Light Volume, Narrow Range Provide Clues for the Short-term

Stock indexes settled near unchanged levels Monday in thin trading. TICKscore settled at +10, Cumulative TICK +37,000. Volume was light, particularly in the index tracking stocks SPY and QQQQ, both of which saw their lightest daily volume in over a month. It’s generally a short-term negative indication when institutional participation declines markedly after a multi-day rally. The table below lists each of the last thirty instances in which the SPY closed up for a third day in a row and SPY volume hit a one-month low…

SPY Up Three, Volume @ One-Month Low
02/09/09…
11/28/08… SPY -3.1% three sessions later
11/03/08… SPY -6.4% three sessions later
08/22/08… SPY -0.8% three sessions later
05/30/08… SPY -1.7% three sessions later
04/28/08… SPY +1.1% three sessions later
04/21/08… SPY -0.2% three sessions later
12/24/07… SPY -1.3% three sessions later
07/03/07… SPY +0.4% three sessions later
04/04/07… SPY +0.5% three sessions later
02/15/07… SPY +0.1% three sessions later
11/22/06… SPY -1.4% three sessions later
12/23/05… SPY -1.2% three sessions later
11/25/05… SPY -1.4% three sessions later
11/11/05… SPY -0.2% three sessions later
11/24/04… SPY -0.5% three sessions later
04/05/04… SPY -0.8% three sessions later
02/09/04… SPY +1.0% three sessions later
11/28/03… SPY +0.7% three sessions later
10/06/03… SPY +0.4% three sessions later
08/08/03… SPY +0.8% three sessions later
05/23/03… SPY +1.8% three sessions later (*)
11/14/02… SPY -0.4% three sessions later
11/05/02… SPY -2.4% three sessions later
10/14/02… SPY +4.3% three sessions later (*)
06/04/01… SPY +0.7% three sessions later
05/18/01… SPY -0.4% three sessions later
12/26/00… SPY -0.9% three sessions later
11/06/00… SPY -2.6% three sessions later
08/08/00… SPY -0.9% three sessions later
05/15/00… SPY -1.3% three sessions later

While the 63% win rate isn’t significantly greater than the 47% at-any-time odds for a lower SPY close three sessions later, this nonetheless tends to indicate limited upside potential over the short-term. Note that in only two cases out of thirty did the SPY gain more than 1.1% over the next three sessions.

Another negative indication for the short-term was today’s narrow range session. The S&P500 posted its smallest range in over a month, a short-term bearish sign coming on a third consecutive higher close. The table below lists each of the last thirty instances in which the S&P closed up three consecutive sessions and posted a Narrow Range 10 bar (meaning the smallest range in ten sessions)…

S&P500 Up Three, Posts NR10 Bar
02/09/09… ???
11/28/08… Lower S&P close one session later
07/18/08… Lower S&P close one session later
06/16/08… Lower S&P close one session later
05/30/08… Lower S&P close one session later
03/25/08… Lower S&P close one session later
12/24/07… Lower S&P close two sessions later
11/29/07… Lower S&P close three sessions later
09/14/07… Lower S&P close one session later
07/09/07… Lower S&P close one session later
05/07/07… Lower S&P close one session later
04/09/07… Lower S&P close two sessions later
04/04/07… Lower S&P close four sessions later
02/15/07… Lower S&P close one session later
02/02/07… Lower S&P close one session later
01/16/07… Lower S&P close one session later
10/24/06… Lower S&P close three sessions later
09/28/06… Lower S&P close one session later
05/26/06… Lower S&P close one session later
03/17/06… Lower S&P close one session later
01/30/06… Lower S&P close one session later
12/23/05… Lower S&P close one session later
11/25/05… Lower S&P close one session later
11/11/05… Lower S&P close one session later
09/30/05… Lower S&P close one session later
07/13/05… Lower S&P close three sessions later
05/19/05… Lower S&P close one session later
03/07/05… Lower S&P close one session later
02/14/05… Lower S&P close three sessions later
02/02/05… Lower S&P close one session later
01/27/05… Lower S&P close one session later

Note that in 29 out of the last 30 occurrences, or 97% of the time, the S&P posted a lower close within the next three days (usually the next day). In the same period of time, the S&P’s at-any-time odds of posting a lower close within the next three days was 69%, so today’s narrow range bar significantly increases the odds of further downside short-term.

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

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