Unprecedented Readings from the Nasdaq/NYSE Volume Ratio

Exchange volume remains abnormal, with NASDAQ volume outpacing NYSE volume by more than a 2.5:1 margin for the third consecutive session. We’ve never even seen two consecutive readings that high much less three, and while it’s tempting to label it bearish, it’s best to tread carefully when the action is unprecedented. Also note from this longer-term chart that the same ratio utilizing consolidated volume is high but at levels seen consistently throughout 2007. Cumulative TICK closed at +14,000 Wednesday, the seventeenth straight session with a positive finish. Our TICKscore indicator closed in negative territory for the first time in weeks, a fact that should have been communicated intraday. It was only a small -3 reading, but coming on an up day that does suggest a lower close on Thursday. The last 30 times TICKscore closed negative on a higher SPX close are listed below…

S&P Closes Higher, TICKscore <0
03/03/10… S&P500 ??? next session
02/05/10… S&P500 -0.9% next session
01/25/10… S&P500 -0.4% next session
12/30/09… S&P500 -1.0% next session
12/21/09… S&P500 +0.4% next session
12/16/09… S&P500 -1.2% next session
11/11/09… S&P500 -1.0% next session
11/02/09… S&P500 +0.2% next session
10/15/09… S&P500 -0.8% next session
10/12/09… S&P500 -0.3% next session
07/09/09… S&P500 -0.4% next session
07/06/09… S&P500 -2.0% next session
03/25/09… S&P500 +2.3% next session (*)
03/06/09… S&P500 -1.0% next session
02/11/09… S&P500 +0.2% next session
01/15/09… S&P500 +0.8% next session (*)
01/13/09… S&P500 -3.4% next session
12/10/08… S&P500 -2.9% next session
11/21/08… S&P500 +6.5% next session (*)
11/18/08… S&P500 -6.1% next session
11/13/08… S&P500 -4.2% next session
10/23/08… S&P500 -3.5% next session
09/26/08… S&P500 -8.8% next session
09/18/08… S&P500 +4.0% next session  (*)
09/16/08… S&P500 -4.7% next session
09/10/08… S&P500 +1.4% next session (*)
09/08/08… S&P500 -3.4% next session
08/20/08… S&P500 +0.3% next session
07/25/08… S&P500 -1.9% next session
07/10/08… S&P500 -1.1% next session
07/03/08… S&P500 -0.8% next session

In 21 out of the last 30 occurrences, or 70% of the time, the S&P500 closed lower the following session, significantly greater than the 46% at-any-time odds for a lower S&P one day later in the same time frame. In only five cases did the S&P close up 0.5% or more the next session, while it fell 0.5%+ eighteen times.

The above signal is in direct conflict with the short-term bullish ‘rally day after a gap’ signal triggered at Tuesday’s close. If you’ll recall from Tuesday’s intraday update, the S&P was down more than 0.6% two days after this ‘gap & go’ price pattern only one time out of the last thirty occurrences. If a selloff does take hold Thursday, this tells us we shouldn’t see S&P futures close much more than a few points below Wednesday’s lows. This same signal was triggered for a second time at Wednesday’s close and again points to limited downside potential heading into Friday’s close.

New 20-day highs across all exchanges came in at 2,492 on Wednesday, just slightly below Tuesday’s 2508 close. The table below highlights the last thirty instances in which S&P futures posted a ‘rally day’ (higher high, higher low, higher close) and new 20-day highs across all exchanges declined from the previous session. Note the consistent theme of limited upside potential the next day, suggesting either a down day or a small up on Thursday…

