Surge in New Lows and High VIX:VXV Ratio Positive Indications for the Intermediate-term
By
Rennie on Monday, September 15th, 2008 at 9:30 pm
Cumulative TICK settled at -116,000 Monday, the second -100,000 reading in the
last five sessions. That’s going to keep the 20-day moving average of the
Cumulative TICK in a solid downtrend for the time being. From the looks of
things, the market is putting in a momentum low here. As Brett Steenbarger
pointed out in a recent column, momentum lows generally precede price lows.
From an intermediate-term perspective, there were some positive signs emerging
from Monday’s extreme weakness. The VIX shot up over 20% to close at 27.93,
doubling the percentage gain for the VXV (90-day S&P volatility) and sending
the VIX:VXV Ratio over the 1.10 level. Back on August 21st, you may remember
that this same ratio signaled caution after it fell below .90. Now, with
Monday’s selloff, this same ratio has flipped into market buy territory (over
1.10), suggesting the likelihood of lower volatility and higher prices over
the coming month.
Also from an intermediate-term perspective, noteworthy that the number of new
52-week lows on the NYSE jumped to nearly 800 issues. When the number of
stocks at new 52-week lows hits 500 or more, it’s often a sign of climactic
selling pressure – a final washout prior to an intermediate bottom being
formed. Note from the long-term chart that the 500 level has consistently
represented an extreme reading throughout the last 30+ years. Since 1975,
there have been a total of 30 separate sessions in which new 52-week lows on
the NYSE hit or exceeded 500, all of which are noted in the table below along
with the S&P’s performance over the next three weeks. Note that in the
majority of cases, the surge in new lows coincided with an intermediate- term
bottoming phase…
Number of New 52-week Lows on the NYSE Equals 500+
07/11/08 897 New Lows… S&P +1.7% three weeks later
07/07/08 651 New Lows… S&P -1.4% three weeks later (*)
07/01/08 652 New Lows… S&P -0.2% three weeks later
03/17/08 759 New Lows… S&P +7.0% three weeks later
01/18/08 625 New Lows… S&P +1.1% three weeks later
01/09/08 709 New Lows… S&P -2.2% three weeks later (*)
01/04/08 539 New Lows… S&P -4.1% three weeks later (*)
11/19/07 565 New Lows… S&P +3.1% three weeks later
11/08/07 505 New Lows… S&P +0.4% three weeks later
08/15/07 717 New Lows… S&P +5.1% three weeks later
08/06/07 688 New Lows… S&P -0.1% three weeks later
08/01/07 522 New Lows… S&P -0.1% three weeks later
07/26/07 828 New Lows… S&P -4.8% three weeks later (*)
05/07/04 706 New Lows… S&P +2.0% three weeks later
10/09/02 604 New Lows… S&P +14.7% three weeks later
07/22/02 513 New Lows… S&P +10.2% three weeks later
09/19/01 539 New Lows… S&P +6.4% three weeks later
09/17/01 536 New Lows… S&P +2.3% three weeks later
12/14/99 565 New Lows… S&P -0.1% three weeks later
10/15/99 500 New Lows… S&P +9.9% three weeks later
10/07/98 535 New Lows… S&P +10.0% three weeks later
09/10/98 515 New Lows… S&P +0.6% three weeks later
08/26/98 575 New Lows… S&P -6.0% three weeks later (*)
08/04/98 541 New Lows… S&P +1.9% three weeks later
04/04/94 637 New Lows… S&P +3.1% three weeks later
08/23/90 711 New Lows… S&P +3.2% three weeks later
10/19/87 1068 New Lows… S&P +8.1% three weeks later
09/28/81 590 New Lows… S&P +3.0% three weeks later
03/27/80 714 New Lows… S&P +2.4% three weeks later
10/30/78 583 New Lows… S&P +0.2% three weeks later
The overall 70% win ratio in terms of calling for a higher S&P three weeks
later is not significantly better than the 59% at-any-time odds of a higher
S&P three weeks later, so this isn’t going up on the board. But it is
noteworthy that eighteen times the S&P was trading up 1% or more three weeks
later, while only five times was the S&P down 1% or more three weeks later.
