SPY Volume Over its Upper Band Second Day in a Row, Usually Means Choppy Conditions Short-term

Wednesday represented the third consecutive session that the SPY has opened up
but settled below the open, creating a black candlestick. The table below
lists the last thirty separate occurrences when the SPY has traded in an
identical manner, opening higher but closing below the open three days in a
row. Note that in 26 out of 30 occurrences, or 87% of the time, the SPY posted
a higher close the following session, significantly better than the 53% at-
any-time odds for a higher SPY close the next day. The persistent string of up
opens, at least for the near-term, is a positive sign heading into Thursday’s
session…

SPY Opens Up, Closes Below Open Three Consecutive Days
09/10/08… SPY ??? next session
07/28/08… SPY +2.1% next session
07/07/08… SPY +1.8% next session
12/20/07… SPY +0.9% next session
05/24/07… SPY +0.4% next session
12/22/06… SPY +0.6% next session
04/03/06… SPY +0.6% next session
12/21/05… SPY +0.5% next session
11/30/05… SPY +1.0% next session
10/06/05… SPY +0.3% next session
08/23/05… SPY -0.9% next session
01/25/05… SPY +0.3% next session
01/03/05… SPY -1.2% next session
11/30/04… SPY +1.1% next session
11/03/04… SPY +1.4% next session
07/19/04… SPY +1.3% next session
02/20/04… SPY -0.3% next session
01/30/04… SPY +0.4% next session
09/26/03… SPY +1.0% next session
07/30/03… SPY +0.2% next session
07/16/03… SPY -1.4% next session
06/23/03… SPY +0.1% next session
04/07/03… SPY +0.2% next session
03/25/02… SPY +0.6% next session
02/28/02… SPY +2.3% next session
01/09/02… SPY +0.4% next session
10/03/00… SPY +0.8% next session
09/27/00… SPY +1.3% next session
06/12/00… SPY +1.9% next session
02/11/00… SPY +0.6% next session
11/04/99… SPY +1.0% next session

Also noteworthy that the SPY saw statistically significant volume (over its
upper bollinger band) on both Monday and Tuesday of this week. That suggests
an unusually large amount of institutional participation, which typically
means choppy conditions over the short-term. Since 1996, the first year when
average SPY volume topped a million shares, there have been 24 separate
instances in which daily SPY volume topped its upper bollinger band two
consecutive sessions, all of which are noted in the table below…

SPY Volume Over Upper Bollinger Band Two Days in a Row
09/09/08… ???
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

Note that in only two cases out of 24 did the SPY not post a subsequently
lower close within the next six sessions. That 92% rate is significantly
greater than the 74% at-any-time odds of a lower SPY settlement within six
days. The SPY has a similar record (21/24) when looking for a higher close
within six days of this setup, suggesting that 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. We’ve already
seen the higher close on Wednesday, which means further strength on Thursday
will most likely represent a short-term selling opportunity with a target
below Tuesday’s close.

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

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