Rally Day for S&P Futures, New 20-day Highs Drop
03/03/10… S&P futures ??? next session
01/06/10… S&P futures +0.4% next session
12/24/09… S&P futures +0.1% next session
12/22/09… S&P futures +0.2% next session
12/11/09… S&P futures +0.5% next session
11/18/09… S&P futures -1.3%  next session
11/10/09… S&P futures +0.4% next session
10/15/09… S&P futures -0.7% next session
10/09/09… S&P futures +0.3% next session
08/25/09… S&P futures +0.1% next session
08/04/09… S&P futures -0.4% next session
07/24/09… S&P futures +0.2% next session
07/21/09… S&P futures -0.4% next session
06/29/09… S&P futures -0.6% next session
06/02/09… S&P futures -1.2% next session
05/14/09… S&P futures -0.7% next session
05/08/09… S&P futures -1.7% next session
05/05/09… S&P futures +1.5% next session  (*)
04/13/09… S&P futures -1.6% next session
03/04/09… S&P futures -3.2% next session
10/13/08… S&P futures -1.4% next session
04/17/08… S&P futures +1.1% next session  (*)
12/24/07… S&P futures +0.2% next session
11/23/07… S&P futures -2.3% next session
09/13/07… S&P futures +0.0% next session
08/13/07… S&P futures -1.4% next session
07/13/07… S&P futures -0.0% next session
05/07/07… S&P futures -0.1% next session
04/26/07… S&P futures -0.1% next session
04/17/07… S&P futures +0.1% next session
03/23/07… S&P futures -0.1% next session

While not a significant edge in terms of calling for a lower close the next day, there is a notable tendency for limited upside potential. In only two cases, or 7% of the time did the S&P gain more than 0.5% the following session, significantly below the 32% random chance for a gain of more than 0.5% one day later in the same time frame.

Looking out to Friday’s close, our version of the Standard & Poors Oscillator triggered a short-term sell at today’s close by declining for a second consecutive session in the face of a rising S&P. The last thirty instances in which the S&P rallied two days and the Oscillator declined both days are listed in the table below…

S&P500 Up Two, S&P Oscillator Down Two
03/03/10… S&P500 ??? two sessions later
01/11/10… S&P500 -0.1% two sessions later
01/08/10… S&P500 -0.8% two sessions later
01/07/10… S&P500 +0.5% two sessions later
12/01/09… S&P500 -0.8% two sessions later
09/04/09… S&P500 +1.7% two sessions later (*)
08/27/09… S&P500 -1.0% two sessions later
06/12/09… S&P500 -3.6% two sessions later
04/24/09… S&P500 -1.3% two sessions later
04/01/09… S&P500 +3.9% two sessions later (*)
01/16/09… S&P500 -1.2% two sessions later
09/12/08… S&P500 -3.0% two sessions later
09/11/08… S&P500 -4.5% two sessions later
09/08/08… S&P500 -2.8% two sessions later
07/01/08… S&P500 -1.7% two sessions later
04/07/08… S&P500 -1.3% two sessions later
12/13/07… S&P500 -2.9% two sessions later
04/18/07… S&P500 +0.8% two sessions later
02/07/07… S&P500 -0.8% two sessions later
10/19/06… S&P500 +0.7% two sessions later
10/10/06… S&P500 +0.7% two sessions later
09/27/06… S&P500 -0.1% two sessions later
01/24/06… S&P500 +0.6% two sessions later
11/07/05… S&P500 -0.2% two sessions later
09/16/05… S&P500 -1.3% two sessions later
08/03/05… S&P500 -1.5% two sessions later
07/14/05… S&P500 -0.4% two sessions later
02/16/05… S&P500 -0.7% two sessions later
02/15/05… S&P500 -0.8% two sessions later
12/09/04… S&P500 +0.8% two sessions later
11/18/04… S&P500 -0.5% two sessions later

In 22 out of the last 30 occurrences, or 73% of the time, the S&P closed lower two sessions later, significantly above the 48% at-any-time odds for a lower S&P close two days later in the same time frame. The market was up more than 1% over next two days only twice, while it lost more than 1% eleven times. This is in conflict with other short-term setups on the board calling for higher prices heading into Friday’s close, and for the time being I continue to lean in favor of those bullish setups over this signal.

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

 Print This Post