Two 90% Down Days In One Week

It was just a little over a week ago that I was examining what occurs after the market posts 2 90% Up Days in a 1-week period. The results appeared quite bullish. Thursday we saw the 2nd 90% down day in the last 3 days. I stretched the requirement out to 1 week and took a look.



For the short-term at least, such negative breadth appears to suggest a bounce.

2nd 90% Day Suggests Real Strength

Thursday the market again posted a day where 90% of the volume went to the upside. This follows Tuesday’s 90% up day. I looked back to 1970 at other times the market put in 2 90% days in a 1-week period. Instances are small, so it’s dangerous to rely too much on the results, but you’ve typically seen very strong moves after these tandems of 90% Up Volume days. Below I’ve listed all the occurrences along with the 20-day return of the market after such occurrences. (Results based on $100k per trade.)

It’ll be interesting to see which 90% study wins out (click here for other 90% study from 2 days ago). While a short-term pullback seems likely here soon, I am seeing more indications of further strength than I am weakness.

Why Tuesday's 90% Up Day May Not Be Bullish

Lowry’s has shown 90% days to be effective in determining market bottoms. For those who are unaware a 90% day is a day where volume and points are 90% one directional. A 90% up day would occur when 90% of the volume traded and points traded on the NYSE are to the upside.

Tuesday was a 90% up day. Lowry’s looked for cluster of them in order to determine a bottom. (You can find a free copy of their report Identifying Bear Market Botoms” here.) Unfortunately, I’ve found 90% days coming directly after a bottom tend to lead to market weakness. For the below study I ignored the points qualification and just looked for 90% up volume days.

(click to enlarge)


Both 1 and 8 days later all of the instances saw the S&P trading lower. Interestingly, while the test went back to 1970, 6 of the 8 instances found have occurred in the last 2 years. Prior to that it was unusual for a 90% day to occur directly following a low.

Extremely weak breadth and a possible gap lower...

The IBD Follow Through Day study seems to be generating a lot of interest, and I promise I will get back to it shortly. The market looks to be setting up for some interesting trading tomorrow morning, though – so I thought I’d focus on more pressing issues.

NYSE down volume swamped up volume by over 9:1 today. That kind of breadth is somewhat unusual and can be a sign of panic. Lowry’s was the first group I’m aware of to do extensive study on “90% days” and they have some excellent material on them.

Intel disappointed after the close and has added fuel to the fire.. As I write this around midnight Dow futures are down 100 points, S&P 500 futures are down 12 points and Nasdaq futures are down a whopping 32 points. Asian markets are also taking it on the chin.

Let’s take a look at history to see how the next few days may be setting up. Going back to 1970, there were one hundred and thrity-two 90% downside days identified by my database. When viewing 90% down days in isolation, this is how the next week looked:

As you can see - by itself a 90% down volume day is not a clear sign of a washout. There is more downside to come more often than not.

The next table looks back to early 1993 – the inception of the SPY. Since then there have been thirty-six 90% down volume days on the NYSE. Of those 36, only 5 times has the SPY gapped lower the next morning by more than 0.25%. With a gap lower looking likely, I thought it might be worth taking a look at those occurrences:




The 90% downside day on its own won’t necessarily wash out the market, but when combined with gap down open it typically has served to mark at least a short-term panic low. Although the sample size for this study is smaller than I typically like, should the gap down occur, the consistent and sizable gains in the study above indicate that traders should be aware of a potentially large intraday reversal.

Rob Hanna