The big bounce day on Dec. 26, 2018 saw NYSE Up Volume of more than 10x the amount of Down Volume, distinguishing it as a “10-1 Up Volume Day”. These are pretty special days, because they do not come along very often. They are also special because the interpretation of what one of them means depends on the context in which it appears.
Generally speaking, a 10-1 Up Volume Day which appears in the middle of an up move can mark a blowoff end for that up move. But a 10-1 Day which appears right after a serious decline usually marks strong upward initiation, and a reversal of that decline. This latest instance fits into that latter condition.
I should note that for the purposes of this study, I am defining these 10-1 days as being days on which NYSE Up Volume was more than 10 times the amount of Down Volume, using numbers as published by the Wall Street Journal. Others have looked at this phenomenon using slightly different definitions. Most notably, the late Paul Desmond of Lowry’s defined it as UVOL > 90% x (UVOL + DVOL), and wrote about that in the 2002 Charles Dow Award paper, “Identifying Bear Market Bottoms and New Bull Markets”. In his1986 book Winning On Wall Street, the late Martin Zweig evaluated 9-1 Up Volume days. It is the same idea.
Because there are not a lot of examples to go by in the chart above, I am including a couple of earlier example periods with many more instances of these signals for us to learn from. Here is 2009-2010:
Notice that there were a couple of 10-1 Up Volume Days just ahead of the final bear market bottom in March 2009, and even though they appeared in the middle of a protracted downtrend, they did not mark initiation of the new uptrend. As such they help to reinforce the lesson passed down from Martin Zweig, that there is nothing as bullish as a failed bearish signal, and vice versa.
After the March 9, 2009 bottom, there were several of these 10-1 Up Volume Days which did signal the kickoff of a new uptrend. And the fact that they clustered together like that was an even bigger bullish message. More on that point in a moment.
Here is a chart showing late 2009 into 2010:
Here again, most of the 10-1 Up Volume Day signals marked strong initiation of a new up move. But the ones which occurred after prices were already bouncing upward tended to mark the blowoff end points to countertrend rallies. So it matters in what context one of these signals appears.
I alluded above to the power of those instances where we have seen a clustering of these signals, and so to help see that point the final chart looks at a 1-year trailing total of these signals:
Decades ago, it was extremely rare to see any of these signals. Things changed in a big way starting in 2007, when the SEC eliminated the “uptick rule” for initiating a short sale of stock. And the change was further magnified starting in 2009 with the 3 waves of the Fed’s Quantitative Easing (QE), plus Operation Twist, each of which produced its own distinctive surge in the numbers of these 10-1 signals.
The point to take from this examination is that a 10-1 Up Volume Day occurs when a whole bunch of money is trying to get through the gate to get into the carnival. A single signal can be a sign of a blowoff, especially if it comes later in an up move versus on the first up day. Seeing a whole bunch of signals appearing in close proximity says that this money rushing into the carnival has more money crowding in behind it, and that usually leads to a sustained uptrend.
So this latest lone 10-1 signal is likely bullish news, appearing after an oversold bottom. It will become even more bullish if we see additional 10-1 Up Volume Signals in the weeks ahead.
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