Choppy Conditions Likely to Continue as Today’s Low-volume Selloff Has Short-term Positive Implications

Stock indices settled with solid losses Monday. TICKscore settled at -9,
cumulative TICK -27,000. Breadth ended near 4:1 negative territory with 88%
down volume as last week’s buyers were nowhere to be found.

Short-term, there’s reason to expect a close above Monday’s settlement within
the next few sessions, continuing the choppy conditions that have been in
effect for the past month. Despite Monday’s extremely lopsided session that
saw declining issues outnumber advancers by nearly a 4:1 margin, big board
volume once again declined from the previous session. Low-volume selloffs are
not usually sustainable, at least for the short-term, and the S&P invariably
bounces within the next few days. The last thirty times we’ve seen NYSE volume
decline on a 3:1 or better negative breadth day are listed in the table below.
Note that in 28 out of 30 cases, or 93% of the time, the S&P posted a
subsequently higher close within three trading days, significantly better than
the 72% at-any-time odds…

NYSE Decliners 3:1 over Advancers, NYSE Volume Down
08/25/08… ???
07/24/08… Higher SPX close one session later
04/11/08… Higher SPX close two sessions later
03/10/08… Higher SPX close one session later
03/06/08… Higher SPX close three sessions later
02/14/08… Higher SPX close one session later
12/14/07… Higher SPX close five sessions later
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… Higher SPX close three sessions later
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… Higher SPX close five sessions later
07/23/98… Higher SPX close one session later

A similar setup also points to limited downside potential heading into the
Wednesday-Thursday time frame. The table below lists the last thirty
occurrences in which breadth on the NYSE came in 2:1 or better in favor of
declining issues and big board volume hit a three-week or better low.
Following the date is the performance of the S&P500 over the next 2-3 trading
days. Note that in 25 out of 30 cases stretching back to 1987, the S&P500
closed at a higher level 2-3 trading days later, suggesting good odds we’ll
see the S&P close back over today’s settlement of 1266 in the Wednesday-
Thursday time frame. Also noteworthy is that even on the five occasions this
setup was proved wrong, the largest loss amounted to a small 0.6% drop for the
S&P…

NYSE Breadth 2:1 Negative, Volume at Three-Week Low
08/25/08… S&P500 ???
08/18/08… S&P500 -0.1% three sessions later
07/28/08… S&P500 +4.0% two sessions later
08/27/07… S&P500 -0.6% three sessions later
03/27/07… S&P500 -0.5% three sessions later
06/19/06… S&P500 +1.0% two sessions later
04/08/05… S&P500 +0.6% two sessions later
11/11/02… S&P500 +0.7% two sessions later
08/02/02… S&P500 +1.5% three sessions later
05/06/02… S&P500 +3.4% two sessions later
03/25/02… S&P500 +1.1% two sessions later
07/26/99… S&P500 +1.3% two sessions later
02/12/99… S&P500 +0.6% three sessions later
09/17/98… S&P500 +0.5% two sessions later
08/10/98… S&P500 +0.1% two sessions later
05/18/98… S&P500 +1.2% two sessions later
07/05/96… S&P500 -0.2% three sessions later
11/11/94… S&P500 +0.6% two sessions later
05/09/94… S&P500 +0.3% three sessions later
03/21/94… S&P500 -0.0% two sessions later
04/29/91… S&P500 +1.8% two sessions later
02/26/91… S&P500 +1.2% two sessions later
02/20/91… S&P500 +0.1% two sessions later
12/17/90… S&P500 +1.3% two sessions later
08/30/90… S&P500 +1.4% two sessions later
08/10/90… S&P500 +1.2% two sessions later
07/05/90… S&P500 +1.1% two sessions later
02/12/90… S&P500 +0.6% two sessions later
11/20/89… S&P500 +0.8% two sessions later
09/25/89… S&P500 +0.3% two sessions later
08/21/89… S&P500 +1.2% two sessions later

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

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