Short-term, it’s likely we’ll see a bounce within the next couple of sessions.
Volume associated with declining issues accounted for over 90% of total volume
on both the NYSE and NASDAQ. Since the late 90′s, we’ve seen 25 sessions in
which NASDAQ declining volume accounted for 90% or more of total NASDAQ
volume. Each of these instances is noted in the table below, along with the
performance of the S&P over the next 1-3 sessions. Note that the climactic
selling on the NASDAQ normally translated into a short-term bounce for the S&P
within the next 1-3 sessions. In only one case out of 25 occurrences was this
not the case. That 96% win rate is significantly above the 72% at-any-time
odds for a higher S&P close within the next three days…
90% Down Volume on the NASDAQ Exchange
09/15/08… ???
09/09/08… Higher S&P500 close one session later
09/04/08… Higher S&P500 close one session later
02/05/08… Higher S&P500 close two sessions later
01/04/08… Higher S&P500 close one session later
10/19/07… Higher S&P500 close one session later
02/27/07… Higher S&P500 close one session later
11/27/06… Higher S&P500 close one session later
06/12/06… Higher S&P500 close three sessions later
07/06/04… Higher S&P500 close one session later
03/15/04… Higher S&P500 close one session later
07/17/03… Higher S&P500 close one session later
03/24/03… Higher S&P500 close one session later
02/07/03… Higher S&P500 close one session later
12/09/02… Higher S&P500 close one session later
09/19/02… Higher S&P500 close one session later
09/03/02… Higher S&P500 close one session later
07/01/02… Higher S&P500 close three sessions later
06/03/02… Higher S&P500 close one session later
06/14/01… Higher S&P500 close four sessions later
04/03/01… Higher S&P500 close two sessions later
03/28/01… Higher S&P500 close two sessions later
03/12/01… Higher S&P500 close one session later
04/14/00… Higher S&P500 close one session later
08/31/98… Higher S&P500 close one session later
10/27/97… Higher S&P500 close one session later
I’d also add that the S&P100 Volatility Index (VXO) posted its fifth
consecutive higher high Monday. Typically this means limited downside
potential for the S&P the following session given the tendency for a drop in
volatility. The last thirty occurrences are listed below. Note that in only
four cases did the S&P close down 0.5% or more the next day, while it gained
0.5% or more fourteen times…
Five Consecutive Higher Highs for VXO
09/15/08… S&P500 ???
09/05/08… S&P500 +2.1% next session
05/27/08… S&P500 +0.4% next session
01/02/08… S&P500 +0.0% next session
06/26/07… S&P500 +0.9% next session
06/08/07… S&P500 +0.1% next session
09/07/06… S&P500 +0.4% next session
05/12/06… S&P500 +0.3% next session
11/30/05… S&P500 +1.2% next session
05/13/05… S&P500 +1.0% next session
03/14/05… S&P500 -0.8% next session (*)
01/24/05… S&P500 +0.4% next session
12/31/04… S&P500 -0.8% next session (*)
12/08/04… S&P500 +0.5% next session
10/08/04… S&P500 +0.2% next session
04/30/04… S&P500 +0.9% next session
01/02/04… S&P500 +1.2% next session
03/12/03… S&P500 +3.5% next session
01/22/03… S&P500 +1.0% next session
04/26/02… S&P500 -1.0% next session (*)
01/15/02… S&P500 -1.6% next session (*)
09/04/01… S&P500 -0.1% next session
04/03/01… S&P500 -0.3% next session
03/22/01… S&P500 +2.0% next session
02/23/01… S&P500 +1.8% next session
10/12/00… S&P500 +3.3% next session
09/21/00… S&P500 -0.0% next session
04/14/00… S&P500 +3.3% next session
01/04/00… S&P500 +0.2% next session
04/15/99… S&P500 -0.3% next session
12/14/98… S&P500 +1.9% next session
Finally, we’ll want to keep an eye on SPY volume Tuesday. Today it easily
closed over its upper bollinger band as over 450 million shares traded hands.
If volume comes in higher on Tuesday, it would keep SPY volume over its upper
band a second day, triggering the same short-term bearish setup recently noted
in my September 10th column.
