S&P Down Three on Declining Volume, Plus a Look at Last Week’s Spike in Program Trading

The percentage of total program volume executed as principal, for member
firms' own accounts, jumped to 37.9% during the week ending March 20th, the
second-highest reading of the past year. A spike in program activity at a
relative low point on the S&P chart can signal an intermediate-term reversal,
but it's unfortunate that this recent spike coincided with a strong up week
for the S&P. Typically, it's when the market is plunging lower that program
trading really picks up (see long-term chart), and it usually functions as a
stabilizing force. But the same has not been true when the spike in program
activity coincided with a sharp rally in stocks, as was the case last week.
There have only been nine occurrences of a 5%+ spike in principal program
activity on a 2%+ up week for the S&P, but it's noteworthy that in only one of
those cases was the market trading significantly higher two months later...

Principal Prg Activity +5% on 2%+ Up Week for SPX
03/20/08... S&P500 ??? eight weeks later
09/21/07... S&P500 -4.4% eight weeks later
03/17/00... S&P500 -3.0% eight weeks later
06/18/99... S&P500 -1.1% eight weeks later
04/09/99... S&P500 -1.5% eight weeks later
06/05/98... S&P500 +0.6% eight weeks later
11/21/97... S&P500 -0.2% eight weeks later
09/05/97... S&P500 -1.6% eight weeks later
07/03/97... S&P500 -1.9% eight weeks later
06/13/97... S&P500 +4.5% eight weeks later

The Dow Utilities index quietly slipped into a new 52-week low on Friday, a
longer-term negative sign for stocks. The last time the Utilities average fell
to a 52-week low for the first time in a year was September 2001. Prior to
that was November 1999.

NASDAQ volume hit its lowest level of the year Friday as only 1.7 billion
shares traded hands. That's also under the lower bollinger band for volume.
Neither development means much, however. The NASDAQ is just as likely to trade
higher or lower in the days and weeks following unusually light volume.

Breadth on the big board closed nearly 2:1 in favor of decliners Friday. Note
how the cumulative breadth line is far weaker than major averages like the
S&P500. Breadth has already cleanly violated its January low and has since run
into resistance in that range, indicating that for the majority of stocks, the
question of whether the January lows will hold has already been answered.

Short-term, it's noteworthy that institutional participation has been
unusually light in recent sessions. Our intraday TrendCatcher strategy hasn't
triggered a signal since the March 24th rally, and volume on the big board
fell for a third consecutive session despite the persistent weakness. This
suggests a short-term bottom is most likely at hand. Since 1990, there have
been 24 occurrences of three consecutive down days for the S&P500 on
successively lighter volume. In 20 of 24 cases, or over 80% of the time, the
S&P closed at a higher level two sessions later. Even when wrong, the setup
produced an average loss of only 0.6%, roughly one- third of the 1.7% average
gain...

S&P500 Down Three on Successively Lighter Volume
03/28/08... S&P500 ??? two sessions later
12/22/06... S&P500 +1.1% two sessions later
08/08/05... S&P500 +0.5% two sessions later
11/11/03... S&P500 +1.1% two sessions later
11/11/02... S&P500 +0.7% two sessions later
08/05/02... S&P500 +5.1% two sessions later
05/06/02... S&P500 +3.4% two sessions later
12/10/01... S&P500 -0.3% two sessions later
07/26/99... S&P500 +1.3% two sessions later
09/04/98... S&P500 +3.3% two sessions later
03/30/98... S&P500 +1.3% two sessions later
08/25/97... S&P500 -0.7% two sessions later
07/21/97... S&P500 +2.6% two sessions later
04/25/97... S&P500 +3.8% two sessions later
12/16/96... S&P500 +1.5% two sessions later
05/30/95... S&P500 +1.9% two sessions later
11/22/93... S&P500 +0.7% two sessions later
02/09/93... S&P500 +0.5% two sessions later
03/02/92... S&P500 -0.8% two sessions later
12/05/91... S&P500 +0.2% two sessions later
08/09/91... S&P500 +0.7% two sessions later
06/10/91... S&P500 -0.5% two sessions later
04/22/91... S&P500 +0.5% two sessions later
12/17/90... S&P500 +1.3% two sessions later
06/08/90... S&P500 +2.1% two sessions later

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

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