S&P500 Closes at a New 52-week Low on Light Volume

Stock indexes settled sharply lower Thursday in an extremely lopsided session.
Breadth settled 8:1 in favor of declining issues, and volume associated with
declining issues accounted for over 94% of total volume as buyers were nowhere
to be found. The CBOE equity put/call ratio closed at 1.12, its highest
reading in over three years. While market internals had a panicky feel, it's
noteworthy that big board volume declined - not what you'd expect on a day
when the S&P plunged to a new 52-week low.

There's been a lot of discussion recently about whether the January (closing)
low would hold. Now that it's been broken, at least as far as the S&P500 is
concerned, should we automatically view that bearishly? Perhaps not, at least
for the time being. The fact that volume declined on a 8:1 negative breadth
day triggers the 1-2 day buy setup recently discussed in my February 14th
column. And looking out over the next couple of weeks, there's actually a bias
towards higher prices after a new 52-week low. Over the last thirty years,
there have been 81 sessions in which the S&P settled at its lowest level of
the past year. In 58 cases, or 72% of the time, the S&P was trading higher ten
trading days later. That's better than the 58% at-any-time odds for a higher
S&P two weeks later.

The track record improves noticeably when we only look for those instances in
which NYSE volume declined on the day that the S&P closed at a new low (as
occurred Thursday). The last thirty times this setup has occurred are listed
in the table below. Note that in 27 cases, or 90% of the time, the new 52-week
low ended up leading to higher prices two weeks later...

SPX Closes at New 52-week Low, NYSE Volume Down
03/06/08... S&P ??? two weeks later
10/09/02... S&P +15.4% two weeks later
10/07/02... S&P +14.6% two weeks later
07/22/02... S&P +1.8% two weeks later
07/18/02... S&P +0.4% two weeks later
07/16/02... S&P +0.2% two weeks later
09/20/01... S&P +8.6% two weeks later
09/18/01... S&P +1.8% two weeks later
03/09/01... S&P -7.6% two weeks later
02/23/01... S&P -1.0% two weeks later
11/22/00... S&P +1.6% two weeks later
09/24/90... S&P +2.9% two weeks later
08/22/90... S&P +1.2% two weeks later
12/04/87... S&P +11.3% two weeks later
07/24/84... S&P +10.1% two weeks later
07/23/84... S&P +9.2% two weeks later
05/29/84... S&P +1.3% two weeks later
05/23/84... S&P +1.2% two weeks later
08/11/82... S&P +14.6% two weeks later
08/10/82... S&P +12.2% two weeks later
08/06/82... S&P +9.0% two weeks later
08/04/82... S&P +2.3% two weeks later
07/30/82... S&P -3.0% two weeks later
06/21/82... S&P +0.1% two weeks later
03/08/82... S&P +5.1% two weeks later
03/05/82... S&P +1.2% two weeks later
09/24/81... S&P +6.4% two weeks later
09/18/81... S&P +2.7% two weeks later
03/06/78... S&P +4.5% two weeks later
02/28/78... S&P +2.7% two weeks later
02/22/78... S&P +0.3% two weeks later

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

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