Surge in New Lows and High VIX:VXV Ratio Positive Indications for the Intermediate-term
By Rennie on Monday, September 15th, 2008 at 9:30 pmCumulative TICK settled at -116,000 Monday, the second -100,000 reading in the
last five sessions. That’s going to keep the 20-day moving average of the
Cumulative TICK in a solid downtrend for the time being. From the looks of
things, the market is putting in a momentum low here. As Brett Steenbarger
pointed out in a recent column, momentum lows generally precede price lows.
From an intermediate-term perspective, there were some positive signs emerging
from Monday’s extreme weakness. The VIX shot up over 20% to close at 27.93,
doubling the percentage gain for the VXV (90-day S&P volatility) and sending
the VIX:VXV Ratio over the 1.10 level. Back on August 21st, you may remember
that this same ratio signaled caution after it fell below .90. Now, with
Monday’s selloff, this same ratio has flipped into market buy territory (over
1.10), suggesting the likelihood of lower volatility and higher prices over
the coming month.
Also from an intermediate-term perspective, noteworthy that the number of new
52-week lows on the NYSE jumped to nearly 800 issues. When the number of
stocks at new 52-week lows hits 500 or more, it’s often a sign of climactic
selling pressure – a final washout prior to an intermediate bottom being
formed. Note from the long-term chart that the 500 level has consistently
represented an extreme reading throughout the last 30+ years. Since 1975,
there have been a total of 30 separate sessions in which new 52-week lows on
the NYSE hit or exceeded 500, all of which are noted in the table below along
with the S&P’s performance over the next three weeks. Note that in the
majority of cases, the surge in new lows coincided with an intermediate- term
bottoming phase…
Number of New 52-week Lows on the NYSE Equals 500+
07/11/08 897 New Lows… S&P +1.7% three weeks later
07/07/08 651 New Lows… S&P -1.4% three weeks later (*)
07/01/08 652 New Lows… S&P -0.2% three weeks later
03/17/08 759 New Lows… S&P +7.0% three weeks later
01/18/08 625 New Lows… S&P +1.1% three weeks later
01/09/08 709 New Lows… S&P -2.2% three weeks later (*)
01/04/08 539 New Lows… S&P -4.1% three weeks later (*)
11/19/07 565 New Lows… S&P +3.1% three weeks later
11/08/07 505 New Lows… S&P +0.4% three weeks later
08/15/07 717 New Lows… S&P +5.1% three weeks later
08/06/07 688 New Lows… S&P -0.1% three weeks later
08/01/07 522 New Lows… S&P -0.1% three weeks later
07/26/07 828 New Lows… S&P -4.8% three weeks later (*)
05/07/04 706 New Lows… S&P +2.0% three weeks later
10/09/02 604 New Lows… S&P +14.7% three weeks later
07/22/02 513 New Lows… S&P +10.2% three weeks later
09/19/01 539 New Lows… S&P +6.4% three weeks later
09/17/01 536 New Lows… S&P +2.3% three weeks later
12/14/99 565 New Lows… S&P -0.1% three weeks later
10/15/99 500 New Lows… S&P +9.9% three weeks later
10/07/98 535 New Lows… S&P +10.0% three weeks later
09/10/98 515 New Lows… S&P +0.6% three weeks later
08/26/98 575 New Lows… S&P -6.0% three weeks later (*)
08/04/98 541 New Lows… S&P +1.9% three weeks later
04/04/94 637 New Lows… S&P +3.1% three weeks later
08/23/90 711 New Lows… S&P +3.2% three weeks later
10/19/87 1068 New Lows… S&P +8.1% three weeks later
09/28/81 590 New Lows… S&P +3.0% three weeks later
03/27/80 714 New Lows… S&P +2.4% three weeks later
10/30/78 583 New Lows… S&P +0.2% three weeks later
The overall 70% win ratio in terms of calling for a higher S&P three weeks
later is not significantly better than the 59% at-any-time odds of a higher
S&P three weeks later, so this isn’t going up on the board. But it is
noteworthy that eighteen times the S&P was trading up 1% or more three weeks
later, while only five times was the S&P down 1% or more three weeks later.
