Institutions Watch From the Sidelines as Speculative Participation Surges

Stock indices gapped higher Wednesday and traded with solid gains until the FOMC announcement, after which the S&P gave back most of the day’s gain. It still managed to close modestly higher in thin trading. NYSE volume remained below its 20-day average and actually declined from the previous session, pretty unusual for a Fed day. As noted in today’s intraday update, when NYSE volume comes in below average on a Fed day, that day’s move is generally reversed over the short-term. This hints at a close below Wednesday’s settlement by the end of the week.

Today’s 2-1 positive breadth lifted the NYSE McClellan Oscillator out of extreme oversold territory, but note that after its initial drop under -200 last Tuesday, the S&P has been unable to bounce. While not an actionable signal, more often than not this means further downside lies ahead.

The NASDAQ/NYSE Volume Ratio continues to ramp back up, closing just under 2.0. That’s the second day in a row this ratio has closed in extreme territory (>1.75). In this June 12th column I discussed the bearish longer-term implications of consecutive high readings, but it has similarly negative implications on a short-term basis as well. History demonstrates that speculative excess usually arrives just as a market rally is ending. Out of the last 30 occurrences of back-to-back Nasdaq/NYSE Volume Ratios over 1.75, 25 led to a lower S&P two or three trading days later. That’s significantly above the 57% at-any-time odds for a lower S&P close 2-3 days later…

Nasdaq/NYSE Volume Ratio >1.75 Two Consecutive Sessions
06/24/09… ???
06/05/09… Lower S&P close three sessions later
11/04/08… Lower S&P close two sessions later
10/06/08… Lower S&P close two sessions later
09/05/08… Lower S&P close two sessions later
08/27/08… Lower S&P close three sessions later
08/11/08… Lower S&P close two sessions later
05/15/08… Lower S&P close three sessions later
05/05/08… Lower S&P close two sessions later
10/24/07… No lower S&P close 2-3 sessions later
05/22/01… Lower S&P close two sessions later
05/03/01… No lower S&P close 2-3 sessions later
04/20/01… Lower S&P close two sessions later
02/23/01… Lower S&P close three sessions later
01/18/01… Lower S&P close two sessions later
01/11/01… Lower S&P close two sessions later
12/18/00… Lower S&P close two sessions later
12/11/00… Lower S&P close two sessions later
11/24/00… Lower S&P close two sessions later
11/13/00… No lower S&P close 2-3 sessions later
11/08/00… Lower S&P close two sessions later
11/03/00… Lower S&P close three sessions later
09/25/00… Lower S&P close two sessions later
09/05/00… Lower S&P close two sessions later
08/25/00… Lower S&P close three sessions later
07/14/00… Lower S&P close two sessions later
04/14/00… No lower S&P close 2-3 sessions later
03/06/00… Lower S&P close two sessions later
02/18/00… No lower S&P close 2-3 sessions later
12/29/99… Lower S&P close three sessions later
05/24/96… Lower S&P close two sessions later

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

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