90% Down Volume Day on the NASDAQ Exchange Points to a Short-term S&P Rally

Sellers dominated Thursday’s session, with both the NYSE and NASDAQ recording
90% down volume sessions. Pull up this long-term chart of NASDAQ down volume
(expressed as a percentage of total volume) and note that prior to the last
decade, a 90% down volume day was practically unheard of. But since the late
90′s, we’ve seen 23 sessions in which NASDAQ declining volume accounted for
90% or more of total NASDAQ volume. Each of these instances is noted in the
table below, along with the performance of the S&P over the next 1-3 sessions.
Note that the climactic selling on the NASDAQ normally translated into a
short-term bounce for the S&P within the next 1-3 sessions. In only one case
out of 23 occurrences was this not the case. That 96% win rate is
significantly above the 72% at-any-time odds for a higher S&P close within the
next three days…

90% Down Volume on the NASDAQ Exchange
09/04/08… ???
02/05/08… Higher S&P500 close two sessions later
01/04/08… Higher S&P500 close one session later
10/19/07… Higher S&P500 close one session later
02/27/07… Higher S&P500 close one session later
11/27/06… Higher S&P500 close one session later
06/12/06… Higher S&P500 close three sessions later
07/06/04… Higher S&P500 close one session later
03/15/04… Higher S&P500 close one session later
07/17/03… Higher S&P500 close one session later
03/24/03… Higher S&P500 close one session later
02/07/03… Higher S&P500 close one session later
12/09/02… Higher S&P500 close one session later
09/19/02… Higher S&P500 close one session later
09/03/02… Higher S&P500 close one session later
07/01/02… Higher S&P500 close three sessions later
06/03/02… Higher S&P500 close one session later
06/14/01… Higher S&P500 close four sessions later
04/03/01… Higher S&P500 close two sessions later
03/28/01… Higher S&P500 close two sessions later
03/12/01… Higher S&P500 close one session later
04/14/00… Higher S&P500 close one session later
08/31/98… Higher S&P500 close one session later
10/27/97… Higher S&P500 close one session later

TICKscore settled at -17 Thursday, Cumulative TICK -58,000. Our intraday
TrendCatcher strategy pulled in its second-largest profit of the year
following its morning sell signal, leading to a new equity high. Raw TICKscore
readings continue to trace out a pattern of ‘lower highs’ as institutional
buying power remains on the decline since peaking in mid-July.

The Dow Utilities and the Philadelphia Semiconductor Index both closed at new
52-week lows Thursday. As I noted back on August 4th, “The weakness in
utilities continues to have long-term bearish implications for the overall
market as they generally lead on the downside. I mentioned this back in late
March when the Utilities Index first hit a new 52-week low, and recent action
suggests that long-term downtrend remains intact. Of course this doesn’t mean
the market can’t rally over the intermediate-term, as it did in April, but
from a long-term perspective this isn’t a positive sign.”

The Nasdaq/NYSE Volume Ratio is still running uncomfortably high, calling into
question the lasting power of any intermediate-term bounce. As I noted back on
August 27th, when the ratio closed above 1.90, “it’s questionable whether
[bulls can gain the edge] against a backdrop of tepid institutional
participation and heavy speculative participation.” One thing the market has
in its favor is it’s oversold status, suggesting we could see stocks bottom
out and attempt to rally over the intermediate-term. The oversold Nasdaq buy
signal discussed in Wednesday’s column was triggered at Thursday’s close after
the Nasdaq100 easily closed under its lower bollinger band for a second
consecutive session.

I’d also note that Thursday represented the fourth consecutive lower close for
the S&P500. A small selloff on Friday would set the stage for a likely bounce
early next week. Historically, five straight lower closes has been a reliable
indication that selling pressure is exhausted for the short-term and that a
rally is forthcoming. The table below lists each of the last thirty separate
instances in which the S&P cash index settled lower five consecutive days.
Note that in 25 out of 30 cases, or 83% of the time, the S&P closed higher the
following session, significantly better than the 53% at-any-time odds for a
higher S&P close one day later. It’s also interesting to note that next-day
gains were unusually large after five lower closes, with the average gain
coming in at 1.6%.

S&P500 Closes Lower Five Consecutive Days
01/22/08… S&P500 +2.1% next day
02/27/07… S&P500 +0.6% next day
03/24/04… S&P500 +1.6% next day
02/24/04… S&P500 +0.4% next day
01/22/03… S&P500 +1.0% next day
12/05/02… S&P500 +0.6% next day
09/03/02… S&P500 +1.8% next day
04/26/02… S&P500 -1.0% next day
02/07/02… S&P500 +1.5% next day
09/21/01… S&P500 +3.9% next day
05/11/01… S&P500 +0.3% next day
02/23/01… S&P500 +1.8% next day
11/13/00… S&P500 +2.4% next day
10/12/00… S&P500 +3.3% next day
09/26/00… S&P500 -0.0% next day
05/23/00… S&P500 +1.8% next day
04/14/00… S&P500 +3.3% next day
10/15/99… S&P500 +0.5% next day
08/04/99… S&P500 +0.6% next day
04/19/99… S&P500 +1.3% next day
03/01/99… S&P500 -0.9% next day
12/12/97… S&P500 +1.1% next day
12/16/96… S&P500 +0.7% next day
12/06/96… S&P500 +1.4% next day
06/14/96… S&P500 -0.1% next day
04/11/96… S&P500 +0.9% next day
02/20/96… S&P500 +1.2% next day
08/03/95… S&P500 +0.0% next day
11/23/94… S&P500 +0.5% next day
09/22/94… S&P500 -0.4% next day

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

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