Fourth Consecutive 2:1 Positive Breadth Session on the NYSE, Institutional Participation Declines

Stock indexes closed higher Friday in thin trading. The S&P500 nearly posted an ‘NR10′ day as Friday’s intraday range was almost the smallest range of the past two weeks. It just missed, but the fact that it was so close on the heels of three consecutive higher closes has generally negative implications for the short-term (see Friday’s intraday update).

NYSE Breadth has now closed in positive territory four days in a row. As I recently noted in my March 16th column, five consecutive days of positive breadth is a short-term negative sign, so this will be something to keep an eye on Monday.

Friday’s light volume suggests the market will have a tough time moving higher short-term. Big board volume was down over 20% from Thursday’s 1.86 billion shares. It’s generally been a negative sign for the near-term when volume contracts so sharply on a lopsided positive breadth session. The last thirty times this has occurred are listed in the table below. Note that in 24 out of 30 cases, or 80% of the time, the S&P posted a subsequently lower close within the next two days. That’s well above the 62% at-any-time odds for a lower S&P close within two sessions…

2:1 Positive Breadth & NYSE Volume Down 20%+
04/03/09… ???
03/23/09… Lower S&P close one session later
03/17/09… No lower close within next two days
11/28/08… Lower S&P close one session later
11/26/08… Lower S&P close two sessions later
10/20/08… Lower S&P close one session later
10/13/08… Lower S&P close one session later
03/24/08… Lower S&P close two sessions later
01/14/08… Lower S&P close one session later
12/24/07… Lower S&P close two sessions later
11/23/07… Lower S&P close one session later
06/01/07… Lower S&P close two sessions later
05/25/07… No lower close within next two days
03/19/07… No lower close within next two days
03/15/07… Lower S&P close one session later
07/03/06… Lower S&P close one session later
05/26/06… Lower S&P close one session later
05/25/06… Lower S&P close two sessions later
11/24/04… Lower S&P close two sessions later
05/11/04… No lower close within next two days
03/12/04… Lower S&P close one session later
10/25/02… Lower S&P close one session later
07/05/02… Lower S&P close one session later
06/17/02… Lower S&P close two sessions later
01/31/02… Lower S&P close one session later
11/23/01… Lower S&P close two sessions later
09/24/01… No lower close within next two days
12/22/00… No lower close within next two days
11/24/00… Lower S&P close two sessions later
07/03/00… Lower S&P close one session later
10/12/98… Lower S&P close one session later
07/03/97… Lower S&P close one session later

Along similar lines, SPY volume hit its lowest level in over six weeks as less than 300 million shares traded hands. That reflects a real absence of institutional participation, a short-term negative sign coming on a 2:1 positive breadth session. The table below lists the last thirty instances in which SPY volume hit a three-week or better low on a day in which NYSE advancers topped decliners by more than a 2:1 margin. Note that in 25 out of the last 30 occurrences, or 83% of the time, the SPY posted a subsequently lower close within the next two days. That’s significantly greater than the 59% at-any-time odds for a lower SPY close in the same time frame.

NYSE Breadth 2:1 Positive, SPY Volume at Three-week Low
04/03/09… ???
11/28/08… Lower SPY close one session later
10/20/08… Lower SPY close one session later
08/22/08… Lower SPY close one session later
01/29/08… Lower SPY close one session later
12/24/07… Lower SPY close two sessions later
11/23/07… Lower SPY close one session later
09/27/07… Lower SPY close one session later
08/24/07… Lower SPY close one session later
12/26/06… No lower SPY close within two days
07/03/06… Lower SPY close one session later
05/27/05… Lower SPY close one session later
05/26/05… Lower SPY close two sessions later
05/09/05… Lower SPY close one session later
12/28/04… Lower SPY close two sessions later
11/24/04… Lower SPY close one session later
09/16/04… Lower SPY close two sessions later
08/27/04… Lower SPY close one session later
05/18/04… Lower SPY close one session later
02/17/04… Lower SPY close one session later
11/14/02… Lower SPY close two sessions later
11/23/01… Lower SPY close two sessions later
11/13/01… No lower SPY close within two days
03/30/01… Lower SPY close one session later
11/24/00… Lower SPY close two sessions later
07/03/00… Lower SPY close one session later
07/01/98… No lower SPY close within two days
05/23/97… No lower SPY close within two days
08/16/96… Lower SPY close two sessions later
11/25/94… No lower SPY close within two days
04/21/94… Lower SPY close one session later

Noteworthy that this setup has been particularly accurate in recent years, with 19 out of the last 20 signals leading to a subsequently lower SPY close within the next two sessions.

New 52-week highs contracted while new 52-week lows expanded on both the NYSE and NASDAQ, a fairly unusual development given that the NDX posted a higher high, higher low and higher close. This hints at underlying weakness not evident on the surface, and usually leads to a lower Nasdaq close within the next few sessions?

New Highs Contract, New Lows Expand on Rally Day
04/03/09? ???
03/17/09? Lower NDX close three sessions later
11/04/08? Lower NDX close one session later
06/04/08? Lower NDX close two sessions later
04/21/08? Lower NDX close one session later
04/10/08? Lower NDX close one session later
10/18/07? Lower NDX close one session later
09/24/07? No lower close within three sessions
04/17/07? Lower NDX close one session later
02/21/07? Lower NDX close three sessions later
11/08/06? Lower NDX close one session later
09/14/06? Lower NDX close three sessions later
05/08/06? Lower NDX close one session later
07/15/05? Lower NDX close one session later
05/24/05? Lower NDX close one session later
05/06/05? Lower NDX close two sessions later
02/08/05? Lower NDX close one session later
09/04/03? Lower NDX close one session later
07/30/02? Lower NDX close one session later
03/08/02? Lower NDX close one session later
06/07/01? Lower NDX close one session later
08/15/00? Lower NDX close one session later
07/17/00? Lower NDX close one session later
11/10/99? No lower close within three sessions
08/24/99? Lower NDX close three sessions later
01/07/99? Lower NDX close three sessions later
11/10/98? Lower NDX close two sessions later
07/13/98? Lower NDX close one session later
07/07/98? No lower close within three sessions
06/09/98? Lower NDX close one session later

Note that out of 29 occurrences since 1998, 26 led to a lower NDX close within the next three sessions. That 90% win rate is significantly above the 67% at-any-time odds for a lower NDX close (below the setup day) within three days.

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

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