Principal Program Trading Falls to Multi-month lows as Institutional Investors Remain Sidelined

The Last Hour indicator gained 288 points Thursday and closed in new highs for
the year. Recall that this 'smart money' indicator, which compares the
market's performance during the first and last hour, remains long-term bearish
until it retraces the entire decline from 2005-2007. It's about half way
there.

Last Sunday I mentioned that "we're still not seeing the kind of elevated
program trading typically seen at major bottoming periods." This past week's
data emphasizes that point, as program trading volume executed as principal
fell to 28.6% of total program volume, the lowest reading in months.

Noteworthy that the NASDAQ/NYSE Volume Ratio continues to trade at elevated
levels, reflecting a surprisingly speculative environment despite the steep
decline over the past two months. Such a move would normally send the volume
ratio tumbling lower as weak hands are driven out. They're hanging tough this
time around, which doesn't bode well from a longer-term perspective. The 20-
day moving average of this ratio has held above 1.50 for six months, and as
you can see on this long-term chart, the only other comparable period is 2000.
Back then it took a similarly steep decline that started in late 2000 and
persisted through mid-2001 before we finally began to see a give-up among
NASDAQ traders. Even then, it was another year before the speculative excess
had been fully wrung out of the system. So far this time around is playing out
very similarly. We've seen a steep decline in price, similar to the end of
2000, but we have not reached the 'give up' stage. This suggests the market's
current range-bound trade will ultimately be resolved to the downside.

In yesterday's column I noted that if the S&P violated the 839 level, it could
turn into a bear trap on a short-term basis. The reasoning was that downside
potential is typically limited the day after a down/up volume ratio in excess
of 20. While Thursday's afternoon rebound was certainly impressive, it's
noteworthy that NYSE TICK-related indicators remained in negative territory.
TICKscore closed at -19, Cumulative TICK settled at -51,000. That pushed the
Cumulative TICKscore into new lows for the year, continuing the long-term
downtrend that's been in place since mid-2007. The negative closing readings
are particularly noteworthy in light of the 2:1 positive breadth on both the
NYSE and NASDAQ. As I noted in a recent column, closing TICKscore readings of
+5 or lower in conjunction with a 2:1+ positive breadth session typically lead
to a lower S&P 2-4 trading days later...

TICKscore <=+5 on 2:1+ Positive Breadth Session
11/13/08... ???
11/07/08... Lower S&P close two sessions later
09/18/08... Lower S&P close three sessions later
06/25/08... Lower S&P close two sessions later
06/13/08... Lower S&P close two sessions later
12/21/07... Lower S&P close three sessions later
12/05/07... Lower S&P close four sessions later
10/31/07... Lower S&P close two sessions later
10/26/07... Lower S&P close two sessions later
10/23/07... Lower S&P close two sessions later
08/08/07... Lower S&P close two sessions later
07/12/07... Lower S&P close four sessions later
06/01/07... Lower S&P close two sessions later
04/20/07... Lower S&P close two sessions later
10/14/05... Lower S&P close two sessions later
08/11/05... Lower S&P close two sessions later
05/24/04... No lower close 2-4 trading days later
12/16/02... Lower S&P close two sessions later
11/21/02... Lower S&P close two sessions later
10/17/02... No lower close 2-4 trading days later
03/27/02... Lower S&P close three sessions later
02/11/02... Lower S&P close four sessions later
01/31/02... Lower S&P close two sessions later
11/13/01... Lower S&P close three sessions later
09/24/01... No lower close 2-4 trading days later
04/10/01... No lower close 2-4 trading days later
04/05/01... Lower S&P close two sessions later
03/30/01... Lower S&P close two sessions later
02/26/01... Lower S&P close two sessions later

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

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