90% Down Volume Session has Mixed Implications for the Short-term

Our intraday TrendCatcher strategy participated in part of Friday’s selloff, leading to a 17-point profit and a new equity high. You may recall we began posting realtime TrendCatcher signals in May of 2007. Here are the month-by-month results since that time…

TrendCatcher Performance Past Year
Jun ’07 +64 S&P points
Jul ’07 +28 S&P points
Aug ’07 +55 S&P points
Sep ’07 +10 S&P points
Oct ’07 +15 S&P points
Nov ’07 +37 S&P points
Dec ’07 +38 S&P points
Jan ’08 +25 S&P points
Feb ’08 +2 S&P points
Mar ’08 -1 S&P points
Apr ’08 +25 S&P points
May ’08 +13 S&P points
Jun ’08 +9 S&P points (open)

Volume associated with declining issues accounted for 92% of total big board volume Friday, the first 90%+ down volume session we’ve seen in over two months. The last thirty 90%+ down volume days are listed in the table below. Next-day performance has been pretty much of a mixed bag in recent years…

NYSE Down Volume 90% or more of total volume
06/06/08 DnVol 92%… SPX ??? next day
03/14/08 DnVol 92%… SPX -0.9% next day
03/06/08 DnVOl 94%… SPX -0.8% next day
02/29/08 DnVol 94%… SPX +0.1% next day
02/05/08 DnVol 92%… SPX -0.8% next day
01/17/08 DnVol 90%… SPX -0.6% next day
01/15/08 DnVol 92%… SPX -0.6% next day
01/04/08 DnVol 93%… SPX +0.3% next day
12/11/07 DnVol 93%… SPX +0.6% next day
11/07/07 DnVol 93%… SPX -0.1% next day
11/01/07 DnVol 93%… SPX +0.1% next day
10/19/07 DnVol 93%… SPX +0.4% next day
08/28/07 DnVol 95%… SPX +2.2% next day
08/14/07 DnVol 90%… SPX -1.4% next day
08/03/07 DnVol 94%… SPX +2.4% next day
07/26/07 DnVol 94%… SPX -1.6% next day
07/24/07 DnVol 93%… SPX +0.5% next day
06/07/07 DnVol 94%… SPX +1.1% next day
03/13/07 DnVol 94%… SPX +0.7% next day
03/05/07 DnVol 91%… SPX +1.5% next day
02/27/07 DnVol 99%… SPX +0.6% next day
06/05/06 DnVol 91%… SPX -0.1% next day
05/17/06 DnVol 90%… SPX -0.7% next day
10/05/05 DnVol 90%… SPX -0.4% next day
03/22/04 DnVol 91%… SPX -0.1% next day
03/24/03 DnVol 94%… SPX +1.2% next day
03/10/03 DnVol 94%… SPX -0.8% next day
09/03/02 DnVol 92%… SPX +1.8% next day
04/03/01 DnVol 90%… SPX -0.3% next day
03/12/01 DnVol 90%… SPX +1.5% next day
04/14/00 DnVol 92%… SPX +3.3% next day

While unlikely, it would have short-term negative implications if the S&P closes down more than 0.5% on the heels of Friday’s lopsided session. Since 1980, we’ve seen a total of 55 separate 90% down volume sessions, of which only about 1 in 5 saw the S&P close down more than 0.5% the next session. When this has occurred, the S&P typically drops another 1%+ (intraday) in the next 1-3 sessions…

90% Down Volume, SPX Off More Than 0.5% Next Day
03/17/08… SPX -0.0% intraday three sessions later
03/07/08… SPX -1.6% intraday one session later
02/06/08… SPX -0.7% intraday one session later
01/18/08… SPX -3.8% intraday one session later
01/16/08… SPX -3.1% intraday one session later
08/15/07… SPX -2.6% intraday one session later
07/27/07… SPX -1.3% intraday three sessions later
03/11/03… SPX -1.5% intraday one session later
08/28/98… SPX -6.8% intraday one session later
01/15/90… SPX -1.1% intraday one session later
10/19/87… SPX -3.8% intraday one session later
09/12/86… SPX -1.0% intraday two sessions later
07/08/86… SPX -0.8% intraday two sessions later
01/08/81… SPX -1.0% intraday one session later

Note the recent push higher by the Last Hour indicator, which compares the market’s performance during the first and last hour of each trading day. From a long-term perspective, this indicator has been waving a red flag since 2006 when it plunged sharply, reflecting major underperformance during the last hour of trading (and suggesting distribution among the smart money crowd). See my August 12th column from last year for background on the Last Hour.

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

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