When the S&P500 is Trading at a Lower Level Three Days After a 90% Down Volume Session

Stock indexes settled modestly lower Friday, with the S&P drawing an inside
day as it remained within the boundaries of Thursday's range. Once again,
NASDAQ volume significantly outpaced NYSE volume. Note that the Nasdaq/NYSE
Volume Ratio closed over 1.50 for a third consecutive session.

Short-term, the market remains vulnerable to one more push lower. In last
Wednesday's column I noted that when the S&P posted a loss in excess of 0.5%
immediately following a 90% down volume session, the S&P typically trades down
at least 1% or more in the next few sessions. I'd add that as of Friday's
close, the S&P settled below Tuesday's 90% down volume close. When the S&P is
trading lower three days after a 90% down volume session, it usually precedes
further weakness short-term. In the table below is every instance since 1980
in which the S&P posted a 90% down volume day and closed at a lower level
three sessions later. Note that in 17 out of 20 cases, or 85% of the time, the
S&P posted a subsequently lower close within the next few days. That's
significantly greater than the 65% at-any-time odds of a lower S&P close
within three days...

90% Down Volume, S&P Lower Three Days Later
02/08/08... ???
01/18/08... Lower S&P close one session later
01/09/08... Lower S&P close two sessions later
12/14/07... Lower S&P close one session later
11/12/07... No lower close within three sessions
07/31/07... Lower S&P close three sessions later
07/27/07... Lower S&P close two sessions later
03/02/07... Lower S&P close one session later
06/08/06... Lower S&P close one session later
10/10/05... Lower S&P close one session later
09/01/98... Lower S&P close one session later
01/17/90... Lower S&P close three sessions later
04/19/88... Lower S&P close one session later
12/03/87... Lower S&P close one session later
10/21/87... Lower S&P close one session later
09/16/86... Lower S&P close one session later
07/10/86... Lower S&P close one session later
08/27/81... Lower S&P close two sessions later
01/12/81... Lower S&P close one session later
12/11/80... No lower close within three sessions
03/27/80... No lower close within three sessions

Cumulative breadth is holding up reasonably well considering the S&P is only
about 20 points from closing below its January low. That suggests the
potential for a positive divergence if & when the S&P breaks into new lows for
the year.

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

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