Intraday Action Becoming Increasingly Volatile, Short-term Buy Setups Triggered at Today’s Close

Buying power was nonexistent Tuesday. TICKscore closed at -63, Cumulative TICK
-114,600. Both readings represent the lowest readings of the year and reflect
an extremely lopsided session. Our intraday TrendCatcher strategy recorded its
largest profit on record (roughly 29 S&P points), continuing the recent trend
of unusually volatile intraday action (last Friday represented the second-
largest loss on record.) Despite the volatility, it’s good to see the
strategy’s equity curve moving in the right direction.

New 52-week lows declined on the NASDAQ exchange, signaling fewer individual
issues followed the NDX into new lows Tuesday. That’s a positive sign for the
short-term, as it supports the notion that we could see a technical bounce.
The 14-day RSI for the Nasdaq100, which is the time period recommended by
Welles Wilder when the indicator was first introduced back in 1978, closed in
technically oversold territory Tuesday (<30). Note from this long-term chart
of the Nasdaq 14-day RSI that it generally oscillates between 70 on the upside
and 30 on the downside. When it drops under 30, as it just did as of Tuesday's
close, it signals the Nasdaq is technically oversold and ripe for a short-term
bounce. I went back and noted the last thirty instances in which the NDX 14-
day RSI closed under 30, followed by the date when the RSI closed back over 30
and the performance of the Nasdaq in this time frame. Note that in 25 out of
30 cases, or 83% of the time, the oversold condition led to a short-term
bounce within the next two sessions...

Nasdaq100 (NDX) 14-day RSI Closes Under 30
01/22/08... NDX +1.7% when RSI >30 (two sessions)
01/17/08… NDX +0.1% when RSI >30 (one session)
01/08/08… NDX +2.0% when RSI >30 (one session)
06/12/06… NDX +0.7% when RSI >30 (one session)
05/16/06… NDX -1.5% when RSI >30 (seven sessions)
04/15/05… NDX +0.1% when RSI >30 (one session)
01/24/05… NDX +0.7% when RSI >30 (one session)
08/06/04… NDX +0.3% when RSI >30 (one session)
07/02/02… NDX +3.3% when RSI >30 (one session)
05/03/02… NDX +7.7% when RSI >30 (three sessions)
04/29/02… NDX +2.4% when RSI >30 (one session)
09/17/01… NDX -0.3% when RSI >30 (twelve sessions)
09/06/01… NDX +0.3% when RSI >30 (two sessions)
04/03/01… NDX +8.6% when RSI >30 (two sessions)
03/12/01… NDX +6.5% when RSI >30 (one session)
02/28/01… NDX +3.1% when RSI >30 (one session)
10/11/00… NDX +5.7% when RSI >30 (two sessions)
04/14/00… NDX +10.0% when RSI >30 (one session)
08/31/98… NDX +6.6% when RSI >30 (one session)
10/27/97… NDX +7.0% when RSI >30 (one session)
07/15/96… NDX +4.0% when RSI >30 (two sessions)
06/24/94… NDX +2.7% when RSI >30 (one session)
04/13/94… NDX -0.1% when RSI >30 (six sessions)
03/29/94… NDX +1.7% when RSI >30 (four sessions)
02/22/93… NDX +2.9% when RSI >30 (two sessions)
02/16/93… NDX +0.4% when RSI >30 (two sessions)
06/17/92… NDX +1.2% when RSI >30 (two sessions)
04/02/92… NDX +2.2% when RSI >30 (two sessions)
06/24/91… NDX +0.6% when RSI >30 (two sessions)
10/11/90… NDX +0.9% when RSI >30 (one session)

As far as Wednesday’s session is concerned, any close north of NDX 1733 would
send the 14-day RSI over 30 and fulfill this setup.

Also positive for the near-term is that NYSE volume actually declined from
Monday’s level despite the massively lopsided breadth (better than 7:1
negative on the big board). 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
09/09/08… ???
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
05/14/99… Higher SPX close one session later
10/05/98… Higher SPX close five sessions later

While volume did decline from Monday’s levels, it’s also noteworthy that
overall volume levels are running unusually high. Note from the chart of NYSE
volume that its closed over its upper bollinger band two consecutive sessions,
indicating statistically significant activity. I pulled up every instance
since 1980 in which NYSE volume closed over its upper bollinger band two
consecutive sessions and the S&P lost ground during the two-day period (as is
the case presently). Typically, the market struggled over the next few
sessions, with 12 out of 14 occurrences leading to a lower S&P close 2-3
trading days later. Should a bounce materialize on Wednesday, this suggests it
could be followed by one more downside probe in the Thursday-Friday time
frame…

NYSE Volume Over Upper Band Two Days, S&P Down
09/09/08… S&P500 ???
02/28/07… S&P500 -1.4% two sessions later
03/11/04… S&P500 -0.2% two sessions later
06/07/02… S&P500 -1.4% two sessions later
01/30/02… S&P500 -1.7% three sessions later
09/06/01… S&P500 -1.3% two sessions later
04/15/99… S&P500 -2.5% two sessions later
08/05/98… S&P500 +0.2% three sessions later
11/18/91… S&P500 -1.7% two sessions later
08/03/90… S&P500 -2.9% two sessions later
10/16/89… S&P500 -0.3% two sessions later
03/17/89… S&P500 -0.5% two sessions later
10/16/87… S&P500 -16.3% two sessions later
09/12/86… S&P500 +0.4% three sessions later
03/04/82… S&P500 -2.3% two sessions later

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

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