20:1 Down-Up Volume Days Usually Mean Limited Downside Potential the Following Session

TICKscore settled at -92 Wednesday, the second-lowest reading of the year, as
institutional buyers were nowhere in sight. We saw similarly negative readings
beginning October 6th, preceding a waterfall decline over the next few
sessions, but it's noteworthy that volume was significantly heavier at that
time. This time around volume remains below average, indicating a relatively
small number of participants are pushing the market around with relative ease.
Cumulative TICK closed at a similarly low -142,900, reinforcing the recent top
in the 20-day moving average. Down volume outpaced up volume by a 25:1 margin
on the NYSE, the eighth time in the last few months we've seen the down/up
volume ratio close over 20. 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 on the NYSE
11/12/08... S&P500 ??? next session
11/06/08... S&P500 +2.9% next session
10/22/08... S&P500 +1.3% 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 *
* 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. More
noteworthy is that in only two cases out of thirty did the S&P close down more
than 1.5% the next day.

That's particularly interesting in light of the fact that 1.5% below
Wednesday's settlement is 839.52, just a few ticks below the intraday low for
the year set on October 10th. This suggests that if the S&P does violate that
low on Thursday, it could turn into a bear trap on a short-term basis. This
would be particularly true if the number of new 52-week lows continues to hold
below the late October peak at 1,125 on the NYSE and 788 on the NASDAQ. Based
on the new 52-week lows and elevated volume, the market made a momentum low
back on October 10th. Since then we've seen the low challenged once late in
October, on fewer new lows and light volume, and now we're challenging it
again on even fewer new lows and still light volume. This suggests range-bound
trade is likely to persist for the time being, and that the first break of the
big momentum low on October 10th could prove to be a fakeout.

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

 Print This Post