SPY Volume Collapses to its Lowest Level of 2009

Market averages settled higher Thursday in uninspiring trade. TICKscore settled at -2, Cumulative TICK +24,000. The neutral readings reflect an absence of institutional participation during Thursday’s advance, a negative sign for the short-term. Echoing that theme, the NASDAQ/NYSE Volume Ratio settled at a high 1.86, keeping the 20-day moving average in record-high territory as speculative participants continue to dominate trade.

Short-term bullish setups discussed in my last commentary were fulfilled with today’s close above SPX 881, leaving the bearish setup related to the recent string of Nasdaq underperformance (see Monday’s commentary for details). Further underscoring Thursday’s lack of institutional participation, volume in the SPY plunged to a new low for the year as only 164 million shares traded. That represents more than a 33% drop in volume from the session before, a short-term negative sign coming on an up day for the SPY. The last 30 times that the SPY closed higher on a 33%+ drop in volume are listed in the table below…

SPY Closes Up, Volume Off 33%+ From Prior Session
07/09/09… ???
04/03/09… Lower SPY close one session later
02/11/09… Lower SPY close two sessions later
02/09/09… Lower SPY close one session later
12/24/08… No lower SPY close 1-2 sessions later
11/28/08… Lower SPY close one session later
11/03/08… Lower SPY close two sessions later
10/13/08… Lower SPY close one session later
06/09/08… Lower SPY close one session later
04/28/08… Lower SPY close one session later
04/21/08… Lower SPY close one session later
02/01/08… Lower SPY close one session later
01/24/08… Lower SPY close one session later
12/24/07… Lower SPY close two sessions later
11/23/07… Lower SPY close one session later
10/29/07… Lower SPY close one session later
10/04/07… No lower SPY close 1-2 sessions later
09/04/07… Lower SPY close one session later
08/24/07… Lower SPY close one session later
08/13/07… Lower SPY close one session later
08/02/07… Lower SPY close one session later
07/30/07… Lower SPY close one session later
07/23/07… Lower SPY close one session later
07/19/07… Lower SPY close one session later
07/03/07… Lower SPY close one session later
07/02/07… No lower SPY close 1-2 sessions later
06/11/07… Lower SPY close one session later
05/25/07… No lower SPY close 1-2 sessions later
05/16/07… Lower SPY close one session later
05/07/07… Lower SPY close one session later
05/02/07… No lower SPY close 1-2 sessions later

Note that in 25 out of the last 30 cases, or 83% of the time, the SPY posted a subsequently lower close within the next two days. That’s significantly better than the 64% at-any-time odds for a lower SPY close 1-2 sessions later.

Along with the rising equity put/call ratio, recent price action hasn’t been particularly positive. After the pre-holiday gap down, S&P futures continued to move steadily lower over the next three sessions, making lower highs and lower lows. While we broke that pattern Thursday, it’s hard to argue the trend has changed.  Since inception, S&P futures have posted 195 sessions with a downside gap (defined as a high below the previous day’s low). Only 15 times did the S&P continue moving steadily lower over the next three sessions. In 13 out of 15 cases, the S&P posted a subsequently lower close at some point over the next five sessions. Market performance was mixed over the following month, with the S&P usually ending within 2% of current levels…

Three Days of Lower Highs & Lows After Unfilled Downside Gap
07/08/09… S&P futures ??? one month later
10/27/08… S&P futures +1.6% one month later
10/09/08… S&P futures -0.9%  one month later
01/18/08… S&P futures +2.3% one month later
07/27/07… S&P futures +1.8% one month later
05/22/06… S&P futures -1.6% one month later
04/25/02… S&P futures +0.4% one month later
03/14/01… S&P futures -0.6% one month later
02/22/01… S&P futures -11.9% one month later
10/18/99… S&P futures +10.9% one month later
09/24/99… S&P futures +1.5% one month later
07/23/99… S&P futures -1.7% one month later
09/01/98… S&P futures +1.6% one month later
03/29/94… S&P futures -0.6% one month later
10/03/84… S&P futures +1.4% one month later
02/09/84… S&P futures -1.3% one month later

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

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