On this day, the New York Stock Exchange Composite Index (NYA) closed with a new corrective low at 9601.42, surpassed the closing low of 9692.39 made on August 25, 2015. One might ask, “What’s the big deal about that?” To the casual observer, it doesn’t look like a big deal. But to an avid market watcher, there are important information beneath the surface that might give us clues on where the market might be headed in the near term.
First, let's go back and look at what happened on August 24, 2015. Below is the market diary from wsj.com for that day. Notice the number of new lows, 1336, and the number of issues traded, 3277. There were 3092 declining issues and only 161 advancing issues out of 3277 issues traded, more than 94% of the traded issues were down on this day, and 40% of the traded issues made new 52 week low. In addition, the declining volume outnumbered the advancing volume by a ratio of 33 to 1 with total traded volume of 6.55 billion shares.
(click on the chart to enlarge)
Let’s move on to the next day, August 25, 2015, the day NYA closed at a new corrective low at 9692.39 below August 24 close. The total number of traded issues for this day was 3275 with 1412 advancing issues and 1776 declining issues, 54% traded issues were down on this day. The number of new low was 252, less than 8% of the traded issues made new 52 week low. The declining volume outnumbered the advancing volume by a ratio of 3.4 to 1, and the total traded volume was 5.14 billion shares.
Looking at the market breadth between August 24 and August 25, it appears there was some form of capitulation occurred on the 24th. Be reminded, although the NYA intraday low on August 24 is lower than August 25, it closed with a lower close on August 25 than the close on August 24.
Now let’s move ahead to September 28, 2015. On this day, the NYA closed at 9601.42, a new corrective closing low. On the breadth, there were 2863 declining issues and 334 advancing issues with total number of issues traded at 3256. On an absolute number basis, there was less number of declining issues on this day than on August 24, and on a percentage basis, almost 88% of the traded issues were down on this day versus 94% on August 24. Similarly, there were 493 issues made new 52 week low while there were 1336 on August 24. This represents a 15% of traded issues made new low on September 28 versus 40% on August 24. Finally, the declining volume was outnumbered the advancing volume with a ratio of 18 to 1 while it was 33 to 1 on August 24, and the total traded volume was 4.28 billion shares on September 28.
Here is a chart showing the net new-high/new-low vs. NYA:
And notice the divergence on September 28, 2015 as NYA closed with a lower low:
And finally, comparing to similar historical patterns, here is a chart showing a possibility of a rally in November if history repeats itself:
Here is the take away. NYA, an index that represent the entire New York Stock Exchange, unlike the SP500 with 500 elite stocks and the DJI with 30 blue chip stocks, closed with a new corrective low with improved market breadth. As this index made a new low with fewer stocks making new 52 week low, this implies many of those stocks that made new low on August 24 have been bid back above their low and the selling pressure on September 28 was unable to take these stocks down to new low. Furthermore, the downside volume also contracted, indicating extreme selling pressure might have passed, and those that must sell have sold. Now, does it mean the market is heading back up to new high? It might, and it might not. But what this is saying is continue to watch for recovery from recent low until another catalyst come along to slam this market down below the September 28, 2015 closing low with market breadth more negative than those recorded on August 24, 2015. If the breadth continues to be above the August 24 extreme level as the indices such as the SP500 and the DJI 30 closed below the August 2015 low or below October 2014 closing low, get ready for the market to reverse back up to possible new high! The only wild card to deter this possibility is for the DJT to make a new low below the August 2015 low.
