Decliners Outnumber Advancers by Over a 3:1 Margin, But Drop in Volume a Short-term Positive Sign

S&P futures opened lower Monday and barely looked back, promptly filling the
upside gap from Friday's session. Selling pressure was heavy, although there
wasn't the same kind of intensity that we saw during similarly large declines
on Monday and Wednesday of last week. TICKscore closed at -14, Cumulative TICK
-73,300. Despite 4:1 negative breadth, volume levels were way down across the
board. NYSE volume hit its lowest level in over two weeks as only 1.2 billion
shares traded hands, well below the 2+ billion that traded Tuesday through
Friday of last week. Volume in the S&P SPDRs (SPY) was also sharply lower as
less than 250 million shares traded hands. That's a two-week low for SPY
volume as well, suggesting relatively light institutional participation. Since
the inception of the SPY, there have only been eleven other occurrences in
which SPY volume hit a two-week low on the same day that NYSE breadth was at
least 2:1 negative. Note that in every case but one the SPY gained ground over
the next four sessions, indicating the potential for higher prices heading
into Friday...

SPY Volume at Two-Week Low, NYSE Breadth 2:1 Negative
09/22/08... SPY ??? four sessions later
08/18/08... SPY +1.0% four sessions later
07/28/08... SPY +2.0% four sessions later
09/17/07... SPY +2.6% four sessions later
08/27/07... SPY +0.4% four sessions later
10/27/05... SPY +3.1% four sessions later
02/12/03... SPY +3.8% four sessions later
11/11/02... SPY +3.6% four sessions later
10/07/02... SPY +6.4% four sessions later
08/10/98... SPY -2.2% four sessions later
07/22/96... SPY +0.3% four sessions later
03/10/94... SPY +1.4% four sessions later

Monday's drop in volume triggered a short-term buy setup at today's close, the
same setup that was triggered last Wednesday. In the table below are the last
thirty instances in which we've seen NYSE volume decline on a 3:1 or better
negative breadth day. 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
09/22/08... ???
09/17/08... Higher SPX close one session later
09/09/08... Higher SPX close one session later
08/25/08... Higher SPX close one session later
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

Interesting to note that over the past two sessions, we've seen a high-volume
rally followed by a low-volume decline. Specifically, NYSE volume closed over
its upper bollinger band during Friday's rally, and hit its lowest level of
the past week during Monday's decline. Looking back at times when the S&P
staged a similar two-day pattern of rallying on unusually heavy volume
followed by a selloff on low volume, there's a tendency for the market to
trade sideways-to-up the next day. This specific pattern has occurred a total
of 22 times since 1970, only two of which led to an S&P close down more than
0.3% the next session...

SPX Closes Higher, NYSE Volume Over Upper Band
Next Day S&P Closes Lower on One-Week Low in Volume
09/22/08... S&P500 ??? next session
03/12/08... S&P500 +0.5% next session
06/18/07... S&P500 +0.2% next session
04/23/07... S&P500 -0.0% next session
03/20/06... S&P500 -0.6% next session (*)
03/24/03... S&P500 +1.2% next session
12/24/01... S&P500 +0.4% next session
12/20/99... S&P500 +1.1% next session
09/23/96... S&P500 -0.1% next session
12/19/94... S&P500 -0.2% next session
03/21/94... S&P500 +0.1% next session
09/19/89... S&P500 -0.0% next session
06/20/88... S&P500 +1.0% next session
01/26/88... S&P500 -0.1% next session
03/03/86... S&P500 -0.5% next session (*)
11/13/85... S&P500 +1.0% next session
07/30/84... S&P500 +0.3% next session
03/19/84... S&P500 +0.7% next session
06/14/82... S&P500 -0.3% next session
05/07/73... S&P500 +0.7% next session
04/13/72... S&P500 -0.1% next session
02/10/71... S&P500 +0.5% next session
04/30/70... S&P500 -0.1% next session

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

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