Volume as a Short-term Sentiment Tell

Just over 1,900 issues hit new 20-day highs Friday vs. fewer than 200 new 20-day lows, sending the 20-day High-low Index back over 90%. While virtually unprecedented until recently, readings above 90% have tended to correspond with short-term topping phases in the market (see my June 1st column).

VXO closed under its 20-day moving average for 62 consecutive days as of Friday’s close. That’s just one day shy of the record back in 1987 for number of consecutive days under its 20-day average. See my May 25th column for details.

The Nasdaq100 (NDX) closed above it’s June 1st high on both Thursday and Friday of last week, yet new 52-week highs on the NASDAQ exchange continue to lag behind the 50+ reading seen June 1st. Similarly, new 20-day highs are also lagging behind levels seen back on June 1st. Fewer stocks participating on the upside over the last couple of days combined with lopsided speculative participation leaves the market looking vulnerable short-term.

Note that the Nasdaq/NYSE Volume Ratio closed above 1.75 for the second day in a row Friday, indicating excessive speculative participation. Historically this has been a good indication of impending weakness looking out 2-3 sessions. Out of the last 30 occurrences, 24 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
06/05/09… ???
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
05/07/96… No lower S&P close 2-3 sessions later

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

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