Nasdaq/NYSE Volume Ratio 20-day Moving Average Closes at a New Record High

The 200-day moving average of NASDAQ ‘up volume minus down volume’ pushed into positive territory for the first time in a year and a half Wednesday. It’s good to see this long-term indicator out of negative territory, but it’s hard to overlook that it’s occurring against a backdrop of extreme speculation. Note that the NASDAQ/NYSE Volume Ratio came in over 2.0 as traders in NASDAQ stocks continue to dominate trade. The 20-day moving average of this ratio closed at a new record high of 1.87 Wednesday, exceeding the previous high of 1.86 made in early 2001 (see long-term chart). This sentiment indicator continues to flash a major red flag regarding the market’s longer-term prospects, as it suggests weak hands are driving the rally.

Breadth closed nearly 3:1 positive Wednesday despite the weak finish, sending the cumulative breadth line into new highs. But despite the positive breadth, volatility indexes were notably firm. While VIX declined slightly, note that both the VXO and VXN settled higher. When volatility increases in the face of a lopsided positive breadth session, the market typically struggles to post more than modest gains the following session. Out of the last 30 occurrences in which the VXO closed higher on a 2:1+ positive breadth session, only three led to an S&P up more than 0.5% the next day…

NYSE Breadth 2:1 Positive, VXO Up
07/01/09… S&P ??? next day
06/04/09… S&P -0.3% next day
04/24/09… S&P -1.0% next day
04/02/09… S&P +1.0% next day (*)
02/06/09… S&P +0.2% next day
11/28/08… S&P -8.9% next day
10/16/08… S&P -0.6% next day
01/29/08… S&P -0.5% next day
08/08/07… S&P -3.0% next day
04/25/07… S&P -0.1% next day
10/16/06… S&P -0.4% next day
10/05/06… S&P -0.3% next day
06/30/06… S&P +0.8% next day (*)
01/04/06… S&P +0.0% next day
07/28/05… S&P -0.8% next day
06/16/05… S&P +0.5% next day
05/27/05… S&P -0.6% next day
12/28/04… S&P -0.0% next day
12/13/04… S&P +0.4% next day
11/12/04… S&P -0.0% next day
11/04/04… S&P +0.4% next day
03/05/04… S&P -0.8% next day
12/18/03… S&P -0.1% next day
10/27/03… S&P +1.5% next day (*)
10/13/03… S&P +0.4% next day
09/08/03… S&P -0.8% next day
09/02/03… S&P +0.4% next day
07/07/03… S&P +0.3% next day
06/04/03… S&P +0.4% next day
05/27/03… S&P +0.2% next day
05/06/03… S&P -0.5% next day

It’s a similar story for the NDX. when the VXN closes higher despite 2:1+ positive breadth on the NASDAQ exchange, the NDX typically struggles to post more than modest gains the next session. The last thirty occurrences are listed below…

NASDAQ Breadth 2:1 Positive, VXN Up
07/01/09… NDX ??? next day
06/01/09… NDX +0.2% next day
01/06/09… NDX -2.8% next day
09/19/08… NDX -4.5% next day
02/25/08… NDX +0.3% next day
10/01/07… NDX -0.1% next day
11/06/06… NDX +0.5% next day
08/16/06… NDX +0.2% next day
10/31/05… NDX -0.2% next day
07/05/05… NDX -0.6% next day
03/29/04… NDX +0.2% next day
11/03/03… NDX -1.0% next day
09/02/03… NDX -0.1% next day
07/07/03… NDX +1.3%  next day (*)
07/02/03… NDX -1.2% next day
05/30/03… NDX -1.1% next day
05/27/03… NDX +0.1% next day
05/02/03… NDX -0.0% next day
04/02/03… NDX +0.1% next day
03/13/03… NDX +0.1% next day
02/18/03… NDX -0.9% next day
01/02/03… NDX +0.4% next day
11/27/02… NDX -0.9% next day
11/20/02… NDX +4.5%  next day (*)
08/04/02… NDX +1.3%  next day (*)
08/06/02… NDX +1.9%  next day (*)
07/29/02… NDX +1.1%  next day (*)
07/05/02… NDX -4.4% next day
06/17/02… NDX -1.0% next day
05/14/02… NDX +0.4% next day
05/08/02… NDX -3.3% next day

Similar to the S&P/VXO setup, while the chance for a higher or lower close the next session is roughly 50/50, the NDX has been twice as likely to drop 0.5%+.

In today’s intraday update I discussed the short-term bearish implications of six higher highs for the S&P500. A similar pattern with a slightly better track record was also triggered Wednesday. When the S&P closes higher after posting five consecutive higher highs, there’s a notable tendency for the market to reverse course and close lower 3-4 trading days later.  The last thirty occurrences are listed in the table below. Note that in 24 cases, or 80% of the time, the S&P closed at a lower level 3-4 sessions later, well above the 55% at-any-time odds of a lower S&P 3-4 days later…

Five Higher Highs and S&P Closes Higher
07/01/09… ???
03/17/09… Lower S&P close three sessions later
01/06/09… Lower S&P close three sessions later
05/16/08… Lower S&P close three sessions later
08/24/07… Lower S&P close three sessions later
07/03/07… Lower S&P close four sessions later
06/04/07… Lower S&P close three sessions later
03/21/07… Lower S&P close four sessions later
02/06/07… Lower S&P close three sessions later
01/16/07… Lower S&P close three sessions later
10/26/06… Lower S&P close three sessions later
08/18/06… Lower S&P close three sessions later
07/28/06… Lower S&P close three sessions later
04/20/06… Lower S&P close three sessions later
03/14/06… No lower close 3-4 sessions later
02/22/06… Lower S&P close four sessions later
01/30/06… Lower S&P close three sessions later
01/09/06… Lower S&P close three sessions later
11/23/05… Lower S&P close three sessions later
06/16/05… No lower close 3-4 sessions later
05/23/05… No lower close 3-4 sessions later
03/07/05… Lower S&P close three sessions later
12/15/04… Lower S&P close three sessions later
11/01/04… No lower close 3-4 sessions later
10/04/04… Lower S&P close three sessions later
08/02/04… Lower S&P close three sessions later
05/27/04… Lower S&P close four sessions later
04/01/04… No lower close 3-4 sessions later
01/21/04… Lower S&P close four sessions later
01/05/04… Lower S&P close four sessions later
12/23/03… No lower close 3-4 sessions later

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

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