bounce is likely to succeed or roll over. I recently showed an example of
how a weak bounce (price-wise) can suggest a downside edge. That study is in
effect again tonight.
Breadth can also be important to watch. After seeing down volume account for
about 90% of total NYSE volume during Tuesday’s selloff, today’s bounce
higher only rebounded with about 56% up volume. I performed a study which
looked at other times the market dropped at least 2% on over 85% down volume
on day 1 and then rose on under 60% up volume on day 2.
The setup was fairly rare from 1970-2000, triggering 15 times in 31 years.
There was no discernable edge over this period of time, either. From 2001
through today it has triggered 14 times and consistently predicted downside.
Below are some statistics on those instances:
In the last 13 months the frequency of occurrences has picked up
tremendously. Wednesday marked the 8th instance since August 2007. The
previous 7 instances are listed below with a 6-day exit.
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