Breadth, Volume Combination Points to Limited Upside Short-term

SPY closed with a solid gain Monday on volume approximately 40% below Friday’s level. Historically, an up day for SPY that coincides with a 33%+ drop in volume from the previous session is a short-term negative sign. The last 30 occurrences are listed in the table below. 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, significantly better than the 61% at-any-time odds for a lower SPY close 1-2 sessions later in the same period of time.

SPY Closes Up, Volume Off 33%+ From Prior Session
02/01/10… ???
01/25/10… Lower SPY close one session later
01/19/10… Lower SPY close one session later
12/24/09… No lower SPY close 1-2 sessions later
10/05/09… No lower SPY close 1-2 sessions later
09/28/09… Lower SPY close one session later
07/24/09… Lower SPY close two sessions later
07/17/09… No lower SPY close 1-2 sessions later
07/09/09… Lower SPY close one session later
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

More compelling is that the low volume coincided with lopsided positive breadth. The last thirty times that NYSE volume fell 20%+ from the previous day on a 2:1+ positive breadth session are listed in the table below. Note that in 23 out of 30 cases, or 77% of the time, the S&P closed lower (below the setup day’s close) two sessions later, significantly greater than the 48% random odds for a lower S&P close two sessions later in the same time frame. Only two cases led to an S&P up more than 1% two days later, while thirteen led to an S&P down more than 1% two days later….

2:1 Positive Breadth & NYSE Volume Down 20%+
02/01/10… ???
01/19/10… S&P500 -2.9% two sessions later
12/24/09… S&P500 -0.0% two sessions later
12/21/09… S&P500 +0.6% two sessions later
10/19/09… S&P500 -1.5% two sessions later
10/05/09… S&P500 +1.7% two sessions later (*)
07/01/09… S&P500 -2.7% two sessions later
04/03/09… S&P500 -3.2% two sessions later
03/23/09… S&P500 -1.1% two sessions later
03/17/09… S&P500 +0.8% two sessions later
11/26/08… S&P500 -8.1% two sessions later
10/20/08… S&P500 -9.0% two sessions later
10/13/08… S&P500 -9.5% two sessions later
03/24/08… S&P500 -0.7% two sessions later
01/14/08… S&P500 -3.0% two sessions later
12/24/07… S&P500 -1.3% two sessions later
11/23/07… S&P500 -0.9% two sessions later
06/01/07… S&P500 -0.4% two sessions later
05/25/07… S&P500 +1.0% two sessions later
03/19/07… S&P500 +2.4% two sessions later (*)
03/15/07… S&P500 +0.7% two sessions later
07/03/06… S&P500 -0.5% two sessions later
05/25/06… S&P500 -1.0% two sessions later
11/24/04… S&P500 -0.3% two sessions later
05/11/04… S&P500 +0.1% two sessions later
03/12/04… S&P500 -0.9% two sessions later
10/25/02… S&P500 -1.7% two sessions later
07/05/02… S&P500 -3.7% two sessions later
06/17/02… S&P500 -1.6% two sessions later
01/31/02… S&P500 -3.2% two sessions later
11/23/01… S&P500 -0.1% two sessions later

For the moment, it looks like any short-term strength will most likely represent a selling opportunity heading into Wednesday’s close. From that point, barring any significant new developments I’d look for an upside rebound heading into Friday. One interesting point about Monday’s session is that despite the low volume, our TICKscore indicator closed at a two-month high (+19), suggesting institutions were better buyers than we’ve seen in some time.

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

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