When Down Volume Outpaces Up Volume by a 20:1 Margin

In Monday's column I noted that back-to-back NR10 days for the Semiconductor
Index have typically preceded outsized moves over the next couple of sessions,
and that certainly proved to be true this time around. S&P futures gapped
lower at the open Wednesday and never looked back, the second time in the last
month that the S&Ps have posted an unfilled downside gap. One potential
positive development was the fact that new 52-week lows remained fairly
subdued, with 543 issues hitting new lows on the NYSE and 290 on the NASDAQ,
compared with the 1,000+ readings seen earlier this month. Volume also
remained surprisingly light as both NYSE and NASDAQ volume closed below their
respective 20-day moving averages. That's not what you'd expect if the market
were on the verge of crashing. Then again, I would have said the same thing at
Tuesday's close, and we're down 6% since then. Institutional buyers had a
window of opportunity after the lower open Wednesday, but their glaring
absence emboldened sellers in afternoon trade.

The NASDAQ/NYSE Volume Ratio closed at a high 1.71 Wednesday. This has been
one of the better indications of the market's precarious state, as we're going
on six months now since the 20-day moving average moved above the 1.50 level.
This reflects a general absence of institutional support and relatively high
speculative participation. Recall that the only other time this average has
held above 1.50 for such an extended period was November '99 through July '01.

TICKscore settled at -51, Cumulative TICK -76,000. Institutions were heavy
sellers late in the session, but overall selling pressure hasn't been as
intense as the October 6th - 9th period. That said, a reduction in selling
isn't the same as sustained buying. The market is not nearly as technically
oversold as it was earlier this month, and there's little on the board that
suggests anything more than a short-term bounce from current levels.

Volume associated with declining issues came in at 28 times the amount of
volume associated with advancing issues. That's the fifth time in just the
last month we've seen down volume run 20x up volume, illustrating the
unprecedented selling pressure over the past month. Previously, the only time
we've seen more than two 20:1 Down/Up Volume Ratios in a one-month time span
was the '87 crash (see long-term chart). The last thirty instances are listed
in the table below, along with the S&P's performance the following session...

20:1 Down/Up Volume Ratio on the NYSE
10/22/08... S&P500 ??? next session
10/15/08... S&P500 +4.3% next session *
10/09/08... S&P500 -1.2% next session *
10/07/08... S&P500 -1.1% next session *
09/29/08... S&P500 +5.4% next session
09/15/08... S&P500 +1.8% next session *
08/28/07... S&P500 +2.2% next session
02/27/07... S&P500 +0.6% next session
04/14/00... S&P500 +3.3% next session
08/31/98... S&P500 +3.8% next session *
10/27/97... S&P500 +5.1% next session *
08/23/90... S&P500 +1.5% next session *
10/13/89... S&P500 +2.8% next session *
11/30/87... S&P500 +0.7% next session
10/26/87... S&P500 +2.4% next session
10/19/87... S&P500 +5.2% next session *
10/16/87... S&P500 -20.5% next session *
11/18/86... S&P500 +0.4% next session *
09/11/86... S&P500 -1.9% next session *
10/25/82... S&P500 +0.9% next session *
08/24/81... S&P500 -0.3% next session *
12/08/80... S&P500 -0.1% next session *
03/24/80... S&P500 -0.1% next session *
10/09/79... S&P500 -1.3% next session *
05/07/79... S&P500 +0.2% next session *
12/18/78... S&P500 +0.9% next session
11/18/74... S&P500 -1.5% next session *
05/04/70... S&P500 -1.0% next session *
03/14/68... S&P500 +0.9% next session *
05/31/67... S&P500 +1.3% next session
08/29/66... S&P500 +1.8% next session *
* indicates S&P posted a 'lower low'

Note that in 20 out of 30 cases, or 66% of the time, the S&P posted a higher
close the following session, compared with 52% at-any-time odds. Perhaps more
noteworthy is that in only two cases out of thirty did the S&P close down more
than 1.5% the next day, with one of those occasions the '87 crash.

Given today's downside gap in the S&Ps, it wouldn't be a positive sign to see
the S&P close down 1% or more on Thursday. In recent years, a 1%+ selloff
directly on the heels of an unfilled downside gap has typically led to a
subsequently lower close within the next few sessions...

S&P Futures -1% following Unfilled Downside Gap
10/07/08... Lower S&P close one session later
05/21/08... Lower S&P close two sessions later
11/18/03... Lower S&P close two sessions later
01/21/03... Lower S&P close one session later
09/24/02... Lower S&P close four sessions later
07/22/02... Lower S&P close one session later
03/12/01... Lower S&P close two sessions later
02/20/01... Lower S&P close one session later
09/15/99... Lower S&P close four sessions later
07/30/99... Lower S&P close two sessions later
05/06/98... Lower S&P close one session later
10/24/97... Lower S&P close one session later
12/12/96... Lower S&P close two sessions later
05/09/94... Lower S&P close two sessions later
03/25/94... Lower S&P close two sessions later
10/10/90... Lower S&P close one session later
08/22/90... Lower S&P close one session later

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

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