Keying Off the Oversold Volatility
By
Rennie on Tuesday, May 19th, 2009 at 2:27 am
Major averages closed sharply higher Monday on solid institutional buying. TICKscore closed at +43, Cumulative TICK +114,000. TED spread closed under 60 basis points. Volume was down for the third day in a row on the NYSE and the seventh day in a row on the NASDAQ. Volume typically falls off considerably in the two days leading up to the Memorial Day break, which suggests Tuesday and Wednesday are the only likely sessions for an uptick in volume.
Monday’s rally sent the VXO back into oversold territory (under its lower bollinger band), suggesting limited upside potential over the next few sessions. The last thirty times the VXO initially closed under it?s lower band are listed below…
VXO Closes Under its Lower Bollinger Band
05/18/09? OEX ??? three sessions later
05/04/09? OEX +0.0% three sessions later
04/17/09? OEX -3.4% three sessions later
04/09/09? OEX -0.6% three sessions later
12/19/08? OEX -1.7% three sessions later
05/19/08? OEX -2.5% three sessions later
02/25/08? OEX -0.1% three sessions later
12/21/07? OEX -0.5% three sessions later
09/21/07? OEX +0.1% three sessions later
11/17/06? OEX +0.2% three sessions later
08/16/06? OEX +0.5% three sessions later
11/03/05? OEX +0.1% three sessions later
09/09/05? OEX -1.1% three sessions later
06/21/05? OEX -1.9% three sessions later
04/12/05? OEX -3.2% three sessions later
02/04/05? OEX -0.5% three sessions later
02/01/05? OEX +1.2% three sessions later (*)
12/21/04? OEX +0.1% three sessions later
06/08/04? OEX -1.2% three sessions later
07/25/03? OEX -1.1% three sessions later
05/16/03? OEX -2.2% three sessions later
04/17/03? OEX +3.0% three sessions later (*)
04/14/03? OEX +0.9% three sessions later
11/20/02? OEX +2.1% three sessions later (*)
11/15/02? OEX +0.7% three sessions later
12/27/01? OEX -0.3% three sessions later
12/19/01? OEX -0.6% three sessions later
10/26/01? OEX -4.2% three sessions later
05/21/01? OEX -1.5% three sessions later
01/23/01? OEX -0.4% three sessions later
08/08/00? OEX -0.2% three sessions later
In 19 out of 30 cases, or 63% of the time, the S&P500 closed at a lower level three days later, well above the 47% at-any-time odds for a lower S&P three days later. While not quite accurate enough to make the cut for a sell signal, note that in the majority of cases this setup has translated into limited upside potential over the next few sessions. In only three cases out of thirty, or 10% of the time, was the OEX up 1% or more three days later.
With the VXO oversold, I’d also note that the daytrade sell signal recently outlined in my May 5th column will trigger on a break of OEX 415.91 on Tuesday or Wednesday. That seems unlikely, but keep in mind that if the VXO remains under its lower band on Tuesday, the sell point would switch to Tuesday’s OEX low. We would need to see a VXO close at 28.75 or lower on Tuesday to keep it under its lower bollinger band a second day.
Keying Off the Oversold Volatility
By Rennie on Tuesday, May 19th, 2009 at 2:27 amMajor averages closed sharply higher Monday on solid institutional buying. TICKscore closed at +43, Cumulative TICK +114,000. TED spread closed under 60 basis points. Volume was down for the third day in a row on the NYSE and the seventh day in a row on the NASDAQ. Volume typically falls off considerably in the two days leading up to the Memorial Day break, which suggests Tuesday and Wednesday are the only likely sessions for an uptick in volume.
Monday’s rally sent the VXO back into oversold territory (under its lower bollinger band), suggesting limited upside potential over the next few sessions. The last thirty times the VXO initially closed under it?s lower band are listed below…
VXO Closes Under its Lower Bollinger Band
05/18/09? OEX ??? three sessions later
05/04/09? OEX +0.0% three sessions later
04/17/09? OEX -3.4% three sessions later
04/09/09? OEX -0.6% three sessions later
12/19/08? OEX -1.7% three sessions later
05/19/08? OEX -2.5% three sessions later
02/25/08? OEX -0.1% three sessions later
12/21/07? OEX -0.5% three sessions later
09/21/07? OEX +0.1% three sessions later
11/17/06? OEX +0.2% three sessions later
08/16/06? OEX +0.5% three sessions later
11/03/05? OEX +0.1% three sessions later
09/09/05? OEX -1.1% three sessions later
06/21/05? OEX -1.9% three sessions later
04/12/05? OEX -3.2% three sessions later
02/04/05? OEX -0.5% three sessions later
02/01/05? OEX +1.2% three sessions later (*)
12/21/04? OEX +0.1% three sessions later
06/08/04? OEX -1.2% three sessions later
07/25/03? OEX -1.1% three sessions later
05/16/03? OEX -2.2% three sessions later
04/17/03? OEX +3.0% three sessions later (*)
04/14/03? OEX +0.9% three sessions later
11/20/02? OEX +2.1% three sessions later (*)
11/15/02? OEX +0.7% three sessions later
12/27/01? OEX -0.3% three sessions later
12/19/01? OEX -0.6% three sessions later
10/26/01? OEX -4.2% three sessions later
05/21/01? OEX -1.5% three sessions later
01/23/01? OEX -0.4% three sessions later
08/08/00? OEX -0.2% three sessions later
In 19 out of 30 cases, or 63% of the time, the S&P500 closed at a lower level three days later, well above the 47% at-any-time odds for a lower S&P three days later. While not quite accurate enough to make the cut for a sell signal, note that in the majority of cases this setup has translated into limited upside potential over the next few sessions. In only three cases out of thirty, or 10% of the time, was the OEX up 1% or more three days later.
With the VXO oversold, I’d also note that the daytrade sell signal recently outlined in my May 5th column will trigger on a break of OEX 415.91 on Tuesday or Wednesday. That seems unlikely, but keep in mind that if the VXO remains under its lower band on Tuesday, the sell point would switch to Tuesday’s OEX low. We would need to see a VXO close at 28.75 or lower on Tuesday to keep it under its lower bollinger band a second day.