Volume Sinks Ahead of Options Expiration Week
By
Rennie on Sunday, June 13th, 2010 at 7:34 pm
A late-day rally on Friday lifted the major averages to a third consecutive session with higher highs. Institutional participation remained poor, with our TICKscore indicator closing at -25, sending the cumulative version of that indicator to new lows. Volume was also unusually light, with big board volume hitting its lowest level in two months despite what ended up being a lopsided positive breadth session. That late-day action triggered a short-term sell signal for early this week, as lopsided positive breadth sessions on light volume usually lead to a reversal in the next 1-2 sessions. Each of the last 30 instances in which NYSE breadth closed 2:1 positive and NYSE volume was the lightest of the past month are highlighted in the table below. Note that the S&P reversed course and posted a subsequently lower close within the next two sessions in 25 out of 30 cases, or 83% of the time, significantly greater than the 62% random chance of a lower S&P close within two sessions in the same time frame…
Breadth 2:1 positive, Volume Lightest of Past Month
06/11/10… ???
04/05/10… Lower S&P close two days later
12/24/09… Lower S&P close two days later
11/25/09… Lower S&P close one day later
11/13/09… No lower close within two days
09/28/09… Lower S&P close one day later
11/28/08… Lower S&P close one day later
08/27/08… No lower close within two days
08/22/08… Lower S&P close one day later
05/12/08… Lower S&P close one day later
12/24/07… Lower S&P close two days later
11/23/07… Lower S&P close one day later
08/24/07… Lower S&P close one day later
05/25/07… No lower close within two days
12/26/06… No lower close within two days
07/03/06… Lower S&P close one day later
05/26/06… Lower S&P close one day later
05/27/05… Lower S&P close one day later
05/09/05… Lower S&P close one day later
11/24/04… Lower S&P close two days later
08/27/04… Lower S&P close one day later
02/06/04… Lower S&P close one day later
04/14/03… Lower S&P close two days later
02/18/03… Lower S&P close one day later
08/26/02… Lower S&P close one day later
07/05/02… Lower S&P close one day later
02/11/02… Lower S&P close one day later
11/23/01… Lower S&P close two days later
11/24/00… Lower S&P close two days later
08/11/00… No lower close within two days
07/03/00… Lower S&P close one day later
I’d note that SPY volume also hit its lowest level in over a month, noteworthy considering SPY just posted its third consecutive higher high Friday. When SPY initially posts three straight higher highs and volume on that third day is the lowest of the past twenty sessions, it’s usually a negative indication for the following session. Out of 24 occurrences over the last 15 years, 19 led to a lower SPY close the next day…
Third Higher High for SPY, Volume @ One-Month Low
06/11/10… SPY ??? next session
12/14/09… SPY -0.5% next session
10/12/09… SPY -0.2% next session
09/08/09… SPY +0.8% next session
06/26/09… SPY +0.9% next session
04/13/09… SPY -1.7% next session
02/15/07… SPY -0.1% next session
07/03/06… SPY -0.6% next session
05/27/05… SPY -0.6% next session
02/08/05… SPY -0.8% next session
11/26/04… SPY -0.5% next session
08/27/04… SPY -0.8% next session
11/18/02… SPY -0.1% next session
10/14/02… SPY +4.8% next session
04/17/02… SPY -0.4% next session
08/27/01… SPY -1.5% next session
05/15/00… SPY +1.0% next session
11/15/99… SPY +0.8% next session
07/16/99… SPY -0.7% next session
03/08/99… SPY -0.2% next session
12/07/98… SPY -0.5% next session
11/06/98… SPY -0.7% next session
08/19/98… SPY -0.6% next session
08/19/96… SPY -0.1% next session
12/27/95… SPY -0.1% next session
With futures opening higher Sunday evening, we’ll want to watch Friday’s high at SPX 1092.25. The S&P closed just below that level on Friday, and a break of the high on Monday will trigger a short-term buy setup that would call for a close above 1092.25 either Monday or Tuesday. This is based on the ‘two higher highs’ after a 90%+ up volume session recently discussed in this June 3rd column. If that signal is triggered we’d have mixed indications short-term, but barring any significant new development I’d most likely look to fade Monday’s close.
