Watching the Up/Down Volume Percentages for Signs of a Washout
By
Rennie on Friday, March 6th, 2009 at 2:24 am
A complete absence of institutional buyers kept the market on a straight-down course Thursday. TICKscore settled at -100, reflecting heavy institutional selling. Cumulative TICK closed at -141,000, keeping the 20-day moving average in a solid downtrend. New 52-week lows jumped to 747, the highest reading of the year, and down volume accounted for 93% of total big board volume.
Interesting to note that the 14-day ADX for the S&P500 hit the 40 level Thursday, a fairly extreme reading from a historical perspective (see long-term chart). ADX gauges the strength of the underlying trend. A reading of 40 or higher indicates an unusually persistent trend, and when it coincides with a downtrend, it often means the downtrend is nearing an end. This isn’t a precise indicator of a bottom, as there’s frequently further downside after the initial 40+ reading. With the S&P once again unable to stage a bounce in the three days following an extreme McClellan reading (-295 on Monday), further weakness is certainly not out of the question (see my February 23rd intraday update). But the S&P does have a good track record of settling higher one month (twenty trading days) later, which will be something to keep in mind should we see further weakness. The last thirty instances in which the SPX 14-day ADX hit 40 or higher (when the -DI component was greater than +DI) are listed in the table below (-DI & +DI are separate components of the ADX indicator. When +DI is above -DI, the trend is considered positive, when it’s below the trend is negative). Note that in 25 out of 30 cases, or 83% of the time, the S&P was trading at a higher level one month later, significantly above the 58% at-any-time odds of a higher S&P one month later…
14-day ADX for S&P500 Hits 40 In Downtrend
03/05/09… S&P500 ??? one month later
10/09/08… S&P500 -0.6% one month later (*)
07/10/08… S&P500 +1.0% one month later
07/17/02… S&P500 +1.5% one month later
09/20/01… S&P500 +8.5% one month later
03/21/01… S&P500 +11.7% one month later
10/18/00… S&P500 +3.6% one month later
08/28/98… S&P500 +2.1% one month later
12/11/96… S&P500 +2.5% one month later
07/30/96… S&P500 +4.9% one month later
05/11/94… S&P500 +3.7% one month later
04/05/94… S&P500 +0.8% one month later
09/21/90… S&P500 +0.4% one month later
08/17/90… S&P500 -3.1% one month later (*)
12/01/87… S&P500 +6.9% one month later
10/23/87… S&P500 -2.5% one month later (*)
04/04/86… S&P500 +2.7% one month later
06/13/85… S&P500 +4.3% one month later
02/23/84… S&P500 +1.6% one month later
09/18/81… S&P500 +2.5% one month later
03/26/80… S&P500 +5.8% one month later
10/29/79… S&P500 +5.6% one month later
09/05/79… S&P500 +3.0% one month later
11/08/78… S&P500 +2.8% one month later
12/03/73… S&P500 +4.0% one month later
12/20/72… S&P500 +2.0% one month later
08/10/71… S&P500 +8.3% one month later
05/01/70… S&P500 -6.0% one month later (*)
12/11/69… S&P500 +1.3% one month later
07/25/69… S&P500 +4.2% one month later
06/20/69… S&P500 -3.3% one month later (*)
I’ve also got my eye on the Up/Down Volume % chart, which highlights the 20-day moving average of up and down volume respectively (expressed as a percentage of total volume). Earlier I noted a complete absence of buyers from an intraday perspective, but this trend can also be seen from an intermediate-term perspective. Note that the 20-day moving average of advancing volume fell below the 40% level Thursday, a fairly extreme reading from this indicator. That could end up triggering a very reliable buy signal early next week as long as the market doesn’t take off to the upside (more on this over the weekend if appropriate). I would note, however, that even when this buy signal is initially triggered, it’s not uncommon to see further short-term weakness before the market hits bottom.
Watching the Up/Down Volume Percentages for Signs of a Washout
By Rennie on Friday, March 6th, 2009 at 2:24 amA complete absence of institutional buyers kept the market on a straight-down course Thursday. TICKscore settled at -100, reflecting heavy institutional selling. Cumulative TICK closed at -141,000, keeping the 20-day moving average in a solid downtrend. New 52-week lows jumped to 747, the highest reading of the year, and down volume accounted for 93% of total big board volume.
Interesting to note that the 14-day ADX for the S&P500 hit the 40 level Thursday, a fairly extreme reading from a historical perspective (see long-term chart). ADX gauges the strength of the underlying trend. A reading of 40 or higher indicates an unusually persistent trend, and when it coincides with a downtrend, it often means the downtrend is nearing an end. This isn’t a precise indicator of a bottom, as there’s frequently further downside after the initial 40+ reading. With the S&P once again unable to stage a bounce in the three days following an extreme McClellan reading (-295 on Monday), further weakness is certainly not out of the question (see my February 23rd intraday update). But the S&P does have a good track record of settling higher one month (twenty trading days) later, which will be something to keep in mind should we see further weakness. The last thirty instances in which the SPX 14-day ADX hit 40 or higher (when the -DI component was greater than +DI) are listed in the table below (-DI & +DI are separate components of the ADX indicator. When +DI is above -DI, the trend is considered positive, when it’s below the trend is negative). Note that in 25 out of 30 cases, or 83% of the time, the S&P was trading at a higher level one month later, significantly above the 58% at-any-time odds of a higher S&P one month later…
14-day ADX for S&P500 Hits 40 In Downtrend
03/05/09… S&P500 ??? one month later
10/09/08… S&P500 -0.6% one month later (*)
07/10/08… S&P500 +1.0% one month later
07/17/02… S&P500 +1.5% one month later
09/20/01… S&P500 +8.5% one month later
03/21/01… S&P500 +11.7% one month later
10/18/00… S&P500 +3.6% one month later
08/28/98… S&P500 +2.1% one month later
12/11/96… S&P500 +2.5% one month later
07/30/96… S&P500 +4.9% one month later
05/11/94… S&P500 +3.7% one month later
04/05/94… S&P500 +0.8% one month later
09/21/90… S&P500 +0.4% one month later
08/17/90… S&P500 -3.1% one month later (*)
12/01/87… S&P500 +6.9% one month later
10/23/87… S&P500 -2.5% one month later (*)
04/04/86… S&P500 +2.7% one month later
06/13/85… S&P500 +4.3% one month later
02/23/84… S&P500 +1.6% one month later
09/18/81… S&P500 +2.5% one month later
03/26/80… S&P500 +5.8% one month later
10/29/79… S&P500 +5.6% one month later
09/05/79… S&P500 +3.0% one month later
11/08/78… S&P500 +2.8% one month later
12/03/73… S&P500 +4.0% one month later
12/20/72… S&P500 +2.0% one month later
08/10/71… S&P500 +8.3% one month later
05/01/70… S&P500 -6.0% one month later (*)
12/11/69… S&P500 +1.3% one month later
07/25/69… S&P500 +4.2% one month later
06/20/69… S&P500 -3.3% one month later (*)
I’ve also got my eye on the Up/Down Volume % chart, which highlights the 20-day moving average of up and down volume respectively (expressed as a percentage of total volume). Earlier I noted a complete absence of buyers from an intraday perspective, but this trend can also be seen from an intermediate-term perspective. Note that the 20-day moving average of advancing volume fell below the 40% level Thursday, a fairly extreme reading from this indicator. That could end up triggering a very reliable buy signal early next week as long as the market doesn’t take off to the upside (more on this over the weekend if appropriate). I would note, however, that even when this buy signal is initially triggered, it’s not uncommon to see further short-term weakness before the market hits bottom.