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mortiz

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Reply with quote  #1 
Since late February 2007, a little over 280 trading days, the NYSE has posted twenty-two 90% down volume days, as defined by:

down volume/(up volume + down volume) >= 90%

For historical comparisons, the unchanged volume is not included in determining the 90% down volume threshold in this narrative, since I have unchanged volume data only from 1965.

If the time period of interest is limited to 150 trading days, as of Friday April 11th, the NYSE has had thirteen 90% down volume days over the preceding 150 trading days, only exceeded once this year in mid-March 2008 when the 150 day sliding window reached fourteen 90% down volume days. 

The blue curve in the following chart remains above zero for each day the sliding 150 trading day window has twelve or more 90% down volume days with the prior 150 day trading span. Except for a brief three day period in early January 2008, the number of 90% down volume events within a 150 day window has remained at or above 12.



The reader is likely saying "so what Nelson, why is this worthless and pointless knowledge relevant?"

Looking back from 1940, there haven't been too many 150 day periods where down volume constituted 90% of the total up and down volume twelve or more times.

As with many volume and breadth extremes, the 1940s provide us plenty of examples of 12 or more 90% down volume days within a 150 day window.

Note prior to the summer of 1942 (beginning of the battle of Midway, early in the US World War II involvement) and after the end of World War II (post 1945), large numbers of 90% down volume days on the NYSE accompanied a down or sideways moving market as measured by the S&P 500.

The spring of 1942 had 78 days of twelve or more 90% down volume days present in a 150 day sliding window, with a similar large string of 90% down volume days in late 1943/early 1944. Following the end of World War II, 90% down volume days were very common during the unwinding of the US war economy.



Following the 1940s, the next time twelve of more 90% down volume days within a 150 day window surfaced was late summer of 1953.  This concentrated string of 90% down volume days provided the cleansing preceding a very powerful price up move through the mid-1950s.



The double price bottom in the summer/fall of 1962 provided many 90% down volume days, but making it to twelve 90% down volume days within a 150 day window didn't occur until the consolidation of the first rally leg in December 1962.... the market made impressive upside progress following that consolidation.



Thanks to the price debacle in the fall of 1987, twelve 90% down volume days were recorded within a 150 day window in the spring of 1988, followed by a strong upside price action.



The current concentration of 90% down volume days is the first since early 1988 and only the fourth since the late 1940s.  Other than the period of uncertainty during the early days of World War II and the unwinding of the war economies following World War II, concentrations of 90% down volume days have led to strong and sustained price upmoves. 

In the current climate of concentrated 90% down volume days, it is likely an important price bottom is being constructed, but how long this bottom will take to complete is the question. 

There are many indicators at levels coinciding with price bottoms in the past, but this being an election year, where the outcome of the election could have a significant impact on tax obligations of entrepreneurs and other achievers who make this country work, the balance of 2008 could turn into a range-bound market until it becomes clearer what the political climate will be after November, and how friendly Washington will be toward business and risk takers going forward.

FWIW

Randy
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Whipsaw101

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Reply with quote  #2 
Randy, very Interesting stuff (as always)  Your database is incredible.

CW
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Reply with quote  #3 
Randy,

You do really interesting work. Have you ever considered the idea of K-cycle into your work? According to Kondratiev cycle specialists, the current secular downturn is similar to 1929-42. In this regard, it would be very interesting to see whether the concentration of 90% down days match with the 1929-32 bear market. whereas, the monetary context within the years you considered had been completely different. As IYB used to say, the same indicator has different meanings in different contexts.

Best,
G.

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mortiz

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Reply with quote  #4 
Greenie,

Thanks for the feedback. The NYSE volume data I have available is from 1940, so assuming the secular bear market ended in the summer of 1942, all I have is the tail end of that bear market, which is included in the chart of the 1940s.  We can likely assume the decline from the 1929 high to the 1932 low included several 90% down volume days since the market moved as a herd in those days, moreso than the current era.

I do have breadth data through the 1929 to 1932 period and there were quite a few 90% declines days, so each of those extreme down breadth days were likely accompanied by 90% down volume days.  Since 1940, the 1947 unwinding of the World War II economy had the highest number of 90% down volume days within a 150 day period at sixteen days.  Thus the most dense concentration of 90% down days following end of the secular bear in 1942 occurred five years after the bottom.  The market did pretty well following that unwinding consolidation that ended in the summer of 1949.

I have some contacts that may know where to get up-down volume data from the 1920s and 1930s, and I'll ask... I know Paul Desmond has painstakingly derived that data, but I doubt he is willing sell it for a reasonable price if at all.

Randy
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