Volume Sinks Ahead of Options Expiration Week
By Rennie on Sunday, June 13th, 2010 at 7:34 pmA late-day rally on Friday lifted the major averages to a third consecutive session with higher highs. Institutional participation remained poor, with our TICKscore indicator closing at -25, sending the cumulative version of that indicator to new lows. Volume was also unusually light, with big board volume hitting its lowest level in two months despite what ended up being a lopsided positive breadth session. That late-day action triggered a short-term sell signal for early this week, as lopsided positive breadth sessions on light volume usually lead to a reversal in the next 1-2 sessions. Each of the last 30 instances in which NYSE breadth closed 2:1 positive and NYSE volume was the lightest of the past month are highlighted in the table below. Note that the S&P reversed course and posted a subsequently lower close within the next two sessions in 25 out of 30 cases, or 83% of the time, significantly greater than the 62% random chance of a lower S&P close within two sessions in the same time frame…
Breadth 2:1 positive, Volume Lightest of Past Month
06/11/10… ???
04/05/10… Lower S&P close two days later
12/24/09… Lower S&P close two days later
11/25/09… Lower S&P close one day later
11/13/09… No lower close within two days
09/28/09… Lower S&P close one day later
11/28/08… Lower S&P close one day later
08/27/08… No lower close within two days
08/22/08… Lower S&P close one day later
05/12/08… Lower S&P close one day later
12/24/07… Lower S&P close two days later
11/23/07… Lower S&P close one day later
08/24/07… Lower S&P close one day later
05/25/07… No lower close within two days
12/26/06… No lower close within two days
07/03/06… Lower S&P close one day later
05/26/06… Lower S&P close one day later
05/27/05… Lower S&P close one day later
05/09/05… Lower S&P close one day later
11/24/04… Lower S&P close two days later
08/27/04… Lower S&P close one day later
02/06/04… Lower S&P close one day later
04/14/03… Lower S&P close two days later
02/18/03… Lower S&P close one day later
08/26/02… Lower S&P close one day later
07/05/02… Lower S&P close one day later
02/11/02… Lower S&P close one day later
11/23/01… Lower S&P close two days later
11/24/00… Lower S&P close two days later
08/11/00… No lower close within two days
07/03/00… Lower S&P close one day later
I’d note that SPY volume also hit its lowest level in over a month, noteworthy considering SPY just posted its third consecutive higher high Friday. When SPY initially posts three straight higher highs and volume on that third day is the lowest of the past twenty sessions, it’s usually a negative indication for the following session. Out of 24 occurrences over the last 15 years, 19 led to a lower SPY close the next day…
Third Higher High for SPY, Volume @ One-Month Low
06/11/10… SPY ??? next session
12/14/09… SPY -0.5% next session
10/12/09… SPY -0.2% next session
09/08/09… SPY +0.8% next session
06/26/09… SPY +0.9% next session
04/13/09… SPY -1.7% next session
02/15/07… SPY -0.1% next session
07/03/06… SPY -0.6% next session
05/27/05… SPY -0.6% next session
02/08/05… SPY -0.8% next session
11/26/04… SPY -0.5% next session
08/27/04… SPY -0.8% next session
11/18/02… SPY -0.1% next session
10/14/02… SPY +4.8% next session
04/17/02… SPY -0.4% next session
08/27/01… SPY -1.5% next session
05/15/00… SPY +1.0% next session
11/15/99… SPY +0.8% next session
07/16/99… SPY -0.7% next session
03/08/99… SPY -0.2% next session
12/07/98… SPY -0.5% next session
11/06/98… SPY -0.7% next session
08/19/98… SPY -0.6% next session
08/19/96… SPY -0.1% next session
12/27/95… SPY -0.1% next session
With futures opening higher Sunday evening, we’ll want to watch Friday’s high at SPX 1092.25. The S&P closed just below that level on Friday, and a break of the high on Monday will trigger a short-term buy setup that would call for a close above 1092.25 either Monday or Tuesday. This is based on the ‘two higher highs’ after a 90%+ up volume session recently discussed in this June 3rd column. If that signal is triggered we’d have mixed indications short-term, but barring any significant new development I’d most likely look to fade Monday’s close.