Light Volume Persists

Stock indices traded lower Monday in another thinly traded session, fulfilling many of the short-term sell setups discussed over the weekend. TICKscore settled at +6, reflecting an absence of institutional selling pressure. Cumulative TICK settled at a modestly negative -24,000. Breadth closed 2:1 negative, but probably the most noteworthy point is that volume was once again noticeably light. Just under 1.3 billion shares traded hands on the NYSE, the lightest one-day volume we’ve seen in over a month.

It?s generally a short-term positive sign when you see a lopsided negative breadth session coincide with light volume. You may recall that this same setup was triggered just over a week ago. The table below lists each of the sixteen occurrences since 1990 in which breadth closed at least 2:1 negative and NYSE volume hit a one-month low. While performance has been somewhat mixed over the next 2-3 days, note that downside potential is typically limited to less than 1%?

NYSE Breadth 2:1 Negative, Volume at One-Month Low
04/06/09? S&P500 ???
03/27/09? S&P500 -0.6% three sessions later
08/25/08? S&P500 +1.2% two sessions later
08/18/08? S&P500 -0.1% three sessions later
08/27/07? S&P500 -0.6% three sessions later
03/27/07? S&P500 -0.5% three sessions later
04/08/05? S&P500 +0.6% two sessions later
11/11/02? S&P500 +0.7% two sessions later
03/25/02? S&P500 +1.1% two sessions later
07/26/99? S&P500 +1.3% two sessions later
02/12/99? S&P500 +0.6% three sessions later
05/18/98? S&P500 +1.2% two sessions later
07/05/96? S&P500 -0.2% three sessions later
11/11/94? S&P500 +0.6% two sessions later
03/21/94? S&P500 -0.0% two sessions later
08/30/90? S&P500 +1.4% two sessions later
08/10/90? S&P500 +1.2% two sessions later

Today’s outperformance by the Nasdaq100 (NDX) also tends to suggest downside potential will be limited heading into Thursday’s close. While breadth on the NASDAQ exchange settled 2:1 in favor of declining issues, the NDX managed to hold up well, settling down a mere 3 points, or 0.2%. Typically you’ll see at least a 0.5% selloff when Nasdaq breadth is 2:1 negative, which makes today’s session fairly unusual. Over the last seventeen years, there have only been seventeen cases in which Nasdaq breadth was 2:1 negative and the NDX settled down less than 0.5%. Each of these occurrences is listed in the table below, along with the performance of the Nasdaq over the next three sessions. Note that in only one case was the NDX down more than 1% three sessions later, while it was up over 1% ten times…

Nasdaq Breadth 2:1 Negative & NDX Down <0.5%
04/06/09… NDX ??? three sessions later
02/20/09… NDX -1.0% three sessions later
10/23/08… NDX +4.7% three sessions later
10/08/08… NDX +7.4% three sessions later
05/23/08… NDX +3.1% three sessions later
02/28/08… NDX -2.8% three sessions later
01/05/07… NDX +1.7% three sessions later
06/13/06… NDX +3.0% three sessions later
02/07/06… NDX +0.7% three sessions later
11/15/05… NDX +2.2% three sessions later
10/11/05… NDX +0.3% three sessions later
08/26/05… NDX +1.5% three sessions later
08/05/05… NDX -1.0% three sessions later
03/09/04… NDX -0.4% three sessions later
10/09/02… NDX +11.6% three sessions later
11/09/00… NDX -0.6% three sessions later
09/21/93… NDX +3.4% three sessions later
10/05/92… NDX +1.5% three sessions later

Returning to the first study involving volume, I ran the test a second time but only looked for instances in which NYSE volume hit a three-week low as opposed to a one-month low (along with 2:1 negative breadth). This produced a larger sample size that tends to reinforce the notion of limited downside potential. The table below lists the last thirty occurrences in which breadth on the NYSE came in 2:1 or better in favor of declining issues and big board volume hit at least a three-week low. Note that in 23 out of 30 cases stretching back to 1990, or 77% of the time, the S&P500 closed at a higher level 2-3 trading days later. That’s NOT significantly better than the 64% at-any-time odds for a higher SPX close 2-3 sessions later. But it’s nonetheless noteworthy that losses amounted to 0.6% or less in every case but one…

NYSE Breadth 2:1 Negative, Volume at Three-Week Low
04/06/09? S&P500 ???
03/27/09? S&P500 -0.6% three sessions later
12/22/08? S&P500 +0.1% three sessions later
10/21/08? S&P500 -8.2% three sessions later (*)
09/23/08? S&P500 +1.8% two sessions later
08/25/08? S&P500 +1.2% two sessions later
08/18/08? S&P500 -0.1% three sessions later
07/28/08? S&P500 +4.0% two sessions later
08/27/07? S&P500 -0.6% three sessions later
03/27/07? S&P500 -0.5% three sessions later
06/19/06? S&P500 +1.0% two sessions later
04/08/05? S&P500 +0.6% two sessions later
11/11/02? S&P500 +0.7% two sessions later
08/02/02? S&P500 +1.5% three sessions later
05/06/02? S&P500 +3.4% two sessions later
03/25/02? S&P500 +1.1% two sessions later
07/26/99? S&P500 +1.3% two sessions later
02/12/99? S&P500 +0.6% three sessions later
09/17/98? S&P500 +0.5% two sessions later
08/10/98? S&P500 +0.1% two sessions later
05/18/98? S&P500 +1.2% two sessions later
07/05/96? S&P500 -0.2% three sessions later
11/11/94? S&P500 +0.6% two sessions later
05/09/94? S&P500 +0.3% three sessions later
03/21/94? S&P500 -0.0% two sessions later
04/29/91? S&P500 +1.8% two sessions later
02/26/91? S&P500 +1.2% two sessions later
02/20/91? S&P500 +0.1% two sessions later
12/17/90? S&P500 +1.3% two sessions later
08/30/90? S&P500 +1.4% two sessions later
08/10/90? S&P500 +1.2% two sessions later

The setups above do not constitute buy signals, but they do suggest that any drop in excess of 1% over the next day or two is unlikely to see much downside follow-through.

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

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