Solid Down Day, but Light Volume and Potential Inside Week Positive Signs for Next Week

Considering that Wednesday was the largest decline for the S&P in nearly a
month, volume remained noticeably subdued. NYSE volume totaled only 1.27
billion shares, still below the 20-day moving average. Historically, a solid
down day for the S&P (over 1.5% with 2:1 negative breadth) means elevated
volume. When this isn't the case, the market has a tendency to bottom out over
the short-term and ultimately close higher one week later. The last thirty
instances in which NYSE volume remained below its 20-day average on a 1.5%+
down day for the S&P (with at least 2:1 negative breadth) are listed in the
table below...

S&P500 -1.5%, Breadth 2:1 Neg, Volume Below 20-day Avg
05/07/08... S&P500 ??? one week later
04/11/08... S&P500 +4.3% one week later
02/05/08... S&P500 +0.9% one week later
12/17/07... S&P500 +3.5% one week later
11/26/07... S&P500 +4.6% one week later
11/21/07... S&P500 +3.7% one week later
09/07/07... S&P500 +2.1% one week later
08/28/07... S&P500 +2.8% one week later
08/14/07... S&P500 +1.4% one week later
06/05/06... S&P500 -2.3% one week later
05/30/06... S&P500 +0.3% one week later
08/05/04... S&P500 -1.6% one week later
08/05/03... S&P500 +2.6% one week later
05/19/03... S&P500 +3.3% one week later
03/24/03... S&P500 -1.9% one week later
03/10/03... S&P500 +6.9% one week later
02/24/03... S&P500 +0.3% one week later
12/27/02... S&P500 +6.1% one week later
12/09/02... S&P500 +2.1% one week later
11/11/02... S&P500 +2.8% one week later
10/16/02... S&P500 +4.2% one week later
09/12/02... S&P500 -4.9% one week later
08/28/02... S&P500 -4.2% one week later
08/23/02... S&P500 -2.6% one week later
08/13/02... S&P500 +6.0% one week later
08/02/02... S&P500 +5.1% one week later
05/06/02... S&P500 +2.1% one week later
03/20/02... S&P500 -0.6% one week later
02/19/02... S&P500 +2.4% one week later
12/10/01... S&P500 -0.5% one week later
10/29/01... S&P500 +2.3% one week later

Note that in 22 out of 30 cases, or 73% of the time, the S&P was trading at a
higher level one week later, significantly better than the 54% at-any-time
odds.

Chances for a rally next week would increase further if the S&P holds above
1383 over the next couple of days. That level is last week's low. If it holds,
and the market settles down on the week, it would mark the first time in
nearly a year that the S&P has posted an inside bar and a lower close on the
weekly chart. The last thirty times that the weekly S&P has posted an 'inside
down week' are listed in the table below. Note that market reversed course and
closed higher the following week 80% of the time, compared with at-any-time
odds of 56% for a higher weekly close...

Weekly SPX Forms Inside Bar, Closes Down
06/22/07... S&P500 +0.1% next week
03/30/07... S&P500 +1.6% next week
06/23/06... S&P500 +2.1% next week
04/28/06... S&P500 +1.2% next week
12/02/05... S&P500 -0.5% next week
09/16/05... S&P500 -1.8% next week
12/10/04... S&P500 +0.5% next week
03/28/03... S&P500 +1.8% next week
05/24/02... S&P500 -1.5% next week
05/11/01... S&P500 +3.7% next week
03/09/01... S&P500 -6.7% next week
06/09/00... S&P500 +0.5% next week
03/31/00... S&P500 +1.2% next week
01/21/00... S&P500 -5.6% next week
12/10/99... S&P500 +0.3% next week
11/26/99... S&P500 +1.2% next week
01/22/99... S&P500 +4.4% next week
11/13/98... S&P500 +3.4% next week
12/26/97... S&P500 +4.1% next week
11/28/97... S&P500 +3.0% next week
10/24/97... S&P500 -2.9% next week
09/12/97... S&P500 +2.9% next week
08/29/97... S&P500 +3.3% next week
07/26/96... S&P500 +4.2% next week
06/14/96... S&P500 +0.2% next week
03/29/96... S&P500 +1.6% next week
10/06/95... S&P500 +0.4% next week
06/30/95... S&P500 +2.1% next week
03/03/95... S&P500 +0.9% next week
04/15/94... S&P500 +0.3% next week

We should also keep in mind the pair of upside gaps on April 16th and 18th.
While the latter gap was quickly filled, the fact that S&P futures managed to
post a second upside gap within days (much less weeks) of the first unfilled
upside gap has intermediate-term positive implications. As I noted back in my
March 24th column, when this pattern of two unfilled upside gaps within one
month also occurred, "in only four cases out of thirty-two occurrences [since
1990] was the S&P down more than 1% one month later". One month from April
18th takes us to May's expiration on the 16th, implying the market is likely
to find an area of intermediate-term support around SPX 1375.

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

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