SPY Volume Nearly Hits a Three-Week Low

TICKscore closed at +18 Tuesday, Cumulative TICK +21,800. Note that the 20-day moving average of the Cumulative TICK continues to trend lower, and will most likely continue to do so until at least the Thursday-Friday time frame. The Nasdaq100 closed above its three-week ago level on Tuesday, while the S&P remains more than 3% below its three-week ago close. Historically, this type of relative outperformance by the Nasdaq has been a short-term positive sign. The last thirty separate instances in which the S&P was down over 1% compared to its three-week ago close and the NDX was higher are listed in the table below. Note that in 26 out of 30 cases, or 87% of the time, the S&P closed at a subsequently higher level within the next two sessions (usually the next day). That 87% win rate is significantly above the 66% ?at-any-time’ odds of a higher S&P close within the next two days…

SPX -1% vs. Three Weeks Ago, NDX Higher
02/03/09… ???
01/21/09… No higher S&P close within two days
01/15/09… Higher S&P close one session later
08/26/08… Higher S&P close one session later
06/13/08… Higher S&P close one session later
06/04/08… Higher S&P close one session later
05/27/08… Higher S&P close one session later
11/01/07… Higher S&P close one session later
10/30/07… Higher S&P close one session later
10/19/07… Higher S&P close one session later
07/26/07… No higher S&P close within two days
07/10/07… Higher S&P close one session later
06/20/07… Higher S&P close one session later
04/17/06… Higher S&P close one session later
04/12/06… Higher S&P close one session later
10/19/05… No higher S&P close within two days
10/27/04… Higher S&P close one session later
09/28/04… Higher S&P close one session later
05/21/04… Higher S&P close one session later
03/29/04… Higher S&P close one session later
07/24/03… Higher S&P close one session later
07/10/03… Higher S&P close one session later
07/03/03… Higher S&P close one session later
03/14/03… Higher S&P close one session later
03/04/03… Higher S&P close one session later
02/24/03… Higher S&P close one session later
02/19/03… Higher S&P close two sessions later
11/13/02… Higher S&P close one session later
10/11/02… Higher S&P close one session later
07/17/02… No higher S&P close within two days
12/13/01… Higher S&P close one session later

Looking out beyond Wednesday, indications suggest further strength could be a good selling opportunity. SPY volume was very light Tuesday, with only 278 million shares trading hands. That’s not technically a three-week low for SPY volume, but it’s awfully close (SPY traded 273 million on January 27th). If you’re long, that’s not what you want to see on a 1%+ up day, as it implies light institutional participation. The table below lists every instance over the past decade in which the SPY gained 1% or more on the lightest volume in three weeks…

SPY +1%, Volume at Three-week Low
11/28/08… SPY -5.4% two sessions later
10/20/08… SPY -8.3% two sessions later
08/22/08… SPY -1.7% two sessions later
11/23/07… SPY -1.1% two sessions later
08/24/07… SPY -3.1% two sessions later
11/14/02… SPY -0.3% two sessions later
05/13/02… SPY +2.3% three sessions later
11/23/01… SPY -0.2% two sessions later
11/19/01… SPY -1.5% two sessions later
11/13/01… SPY -0.2% three sessions later
04/09/01… SPY +3.7% three sessions later
03/30/01… SPY -5.4% two sessions later
12/26/00… SPY -0.9% three sessions latere
11/24/00… SPY -0.9% two sessions later
08/14/00… SPY -0.4% two sessions later
07/03/00… SPY -1.0% two sessions later
05/15/00… SPY -0.1% two sessions later
03/09/00… SPY -1.6% two sessions later
08/20/99… SPY +3.3% three sessions later
03/18/99… SPY -1.8% two sessions later
07/06/98… SPY -0.1% three sessions later
07/01/98… SPY +1.0% three sessions later

Note that in 18 out of 22 occurrences, or 82% of the time, the SPY posted a lower close 2-3 trading days later, significantly greater than the 57% at-any-time odds of a lower SPY close 2-3 sessions later. This setup wasn’t technically triggered Tuesday, but the fact that we came so close is a generally negative sign heading into the Thursday-Friday time frame.

Another negative sign looking out to Friday’s close was the severe underperformance by the banking sector. The BKX trended straight down off the open, settling off 5% at 27.05, its second-lowest close of the year. As I recently discussed in my January 27th column, that’s a negative indication lookout out three trading days. Less than one-third of the time was the S&P up three days after this setup, significantly worse than the 54% at-any-time odds for a higher S&P three sessions later.

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

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