Persistent Drop in Volume a Positive Sign for Next Couple of Sessions

Market averages settled mixed Wednesday in thin trading. TICKscore closed at -
4, Cumulative TICK -17,400. NYSE volume hit a new low for the month as just
over a billion shares traded hands. That's the third consecutive session we've
seen a drop in big board volume, and Wednesday represented the third
consecutive lower close for the S&P500. That triggers a short-term buy signal,
given that low-volume selloffs invariably lead to higher prices over the next
couple of days. Since 1990, there have been 25 occurrences of three
consecutive down days for the S&P500 on successively lighter NYSE volume. In
21 of 25 cases, or 84% of the time, the S&P closed at a higher level two
sessions later, significantly better than the 53% at-any-time odds. Even when
wrong, the setup produced an average loss of only 0.6%, roughly one-third of
the 1.8% average gain...

S&P500 Down Three on Successively Lighter Volume
09/24/08... S&P500 ??? two sessions later
03/28/08... S&P500 +4.2% two sessions later
12/22/06... S&P500 +1.1% two sessions later
08/08/05... S&P500 +0.5% two sessions later
11/11/03... S&P500 +1.1% two sessions later
11/11/02... S&P500 +0.7% two sessions later
08/05/02... S&P500 +5.1% two sessions later
05/06/02... S&P500 +3.4% two sessions later
12/10/01... S&P500 -0.3% two sessions later
07/26/99... S&P500 +1.3% two sessions later
09/04/98... S&P500 +3.3% two sessions later
03/30/98... S&P500 +1.3% two sessions later
08/25/97... S&P500 -0.7% two sessions later
07/21/97... S&P500 +2.6% two sessions later
04/25/97... S&P500 +3.8% two sessions later
12/16/96... S&P500 +1.5% two sessions later
05/30/95... S&P500 +1.9% two sessions later
11/22/93... S&P500 +0.7% two sessions later
02/09/93... S&P500 +0.5% two sessions later
03/02/92... S&P500 -0.8% two sessions later
12/05/91... S&P500 +0.2% two sessions later
08/09/91... S&P500 +0.7% two sessions later
06/10/91... S&P500 -0.5% two sessions later
04/22/91... S&P500 +0.5% two sessions later
12/17/90... S&P500 +1.3% two sessions later
06/08/90... S&P500 +2.1% two sessions later

I'd also note that today's 2% gain for the VXO kept the volatility index more
than 10% above its 10-day moving average for a third consecutive session,
indicating we're likely to see a drop in volatility and stock market rally
over the short-term. The last thirty times this setup has been triggered are
noted in the table below, beginning with the date when the VXO closed 10%
above its 10-day average for a third consecutive session, and ending with the
date when the VXO closed below that threshold and the S&P's performance in
this time frame. Note that the S&P was down more than 1% in only two cases out
of thirty, while it gained 1% or more sixteen times...

VXO >10% Above 10day Avg Three Days
09/24/08 - ??/??/??... S&P500 ???
09/16/08 - 09/19/08... S&P500 +3.4%
07/15/08 - 07/16/08... S&P500 +2.5%
06/10/08 - 06/13/08... S&P500 +0.1%
03/10/08 - 03/11/08... S&P500 +3.7%
01/22/08 - 01/24/08... S&P500 +3.2%
01/04/08 - 01/09/08... S&P500 -0.2%
11/09/07 - 11/13/07... S&P500 +1.9%
11/05/07 - 11/06/07... S&P500 +1.2%
08/16/07 - 08/17/07... S&P500 +2.5%
07/26/07 - 08/02/07... S&P500 -0.7%
06/26/07 - 06/27/07... S&P500 +0.9%
03/01/07 - 03/06/07... S&P500 -0.6%
07/17/06 - 07/19/06... S&P500 +2.1%
06/09/06 - 06/15/06... S&P500 +0.3%
05/19/06 - 05/25/06... S&P500 +0.5%
10/07/05 - 10/14/05... S&P500 -0.8%
04/18/05 - 04/19/05... S&P500 +0.6%
10/13/04 - 10/15/04... S&P500 -0.5%
08/09/04 - 08/10/04... S&P500 +1.3%
03/12/04 - 03/17/04... S&P500 +0.3%
09/26/03 - 09/29/03... S&P500 +1.0%
01/28/03 - 01/29/03... S&P500 +0.7%
09/05/02 - 09/06/02... S&P500 +1.7%
07/23/02 - 07/24/02... S&P500 +5.7%
07/12/02 - 07/17/02... S&P500 -1.7% (*)
02/06/02 - 02/08/02... S&P500 +1.2%
09/04/01 - 09/24/01... S&P500 -11.4% (*)
02/22/01 - 02/26/01... S&P500 +1.2%
10/12/00 - 10/16/00... S&P500 +3.4%
04/14/00 - 04/17/00... S&P500 +3.3%

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

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