S&P Advances on Increasing Volume, Improved Market Internals

Last week’s program trading report revealed 46.5% of total program volume was executed as principal, for member firms’ own accounts. Above-average program activity is a supportive factor for the market. As long as principal program activity continues to account for nearly half of all program volume, we probably won’t see a significant selloff take hold. It’s when this statistic drops into the low 40’s or lower that the market becomes vulnerable.

Thursday was another impressive day of NYSE TICK action, with Cumulative TICK soaring to its second 100,000+ close in the last three days. As I mentioned in Tuesday evening’s column, if the market can stay above Tuesday’s close at the end of this week it would have positive implications for the intermediate-term. Today’s activity suggests it will. Clusters of unusually high Cumulative TICK readings are rare and normally bullish. I pulled up the longer-term chart of Cumulative TICK and eyeballed the +75,000 level as representing an unusually high closing reading since the uptick rule was eliminated in 2007. In the table below is every instance since mid-’07 in which Cumulative TICK closed over +75,000 on two separate occasions within a five-day time span…

07/09/10… S&P500 +1.6% two sessions later
04/22/10… S&P500 +0.3% two sessions later
03/23/10… S&P500 -0.6% three sessions later
03/05/10… S&P500 +0.2% two sessions later
03/02/10… S&P500 +0.4% two sessions later
09/09/09… S&P500 +0.9% two sessions later
08/20/09… S&P500 +1.8% two sessions later
08/03/09… S&P500 +0.0% two sessions later
07/14/09… S&P500 +3.9% two sessions later
05/04/09… S&P500 +1.4% two sessions later
04/16/09… S&P500 -1.8% three sessions later
04/01/09… S&P500 +3.9% two sessions later
03/23/09… S&P500 +1.2% three sessions later
03/18/09… S&P500 +3.6% three sessions later
03/12/09… S&P500 +0.4% two sessions later
01/02/09… S&P500 +0.3% two sessions later
11/26/08… S&P500 -4.4% three sessions later
10/17/08… S&P500 +1.5% two sessions later
07/17/08… S&P500 -0.0% two sessions later
03/20/08… S&P500 +1.8% two sessions later
11/28/07… S&P500 +0.8% two sessions later
08/21/07… S&P500 +1.1% two sessions later

Thursday also represented a fresh two-month high for the Cumulative TICK, triggering a second two-week buy signal for the S&P500 (see this July 7th column for a recent track record). The low CBOE equity put/call ratio 10-day average suggests an intermediate-term advance is likely to ultimately represent a selling opportunity, but this indicator can be early and it looks like that will be the case this time around.

Cumulative breadth has exceeded its June and July highs and continues to exhibit relative strength vs. the S&P, usually a positive sign.

NYSE floor volume fell slightly on Thursday but NYSE consolidated volume managed a small increase. That’s noteworthy considering it represented the third consecutive session that S&P futures posted a higher high on heavier consolidated volume. We only have data on this volume back to 2007, with only four signals in that period (06/16/10, 08/21/09, 05/31/07, 04/18/07) but market performance was consistent with the longer-term track record outlined in this June 16th column regarding three higher highs on increasing NYSE (floor) volume.

SPY posted a third higher high on increasing volume as well, usually a good sign of limited downside potential over the next few sessions. Here’s a look at the last 25 instances in which SPY posted three higher highs on successively heavier volume. Only once was SPY down more than 1% three sessions later…

SPY Three Higher Highs on Increasing Volume
07/22/10… SPY ???
02/19/10… SPY -0.3% three sessions later
09/17/09… SPY -0.1% three sessions later
08/06/09… SPY -0.2% three sessions later
04/02/09… SPY -2.1% three sessions later (*)
12/30/08… SPY +4.4% three sessions later
04/11/07… SPY +1.9% three sessions later
11/09/06… SPY +1.0% three sessions later
08/16/06… SPY +0.3% three sessions later
04/18/06… SPY +0.3% three sessions later
12/16/04… SPY -0.4% three sessions later
01/09/04… SPY +1.0% three sessions later
11/14/03… SPY -0.7% three sessions later
10/15/03… SPY +0.1% three sessions later
09/02/03… SPY +0.0% three sessions later
07/09/03… SPY +0.2% three sessions later
12/29/00… SPY +1.8% three sessions later
06/01/00… SPY +0.8% three sessions later
06/30/99… SPY +1.7% three sessions later
11/23/98… SPY +0.1% three sessions later
11/17/98… SPY +2.3% three sessions later
03/23/98… SPY +0.4% three sessions later
02/06/98… SPY +0.5% three sessions later
12/31/97… SPY -0.9% three sessions later
06/09/97… SPY +2.5% three sessions later
04/30/97… SPY +4.1% three sessions later

A strong sign among market internals was the continued improvement in new 52-week highs and lows. Thursday represented the third consecutive day with expanding new highs and contracting new lows on both the NYSE and NASDAQ. When S&P futures post three consecutive higher highs that generated successively more new 52-week highs and less new 52-week lows each day, it’s a sign of strength for the short-term. The S&P is invariably trading at a higher level 2-3 trading days later. The last thirty occurrences are below…

Three Higher Highs for S&P Futures, Total New 52wk Highs Expand, New Lows Contract Each Day
07/22/10… S&P futures ???
06/14/10… S&P futures +2.2% two sessions later
06/11/10… S&P futures +2.2% two sessions later
02/18/10… S&P futures +0.2% two sessions later
11/09/09… S&P futures +0.4% two sessions later
11/06/09… S&P futures +2.4% two sessions later
08/24/09… S&P futures +0.2% two sessions later
07/15/09… S&P futures +1.1% two sessions later
11/30/07… S&P futures +0.2% three sessions later
10/29/07… S&P futures +0.5% two sessions later
06/15/07… S&P futures +0.1% two sessions later
03/08/07… S&P futures +0.2% two sessions later
11/07/06… S&P futures -0.3% three sessions later
08/16/06… S&P futures +0.6% two sessions later
03/15/06… S&P futures +0.2% two sessions later
02/16/06… S&P futures +0.0% three sessions later
10/03/05… S&P futures -2.8% three sessions later
12/22/04… S&P futures +0.4% three sessions later
11/03/04… S&P futures +2.0% three sessions later
10/04/04… S&P futures +0.6% two sessions later
08/18/04… S&P futures +0.4% two sessions later
05/27/04… S&P futures +0.2% three sessions later
05/26/04… S&P futures +0.4% two sessions later
05/25/04… S&P futures +0.9% two sessions later
02/27/04… S&P futures +0.4% two sessions later
11/26/03… S&P futures +1.2% two sessions later
07/29/02… S&P futures +2.0% two sessions later
02/27/02… S&P futures +1.9% two sessions later
11/06/01… S&P futures +0.2% two sessions later
07/30/01… S&P futures +1.0% two sessions later
07/27/01… S&P futures +0.5% two sessions later

Note that in 28 out of the last 30 occurrences, or 93% of the time, S&P futures posted a higher close 2-3 sessions later, significantly above the 63% random chance for a close above today’s settlement 2-3 days later.

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

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