Recovery Day amid Low Volume Points to Lower Prices Short-term

Stock indexes settled higher Friday in choppy trade. TICKscore settled at +9, Cumulative TICK +13,000. Buying power was focused in the technology sector, with the Nasdaq gaining over 2% vs. a 0.7% gain for the S&P500. Breadth ended better than 2:1 positive on the NASDAQ exchange, which is noteworthy considering that volume on the NASDAQ hit a two-week low. This implies relatively few buyers were driving the market higher Friday. Typically, a lopsided breadth session will coincide with increasing volume, or at least average volume. There have only been ten instances over the last decade in which breadth on the Nasdaq was at least 2:1 positive and Nasdaq volume came in at a two-week or better low. In every case but one the Nasdaq was trading at a lower level three sessions later…

Nasdaq Breadth 2:1 Positive, Volume at Two-Week Low
12/12/08… Nasdaq ??? three sessions later
10/20/08… Nasdaq -8.4% three sessions later
08/22/08… Nasdaq -1.6% three sessions later
11/23/07… Nasdaq +3.3% three sessions later
05/25/06… Nasdaq -1.3% three sessions later
01/31/05… Nasdaq -0.8% three sessions later
01/14/05… Nasdaq -3.0% three sessions later
03/17/04… Nasdaq -3.3% three sessions later
07/05/02… Nasdaq -9.6% three sessions later
11/23/01… Nasdaq -1.3% three sessions later
11/24/00… Nasdaq -8.0% three sessions later

Breadth ended 3:2 positive on the NYSE, sending the NYSE McClellan Oscillator back into overbought territory. It would take a 2:1+ negative breadth day to send this indicator back into more average territory (<100).

I’d also note that Friday’s session was somewhat of a ‘recovery day’ in that the S&P rebounded from trading down over 1% to finish with a modest gain, all on lower volume than the previous session. As I discussed in my December 3rd commentary, this usually leads to a lower S&P 2-3 trading days later. The table below lists all instances since 1990 in which the S&P500 traded down 1.5% or more intraday but ended with a gain of less than 1%. Note that out of 25 occurrences, 21 led to a lower S&P close within the next two sessions…

S&P Down 1.5%+ Intraday, Closes Up Less Than 1%
12/12/08… ???
11/25/08… No lower close within two sessions
11/18/08… Lower SPX close one session later
09/26/08… Lower SPX close one session later
09/05/08… Lower SPX close two sessions later
07/01/08… Lower SPX close one session later
03/13/08… Lower SPX close one session later
08/16/07… No lower close within two sessions
08/10/07… Lower SPX close one session later
06/08/06… Lower SPX close one session later
05/12/04… Lower SPX close one session later
03/20/03… Lower SPX close two sessions later
02/25/03… Lower SPX close one session later
10/23/02… Lower SPX close one session later
08/09/02… Lower SPX close one session later
07/30/02… Lower SPX close two sessions later
07/11/02… Lower SPX close one session later
06/24/02… Lower SPX close one session later
10/05/01… Lower SPX close one session later
03/01/01… Lower SPX close one session later
04/27/00… Lower SPX close one session later
01/05/00… No lower close within two sessions
05/12/99… Lower SPX close two sessions later
09/21/98… No lower close within two sessions
06/07/96… Lower SPX close one session later
03/31/94… Lower SPX close one session later

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

 Print This Post