Mark Hulbert had an interesting article on Marketwatch after last Wednesday’s (March 21) close: “Nine to one: A rare and bullish technical event occurred Wednesday”.
Over 90% of the volume of all NYSE-listed stocks was up last Wednesday – the day the Fed changed it’s statement from “firming” to “adjustments”. According to Martin Zweig, such a huge imbalance in up over down volume “is a significant sign of positive momentum….. When the daily up volume leads down volume by a ratio of 9 to 1, that tends to be an important signal for stocks. Every bull market in history, and many good intermediate advances, have been launched with a buying stampede that included one or more 9 to 1 up days” (Martin Zweig, Winning on Wall Street (1986)).
In fact, one of the most recent 9 to 1 up days was on June 29, 2006 – right before the current phenomenal stock market run.
However, 9 to 1 up days can be a false signal as well. March 16, 2000, right around the peak of the tech bubble, was one such.
Because of this, two closely situated 9 to 1 up days, “double 9 to 1 signals”, are the better thing to focus on, according to Zweig. And, in fact, last Wednesday’s 9 to 1 up day was the second 9 to 1 up day in recent weeks: there was another one on Tuesday March 6.
Unfortunately, intervening between the “double 9 to 1 signal” was a 9 to 1 down day on Tuesday March 13 (a little less than 2 weeks ago).
What to make of all this? I think the only safe conclusion that can be drawn from this is that the market is schizophrenic right now!!! Because of this, moves both up and down are likely to be accentuated i.e. volatility will remain high. I don’t see any reason to speculate in such an environment.