Low-Volume Selloff

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On Wednesday, the S&P500 fell over 1% from its intraday high of 4501. Despite the selloff, volume among S&P500 components was the lightest in two months at 2.18 billion shares. Looking back at previous instances when the S&P ended down 1%+ from its high on a 30-day low in volume, it’s what happens the next day that’s key. If the S&P closes down, history suggests further selling pressure is in store. But if the S&P rallies, as it’s trying to do today, then the selloff didn’t generate any follow-through and stocks are likely to continue higher short-term. This has only happened 17 times since 1990. Four sessions later, the S&P was up 14 times, down 3 times. All three losses were less than 0.5%, while the average gain was 2.3%…

SPX -1% from High, SPX Volume 30-day Low,
SPX Higher Next Day
07/08/20… SPX +0.9% four sessions later
04/10/18… SPX +0.8% four sessions later
02/24/16… SPX +2.5% four sessions later
11/28/11… SPX +4.3% four sessions later
06/14/10… SPX -0.2% four sessions later
11/27/09… SPX +0.9% four sessions later
05/22/09… SPX +3.6% four sessions later
04/07/09… SPX +3.3% four sessions later
08/25/08… SPX +0.5% four sessions later
04/09/08… SPX +0.3% four sessions later
03/28/08… SPX +3.6% four sessions later
02/19/08… SPX +1.6% four sessions later
11/11/02… SPX +2.0% four sessions later
03/25/02… SPX -0.2% four sessions later
05/11/01… SPX +3.5% four sessions later
06/28/99… SPX +4.5% four sessions later
05/10/94… SPX -0.3% four sessions later

So we’re on watch for a higher SPX close Thursday to trigger the study above. Also worth noting it’s extremely rare to see the S&P drop 1% on the kind of low volume we saw Wednesday. It was only the seventh time since 1990, and prior cases led to fairly sizable losses over the next two weeks…

SPX -1%, SPX Volume Two-Month Low
03/23/22… SPX ??? two weeks later
11/27/09… SPX +1.4% two weeks later
05/24/02… SPX -4.9% two weeks later
05/20/02..> SPX -4.7% two weeks later
03/25/02… SPX -1.2% two weeks later
05/25/01… SPX -1.8% two weeks later
07/05/96… SPX -2.8% two weeks later

Sample size is very small, however. And if we only look for a one-month low in volume results are pretty random.

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