When Volume Declines on a 3:1 Negative Breadth Session

Persistent selling pressure and a near-total absence of real buyers led to a
solid 1.3% drop for the S&P500 Thursday. TICKscore settled at -30, its third-
lowest reading since December. Breadth ended better than 3:1 in favor of
decliners. Surprisingly, volume remained light on the big board despite the
lopsided breadth and weak NYSE TICK action, actually coming in below
Wednesday's level. It appears some traders are getting a jump on the upcoming
long weekend.

There have been 113 3:1 negative breadth sessions since mid-1997, only 30 of
which occurred on lighter volume than the previous session. In 25 out of those
30 cases, the low-volume selloff was followed by a higher S&P close (above the
setup day's close) within the next two sessions, suggesting the potential for
a short-term bounce by Monday...

NYSE Decliners 3:1 over Advancers, NYSE Volume Down
02/14/08... ???
12/14/07... No higher close within two sessions
11/19/07... Higher SPX close one session later
11/15/07... Higher SPX close one session later
11/05/07... Higher SPX close one session later
05/10/07... Higher SPX close one session later
03/02/07... Higher SPX close two sessions later
01/05/07... Higher SPX close one session later
04/07/06... Higher SPX close one session later
08/05/05... Higher SPX close two sessions later
07/17/03... Higher SPX close one session later
06/23/03... Higher SPX close one session later
03/24/03... Higher SPX close one session later
03/10/03... No higher close within two sessions
01/27/03... Higher SPX close one session later
10/09/02... Higher SPX close one session later
10/07/02... Higher SPX close one session later
09/19/02... Higher SPX close one session later
08/05/02... Higher SPX close one session later
07/22/02... Higher SPX close two sessions later
09/20/01... Higher SPX close two sessions later
09/18/00... Higher SPX close one session later
02/18/00... Higher SPX close one session later
05/14/99... Higher SPX close one session later
10/05/98... No higher close within two sessions
07/23/98... Higher SPX close one session later
06/15/98... Higher SPX close one session later
08/08/97... Higher SPX close one session later
03/27/97... No higher close within two sessions
07/05/96... No higher close within two sessions
02/20/96... Higher SPX close one session later

It's also worth noting that a 1%+ selloff in the S&P immediately preceding
options expiration tends to lead to further weakness short-term, indicating
conditions could remain generally choppy. 

Last week's program trading report reveals that only 29.6% of total program
volume was executed as principal, for member firms' own accounts. That's a
fresh three-month low for this statistic, which is not a positive sign from a
longer-term perspective. Given the steep decline in recent months, bulls would
like to see a spike in principal program activity near the 40% range,
mirroring the kind of action seen at most significant lows over the past
decade (see long-term chart). Instead its dragging along at multi-year lows,
similar to the 2000 period. While intermediate-term setups point towards
generally higher prices heading into the end of the month, this is a sign that
the January low most likely does not represent a long-term bottom.

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

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