Short-term Implications from Friday’s 90% Up Volume Day and Firm Volatility

The OEX Volatility Index (VXO) closed higher Friday, noteworthy given that advancers outpaced decliners by over a 4:1 margin. When volatility increases in the face of a lopsided positive breadth session, the market typically struggles to post more than modest gains the following session. Out of the last 30 occurrences, only two led to an S&P up more than 0.5% the next day?

Breadth 2:1 Positive, VXO Up
02/06/09? S&P ??? next day
11/28/08? S&P -8.9% next day
10/16/08? S&P -0.6% next day
01/29/08? S&P -0.5% next day
08/08/07? S&P -3.0% next day
04/25/07? S&P -0.1% next day
10/16/06? S&P -0.4% next day
10/05/06? S&P -0.3% next day
06/30/06? S&P +0.8% next day (*)
01/04/06? S&P +0.0% next day
07/28/05? S&P -0.8% next day
06/16/05? S&P +0.5% next day
05/27/05? S&P -0.6% next day
12/28/04? S&P -0.0% next day
12/13/04? S&P +0.4% next day
11/12/04? S&P -0.0% next day
11/04/04? S&P +0.4% next day
03/05/04? S&P -0.8% next day
12/18/03? S&P -0.1% next day
10/27/03? S&P +1.5% next day (*)
10/13/03? S&P +0.4% next day
09/08/03? S&P -0.8% next day
09/02/03? S&P +0.4% next day
07/07/03? S&P +0.3% next day
06/04/03? S&P +0.4% next day
05/27/03? S&P +0.2% next day
05/06/03? S&P -0.5% next day
03/17/03? S&P +0.4% next day
11/27/02? S&P -0.3% next day
11/06/02? S&P -2.3% next day
03/06/02? S&P -0.5% next day

Volume associated with advancing issues accounted for over 90% of total volume on the NYSE Friday, the seventh 90% up volume day in the last six months. Most of these sessions have represented climactic buying on a short-term basis, and the market typically posts a lower close within the next week. Each of the last thirty sessions in which advancing volume accounted for over 90% of total NYSE volume is listed in the table below. Note that in all but two cases, the S&P posted a lower close within the next seven sessions…

>90% Up Volume on the NYSE<BR>
02/06/09… ???
12/30/08… Lower SPX close seven sessions later
12/16/08… Lower SPX close one sessions later
11/24/08… Lower SPX close four sessions later
11/13/08… Lower SPX close one sessions later
10/28/08… Lower SPX close one sessions later
10/13/08… Lower SPX close one sessions later
04/01/08… Lower SPX close one sessions later
03/18/08… Lower SPX close one sessions later
11/28/07… Lower SPX close four sessions later
11/23/07… Lower SPX close one sessions later
11/13/07… Lower SPX close one sessions later
09/18/07… Lower SPX close two sessions later
08/31/07… Lower SPX close two sessions later
08/29/07… Lower SPX close one sessions later
08/17/07… Lower SPX close one sessions later
03/21/07… Lower SPX close one sessions later
03/06/07… Lower SPX close one sessions later
07/19/06… Lower SPX close one sessions later
06/29/06… Lower SPX close one sessions later
06/15/06… Lower SPX close one sessions later
04/18/06… Lower SPX close five sessions later
06/07/04… Lower SPX close two sessions later
03/17/03… No lower close within seven sessions
01/02/03… Lower SPX close one sessions later
07/29/02… Lower SPX close three sessions later
07/05/02… Lower SPX close one sessions later
09/08/98… Lower SPX close one sessions later
05/11/90… No lower close within seven sessions
01/04/88… Lower SPX close four sessions later
10/29/87… Lower SPX close seven sessions later

The at-any-time odds for a lower SPX close within seven sessions is 76%, so while the 93% accuracy rate sounds impressive, it doesn’t quite make the cut as far as being significantly greater than random. Still, with each of the past 22 occurrences leading to a lower close, and given other short-term negative implications also in play, it looks like a good bet.

New 52-week lows on the big board expanded to 133 last Thursday, the highest level since early December. That was an unusual development given that the S&P closed above its two-week ago level. When we’ve seen similar action in the past, the market has typically remained under pressure over the next couple of sessions…

New Lows @ Two-Month High, SPX Up vs. Ten Days Ago
02/05/08… S&P500 ??? two sessions later
11/02/07… S&P500 +0.7% two sessions later
07/24/07… S&P500 -1.9% two sessions later
07/18/07… S&P500 -0.8% two sessions later
01/19/07… S&P500 -0.2% two sessions later
04/06/06… S&P500 -1.0% two sessions later
09/16/05… S&P500 -1.3% two sessions later
04/13/04… S&P500 -0.1% two sessions later
04/05/04… S&P500 -0.9% two sessions later
01/02/04… S&P500 +1.4% two sessions later
08/04/03… S&P500 -1.6% two sessions later
07/15/03… S&P500 -1.9% two sessions later
12/13/99… S&P500 -0.2% two sessions later
10/13/99… S&P500 -3.0% two sessions later
06/11/99… S&P500 +0.6% two sessions later
06/12/98… S&P500 -1.0% two sessions later
04/23/98… S&P500 -3.0% two sessions later
03/30/98… S&P500 +1.3% two sessions later
03/26/98… S&P500 -0.7% two sessions later
01/12/98… S&P500 +2.0% two sessions later
07/07/97… S&P500 -0.5% two sessions later
03/14/97… S&P500 -0.4% two sessions later
10/22/96… S&P500 -0.6% two sessions later
06/12/96… S&P500 -0.5% two sessions later
10/24/95… S&P500 -1.7% two sessions later
09/27/95… S&P500 +0.6% two sessions later
09/22/95… S&P500 -0.1% two sessions later
07/19/95… S&P500 +0.5% two sessions later

Note that out of 27 occurrences since 1995, only 3 times was the S&P up over 1% two trading days later, and it was never up more than 2%. With the SPX currently up 2.7% since Thursday’s close, this also suggests lower prices on Monday.

The persistently large number of new 52-week lows relative to new 52-week highs remains an obstacle from an intermediate-term perspective. Note that the New High-Low Index continues to drag along below 10%. It’s been over a year since we’ve seen a reading back in the 80% neighborhood that typically accompanies a sustainable move higher (see longer-term chart). Without that support, intermediate-term rallies tend to fail. That’s the reasoning behind the two-week sell setup last discussed in my January 6th column. And I’d note that if the S&P is trading at current levels or higher at the end of this coming week, it will once again be up more than 5% compared to its two-week ago close and the New High-Low Index will still be well under 80%. That would trigger another two-week sell.

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

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