SPY Volume Over its Upper Band Second Day in a Row, Indicating Choppy Conditions Likely to Persist

Market averages closed higher Tuesday, staging a technical rebound following
Monday’s 90%+ down volume day. TICKscore closed at -10 and Cumulative TICK -
28,000, marking the sixth consecutive day of negative NYSE TICK action. Given
the extreme negative readings over the past six days, we’re probably looking
at a couple of weeks before the 20-day moving average of the Cumulative TICK
will be able to put in a sustainable bottom.

SPY volume closed over its upper bollinger band for the second consecutive
session Tuesday, a negative sign for the short-term. As I noted at the end of
Monday evening’s column, consecutive days of elevated SPY volume indicates
unusually active institutional participation, which usually translates into
choppy conditions over the short-term. In 22 out of the last 25 occurrences of
this setup since 1996, the SPY posted a subsequently lower close within the
next five trading days, suggesting good odds that we’ll see a close below
today’s settlement of 122.10 by next Tuesday…

SPY Volume Over Upper Bollinger Band Two Days in a Row
09/16/08… ???
09/09/08… Lower SPY close four sessions later
07/11/08… Lower SPY close one session later
03/14/08… Lower SPY close one session later
07/27/07… Lower SPY close five sessions later
07/19/06… Lower SPY close one session later
01/19/06… Lower SPY close one session later
10/06/05… Lower SPY close two sessions later
07/01/04… Lower SPY close one session later
03/11/04… Lower SPY close six sessions later
10/01/03… No lower SPY close within six sessions
01/24/03… Lower SPY close one session later
07/11/02… Lower SPY close one session later
01/30/02… Lower SPY close three sessions later
02/23/01… Lower SPY close three sessions later
09/25/00… Lower SPY close one session later
04/14/99… Lower SPY close one session later
08/28/98… Lower SPY close one session later
07/23/98… Lower SPY close one session later
04/27/98… Lower SPY close one session later
03/06/98… Lower SPY close one session later
01/12/98… No lower SPY close within six sessions
10/28/97… Lower SPY close one session later
06/24/97… Lower SPY close one session later
09/03/96… Lower SPY close two sessions later
07/16/96… Lower SPY close five sessions later

As I noted last week, “consecutive days of unusually heavy volume lead to
choppy conditions over the short-term, with a close both above and below the
setup day likely over the following week.” This suggests we’ll see a close
both above and below Tuesday’s settlement by early next week. On the plus
side, the market is still working off technically overbought volatility
readings. The S&P100 Volatility Index (VXO) closed more than 10% above its 10-
day moving average for a third consecutive session Tuesday. That triggers a
short-term buy setup for the S&P that remains in effect until the VXO closes
less than 10% above its 10-day average. (For this setup to be fulfilled
Wednesday, the VXO would need to close at 31.50 or lower.) While this signal
can be early, it generally does a good job at identifying short-term bottoming
periods. The last thirty times this signal 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
09/16/08 – ??/??/??… S&P500 ???
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%
07/26/99 – 07/27/99… S&P500 +1.1%

I’d also note that new 52-week highs managed to expand slightly. It was by a
small margin, but any increase at all is noteworthy considering the S&P barely
came within 3% of Monday’s highs. The last thirty times that new 52-week highs
expanded on a day when the S&P did not trade within 1.5% of the previous day’s
high are listed in the table below. Note that in 21 out of 30 occurrences, or
70% of the time, the S&P was trading higher two sessions later, significantly
above the 50% at- any-time odds for a higher S&P two sessions later…

SPX High 1.5% Below Yesterday’s High, New 52-week Highs Expand
09/16/08… S&P500 ??? two sessions later
09/05/08… S&P500 -1.4% two sessions later
07/10/08… S&P500 -2.0% two sessions later
06/27/08… S&P500 +0.5% two sessions later
04/14/08… S&P500 +2.7% two sessions later
03/03/08… S&P500 +0.2% two sessions later
01/22/08… S&P500 +3.2% two sessions later
11/02/07… S&P500 +0.7% two sessions later
08/06/04… S&P500 +1.4% two sessions later
04/10/03… S&P500 +1.6% two sessions later
03/04/03… S&P500 +0.0% two sessions later
11/11/02… S&P500 +0.7% two sessions later
10/07/02… S&P500 -1.1% two sessions later
09/30/02… S&P500 +1.6% two sessions later
09/04/02… S&P500 +0.1% two sessions later
08/05/02… S&P500 +5.1% two sessions later
07/18/02… S&P500 -7.0% two sessions later
07/10/02… S&P500 +0.1% two sessions later
06/21/02… S&P500 -1.3% two sessions later
09/07/01… S&P500 -4.3% two sessions later
06/15/01… S&P500 -0.2% two sessions later
04/04/01… S&P500 +2.3% two sessions later
03/01/01… S&P500 +0.0% two sessions later
01/08/01… S&P500 +1.3% two sessions later
12/21/00… S&P500 +3.2% two sessions later
12/14/00… S&P500 -1.4% two sessions later
10/11/00… S&P500 +0.7% two sessions later
05/22/00… S&P500 -0.1% two sessions later
05/04/00… S&P500 +1.1% two sessions later
02/22/00… S&P500 +0.1% two sessions later
01/05/00… S&P500 +2.8% two sessions later

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

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