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TW Patron++
Posts: 1,054
Reply with quote  #1 
The NYSE has posted several historic internal extremes over the past few years, and yet another rare extreme was posted last week on Tuesday, 3-13-07.  Down volume was over 94% of the total volume marking the third day over a two week period the NYSE suffered down volume percentages exceeding 90%.
Such events have occurred on nearly thirty occasions over the past 67 years including action during mature bear market declines as well as right after new six month price highs, which this study focuses upon for the purpose of historical comparisons under these conditions.
Note: in some of the past studies conducted, some readers neglect reading the qualifying events' filtering criteria, then whine about missing this or that event in the study.  There is a reason for the filtering criteria, and that is to look at these events under price configurations similar to the current climate... so please pay attention these criteria.
1) A qualifying event shall occur within fifty trading days of a new six-month price high as measured by the SPX.  The allowable number of days following a six month price high was extended far beyond the number of days following this most recent event, so the filter would allow the 1987 cluster of 90% or more down days to be counted.
2) Three or more 90% down volume days shall be posted within a 15 trading day window.  The 15-day window requirement did exclude a couple of otherwise qualifying events less than 20 days, but I wanted to keep the window within a close range of the 2007 event.
3) Price gains or losses going forward shall be calculated from the SPX price posted on the third 90% down volume day.  Some events had another 90% down volume following the third qualifying day, but prices are determined upon the the third day's price.
The qualifying criteria requirements resulted in 15 events, included the 2007 qualifier, since 1940.  Usually, I do not include 1940s action due to erratic market behavior in those days, but since nearly half of the qualifiers occurred in the 1940s, they are included.
As a sidebar note, there were other clusters of three or more 90% down volume days within a fifteen day window, but were well outside of being within 50 days of a new six month SPX price high and are excluded... including several in the 1940s, four in the 1950s, a few in 1962, 1966, 1970, and 1973.  These excluded events occurred well after a six month price high and well into a protracted decline. 
A cursory look at approximate price action following the excluded events suggested the price gain averages would have increased if they were included, but they were not actually calculated.
Below is a table summarizing the date of each qualifying 90% down volume events, the SPX price changes over arbitrary time windows going forward, as well as the maximum price draw-downs and price gains over the following 18 months.
There were exceptions for individual events, but on average, the data using the qualifying criteria mentioned above suggest three 90% down volume days within a fifteen day time window, similar to what has happened in 2007, are typically downside exhaustion events, and not always initiation signals for future price crashes.

There are precedents where significant price losses occurred in the weeks and months following three 90% down volume day events, but the results suggest the probability of continued price degradation is lower than the probability of robust price gains going forward.
Of course, the 2007 event could follow the in the footsteps of those historical events leading to double digit draw-downs.  I didn't have the time to investigate, but it would probably be revealing to determine the posture of the NYSE cumulative AD line leading up to these qualifiers.

TW Patron++
Posts: 497
Reply with quote  #2 
Nice work, Randy.
Notice that the October 1955 entry is likely also the same 9/26/55 entry with the 95% down volume day followed closely by a 10:1 up volume day study.
The returns following the third 90% down day in Oct 1955 aren't too shabby.
I could live with that.

TW Patron++
Posts: 1,054
Reply with quote  #3 
With Wednesday's close to 95% down volume day, there have been three 90% or more down volume days in the past three weeks, and I believe all criteria in this study from awhile back have been met.

There was pretty good pop upward from the March 2007 low following the cluster of down volume signals, let's see how this latest pans out.




TW Member
Posts: 18
Reply with quote  #4 
Thank you Mortiz, very interesting study!

I noticed that 8/23/57 seems to coincide with two 30:1 UD volume days.

October 1957: 41:1
November 1957: 36:1

I know, I was terribly wrong and propably a victim of my own too exuberant sentiment when I thought a few weeks ago that we could have an 30:1 UD day withing few trading days. Instead we got a meltdown and three 90% down volume day...

Therefore, no predictions this time, just an observation


TW Member
Posts: 32
Reply with quote  #5 
I have problem with this study.....First, the players are not the same.....For example back in 74.....The commission to trade 1000 shares was over $1000 ($2000 round trip).....Second there were no hedges back then.....There were no CBOE back in 74.....Stock future were not even born.....No internet trading.....No hedge fund trading....I can go on and on......Are we comparing the same thing?

Posts: 4,849
Reply with quote  #6 
Are we comparing the same thing?

Yes, we are.

Nothing that you've mentioned on your list has any bearing on this study.


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