Friday, November 6, 2009

Extreme Nasdaq Breadth Suggests Higher Prices

While most everything did well on Thursday, much of the excitement was directed towards smallcaps and Nasdaq stocks. Below is a little study that shows how the market has performed in the past following such buying interest in the Nasdaq while the S&P 500 was in a long-term uptrend.

Instances are lower than I’d typically like to see, but with all 7 closing higher in the next day or 2, this study appears worth noting. Extremely strong volume breadth going into riskier Nasdaq stocks has often led to some follow through when the market is in a long-term uptrend.
Of course the jobs report may have a little something to say about today's action as well...


Toptick said...

Hi Rob: I'm surprised you find only 7 instances. With TradeStation data, whether I use $UVOLQ/$DVOLQ or $UVOLND/$DVOLND, I see NASDAQ up volume as a percentage of total goes over 90% (and under 10%) several times per month.

What am I missing here?


Al said...

I'm not an expert on this - just a simple quesion.

Does 5 out of 7 instances in the past necessarily translate into a 5/7 chance the next time it occurs? All the analyses seem to run along such lines.

Clearly there is a world of difference between cause and effect and simple random outcomes that appear to exhibit high probabilities but in fact are as you would expect on a bell curve distribution.