Wednesday, June 10, 2009

Nasdaq/NYSE Volume Ratio Hitting Extreme Levels

The Nasdaq/NYSE Volume Ratio is an indicator I haven’t discussed on the blog, and not too often in the Subscriber Letter. It is hitting extreme levels at this time and deserves some attention. One word of caution - levels will vary depending on data provider. So while the extremes may differ depending on whose data you use, results should be comparable at those extremes. I use Tradestation. On Tuesday the Nasdaq/NYSE volume 20-day average closed over 1.65. Below is a table showing 1-month returns based on this ratio.

Nasdaq / NYSE 20-day volume ratio exceeds X. Buy S&P 500 on close. Sell 20-days later. $100k/trade. (click to enlarge)

High levels of Nasdaq trading as opposed to NYSE suggest excessive speculation by investors. Once this level exceeds 1.4 (as Tradestation measures it), is has generally indicated a bearish bias.


Daniel said...

Rob, fellow bloggers, clearly what we have here is a Market in equilibrium at SOMEWHAT frothy and speculative levels. All studies will be variant reiterations of the same theme.

The key Q. is now, HOW do we define that SOMEWHAT concept?

Is it “healthily frothy”, the way all new Bull Markets are? Or can the same objective numbers be better described as "dangerously frothy"..? We are encountering longer term influences--and most of Rob's work lies in mining the tendencies that often spring from significant short-term imbalances.

My own proprietary models point to a bullish resolution, but at this stage it’s only opinion, since a true equilibrium point can truly break either way-- and later, the logic will be seen to have been present AT THE TIME to support the move.

In retrospect and hindsight of course. Still, we are best served by looking longerterm at this point.


biscosc said...

Any chance you can show returns for longer out than 20 days? I'd be interested in 60 and 120 days. Thanks for the great work!

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