth statistics and post what some call a
'rally day' has been a bullish sign short-term. Every instance since 1990 is
listed in the table below, along with the performance of the Nasdaq100 over
the next two sessions...

NDX Higher High & Higher Low Despite 3:2 Neg Breadth
02/21/08... NDX ??? two sessions later
10/30/07... NDX -0.5% two sessions later
09/24/07... NDX +1.5% two sessions later
07/16/07... NDX +0.5% two sessions later
05/17/07... NDX +1.4% two sessions later
05/14/07... NDX +0.2% two sessions later
11/09/06... NDX +1.6% two sessions later
10/20/06... NDX +0.3% two sessions later
08/09/06... NDX +0.1% two sessions later
07/27/06... NDX +2.1% two sessions later
04/03/06... NDX +1.5% two sessions later
10/20/05... NDX +2.3% two sessions later
07/21/05... NDX -0.5% two sessions later
05/12/05... NDX +1.8% two sessions later
04/08/05... NDX +0.2% two sessions later
01/13/05... NDX +1.8% two sessions later
10/19/04... NDX +2.2% two sessions later
10/13/04... NDX -0.2% two sessions later
10/07/04... NDX -1.2% two sessions later
09/08/04... NDX +2.6% two sessions later
05/07/04... NDX +1.1% two sessions later
03/02/04... NDX +0.6% two sessions later
02/12/04... NDX +0.4% two sessions later
01/22/04... NDX +1.5% two sessions later
08/22/03... NDX +0.4% two sessions later
07/22/03... NDX -0.3% two sessions later
02/26/03... NDX +3.6% two sessions later
10/02/02... NDX -4.0% two sessions later
06/13/02... NDX +3.9% two sessions later
06/18/01... NDX +3.3% two sessions later
03/14/01... NDX -5.6% two sessions later
12/06/00... NDX +5.5% two sessions later
04/06/99... NDX +0.3% two sessions later
01/27/99... NDX +4.8% two sessions later
09/24/98... NDX +2.0% two sessions later
09/09/98... NDX +2.3% two sessions later
08/13/98... NDX +2.2% two sessions later
07/28/98... NDX +2.1% two sessions later
07/23/98... NDX +1.5% two sessions later
06/15/98... NDX +4.3% two sessions later
05/26/98... NDX +1.2% two sessions later
03/27/97... NDX -2.7% two sessions later
03/07/95... NDX +1.1% two sessions later
04/06/93... NDX +0.3% two sessions later
09/26/90... NDX -1.3% two sessions later

Out of a total of 44 occurrences, 35 led to a higher NDX close two sessions
later. That 80% win rate is significantly better than the 53% 'at-any-time'
odds of a higher NDX close two sessions later, indicating that when the NDX
manages to hold its own in the face of negative breadth, there's usually
further upside in store on a short-term basis.

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

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