Short-term, it’s likely we’ll see a bounce within the next couple of sessions.
Volume associated with declining issues accounted for over 90% of total volume
on both the NYSE and NASDAQ. Since the late 90′s, we’ve seen 25 sessions in
which NASDAQ declining volume accounted for 90% or more of total NASDAQ
volume. Each of these instances is noted in the table below, along with the
performance of the S&P over the next 1-3 sessions. Note that the climactic
selling on the NASDAQ normally translated into a short-term bounce for the S&P
within the next 1-3 sessions. In only one case out of 25 occurrences was this
not the case. That 96% win rate is significantly above the 72% at-any-time
odds for a higher S&P close within the next three days…
90% Down Volume on the NASDAQ Exchange
09/15/08… ???
09/09/08… Higher S&P500 close one session later
09/04/08… Higher S&P500 close one session later
02/05/08… Higher S&P500 close two sessions later
01/04/08… Higher S&P500 close one session later
10/19/07… Higher S&P500 close one session later
02/27/07… Higher S&P500 close one session later
11/27/06… Higher S&P500 close one session later
06/12/06… Higher S&P500 close three sessions later
07/06/04… Higher S&P500 close one session later
03/15/04… Higher S&P500 close one session later
07/17/03… Higher S&P500 close one session later
03/24/03… Higher S&P500 close one session later
02/07/03… Higher S&P500 close one session later
12/09/02… Higher S&P500 close one session later
09/19/02… Higher S&P500 close one session later
09/03/02… Higher S&P500 close one session later
07/01/02… Higher S&P500 close three sessions later
06/03/02… Higher S&P500 close one session later
06/14/01… Higher S&P500 close four sessions later
04/03/01… Higher S&P500 close two sessions later
03/28/01… Higher S&P500 close two sessions later
03/12/01… Higher S&P500 close one session later
04/14/00… Higher S&P500 close one session later
08/31/98… Higher S&P500 close one session later
10/27/97… Higher S&P500 close one session later
I’d also add that the S&P100 Volatility Index (VXO) posted its fifth
consecutive higher high Monday. Typically this means limited downside
potential for the S&P the following session given the tendency for a drop in
volatility. The last thirty occurrences are listed below. Note that in only
four cases did the S&P close down 0.5% or more the next day, while it gained
0.5% or more fourteen times…
Five Consecutive Higher Highs for VXO
09/15/08… S&P500 ???
09/05/08… S&P500 +2.1% next session
05/27/08… S&P500 +0.4% next session
01/02/08… S&P500 +0.0% next session
06/26/07… S&P500 +0.9% next session
06/08/07… S&P500 +0.1% next session
09/07/06… S&P500 +0.4% next session
05/12/06… S&P500 +0.3% next session
11/30/05… S&P500 +1.2% next session
05/13/05… S&P500 +1.0% next session
03/14/05… S&P500 -0.8% next session (*)
01/24/05… S&P500 +0.4% next session
12/31/04… S&P500 -0.8% next session (*)
12/08/04… S&P500 +0.5% next session
10/08/04… S&P500 +0.2% next session
04/30/04… S&P500 +0.9% next session
01/02/04… S&P500 +1.2% next session
03/12/03… S&P500 +3.5% next session
01/22/03… S&P500 +1.0% next session
04/26/02… S&P500 -1.0% next session (*)
01/15/02… S&P500 -1.6% next session (*)
09/04/01… S&P500 -0.1% next session
04/03/01… S&P500 -0.3% next session
03/22/01… S&P500 +2.0% next session
02/23/01… S&P500 +1.8% next session
10/12/00… S&P500 +3.3% next session
09/21/00… S&P500 -0.0% next session
04/14/00… S&P500 +3.3% next session
01/04/00… S&P500 +0.2% next session
04/15/99… S&P500 -0.3% next session
12/14/98… S&P500 +1.9% next session
Finally, we’ll want to keep an eye on SPY volume Tuesday. Today it easily
closed over its upper bollinger band as over 450 million shares traded hands.
If volume comes in higher on Tuesday, it would keep SPY volume over its upper
band a second day, triggering the same short-term bearish setup recently noted
in my September 10th column.