Principal Program Trading Remains Heavy as Speculative Participation Surges
By
Rennie on Friday, June 5th, 2009 at 3:02 am
The percentage of total program trading volume executed as principal, for member firms’ own accounts, remains very heavy. This past week marked the second week in a row we’ve seen a reading in the 44% neighborhood. Note from the long-term chart that the 5-week moving average of principal program volume has remained over 40% for three months, in what’s looking increasingly reminiscent of the 2003-2005 period. In general, periods with unusually heavy program activity have been bullish for stocks.
What doesn’t look like 2003-2005 is the current level of speculative participation. Note that the NASDAQ/NYSE Volume Ratio closed over 1.75 Thursday, a bearish sign for the next week (see the end of my June 1st column for a recent track record). Back in 2003, the 20-day moving average of the ND/NY Volume Ratio was trading south of 1.0 as speculators were completely wiped out (see long-term chart). Now that same moving average is at the other extreme, holding above the 1.50 level. Thursday marked the 20th consecutive session that the moving average has closed above 1.50, meaning we’ve now gone a full month with NASDAQ volume averaging 50% higher than NYSE volume. This has only happened eight other times. The table below highlights these eight occurrences, beginning with the date when the moving average held above 1.50 for the 20th consecutive session, and ending when the moving average fell back under 1.50…
Nasdaq/NYSE Volume Ratio 20d Avg >1.50 Twenty Sessions
06/04/09 – ??/??/??… S&P500 ???
08/25/08 – 11/28/08… S&P500 -29.3%
05/30/08 – 07/18/08… S&P500 -10.0%
11/12/07 – 11/27/07… S&P500 -0.8%
09/15/00 – 07/03/01… S&P500 -15.8%
08/10/00 – 08/16/00… S&P500 +1.3%
06/27/00 – 06/30/00… S&P500 +0.3%
12/23/99 – 05/17/00… S&P500 -0.7%
06/06/96 – 06/27/96… S&P500 -0.7%
Another way to look at the same signal is to just see how the S&P performed three months later…
Nasdaq/NYSE Volume Ratio 20d Avg >1.50 Twenty Sessions
06/04/09 – S&P500 ??? three months later
08/25/08 – S&P500 -32.2% three months later
05/30/08 – S&P500 -9.5% three months later
11/12/07 – S&P500 -7.5% three months later
09/15/00 – S&P500 -5.8% three months later
08/10/00 – S&P500 -2.3% three months later
06/27/00 – S&P500 -0.1% three months later
12/23/99 – S&P500 +2.4% three months later
06/06/96 – S&P500 -3.1% three months later
That last table also illustrates how much more volatile conditions have become, something easily forgotten with a VIX “only” at 30.
So what to make of the mixed messages? One possibility is that the market will enter into a long-term trading range, eventually frustrating the recent surge of speculative buyers out of the market. This happened at the end of 2003, when the S&P had run up approximately 35% off the bottom, about what the S&P is currently up since the March bottom. Throughout most of 2004, the S&P was confined to a relatively tight 100-point range and ultimately went nowhere.
Principal Program Trading Remains Heavy as Speculative Participation Surges
By Rennie on Friday, June 5th, 2009 at 3:02 amThe percentage of total program trading volume executed as principal, for member firms’ own accounts, remains very heavy. This past week marked the second week in a row we’ve seen a reading in the 44% neighborhood. Note from the long-term chart that the 5-week moving average of principal program volume has remained over 40% for three months, in what’s looking increasingly reminiscent of the 2003-2005 period. In general, periods with unusually heavy program activity have been bullish for stocks.
What doesn’t look like 2003-2005 is the current level of speculative participation. Note that the NASDAQ/NYSE Volume Ratio closed over 1.75 Thursday, a bearish sign for the next week (see the end of my June 1st column for a recent track record). Back in 2003, the 20-day moving average of the ND/NY Volume Ratio was trading south of 1.0 as speculators were completely wiped out (see long-term chart). Now that same moving average is at the other extreme, holding above the 1.50 level. Thursday marked the 20th consecutive session that the moving average has closed above 1.50, meaning we’ve now gone a full month with NASDAQ volume averaging 50% higher than NYSE volume. This has only happened eight other times. The table below highlights these eight occurrences, beginning with the date when the moving average held above 1.50 for the 20th consecutive session, and ending when the moving average fell back under 1.50…
Nasdaq/NYSE Volume Ratio 20d Avg >1.50 Twenty Sessions
06/04/09 – ??/??/??… S&P500 ???
08/25/08 – 11/28/08… S&P500 -29.3%
05/30/08 – 07/18/08… S&P500 -10.0%
11/12/07 – 11/27/07… S&P500 -0.8%
09/15/00 – 07/03/01… S&P500 -15.8%
08/10/00 – 08/16/00… S&P500 +1.3%
06/27/00 – 06/30/00… S&P500 +0.3%
12/23/99 – 05/17/00… S&P500 -0.7%
06/06/96 – 06/27/96… S&P500 -0.7%
Another way to look at the same signal is to just see how the S&P performed three months later…
Nasdaq/NYSE Volume Ratio 20d Avg >1.50 Twenty Sessions
06/04/09 – S&P500 ??? three months later
08/25/08 – S&P500 -32.2% three months later
05/30/08 – S&P500 -9.5% three months later
11/12/07 – S&P500 -7.5% three months later
09/15/00 – S&P500 -5.8% three months later
08/10/00 – S&P500 -2.3% three months later
06/27/00 – S&P500 -0.1% three months later
12/23/99 – S&P500 +2.4% three months later
06/06/96 – S&P500 -3.1% three months later
That last table also illustrates how much more volatile conditions have become, something easily forgotten with a VIX “only” at 30.
So what to make of the mixed messages? One possibility is that the market will enter into a long-term trading range, eventually frustrating the recent surge of speculative buyers out of the market. This happened at the end of 2003, when the S&P had run up approximately 35% off the bottom, about what the S&P is currently up since the March bottom. Throughout most of 2004, the S&P was confined to a relatively tight 100-point range and ultimately went nowhere.