Add the NASDAQ’s Up & Down Volume, VXN to the List
Pick any index you want…. the Dow, S&P 500, or the NASDAQ - the story isn’t too different any way you go. While Monday’s bounce was encouraging, Thursday’s pullback and Friday’s harsh downside follow-through suggests the bulls are not ready to muster a permanent rebound yet.
The composite gained 3.58% for the week - the bulk of it on Monday. It lost 3.2% between Wednesday’s close and Friday’s close. That pullback came (1) after some support was found at the lower 50-day Bollinger band (red) and an intermediate-term support line (black), but (2) after resistance was hit at the 50-day moving average line at 2420 (purple). This ‘zone’ may prove to be pretty tough to break out of, for better or worse.
There is something different this time though, for the worse….. the CBOE NASDAQ Volatility Index, or VXN. Like its S&P 500 counterpart, the NASDAQ’s Volatility Index is indeed trending upward now, as evidenced by its push above the upper 50-day Bollinger band (red). It’s the first time we’ve not see that upper band line push the VXN lower again in months. With that as the backdrop, the NASDAQ seems particularly vulnerable to a break under support around 2250.
NASDAQ Composite
That said, there’s a new chart we want to unveil this week that not only shows the markets true undertow, but suggests why the market - the NASDAQ in this example - is still more vulnerable than usual to a pullback at this point.
While ‘trend followers’ tend to watch the day to day changes of the market to spot momentum (or lack thereof), the longevity of that trend is actually better spotted by looking at the underlying volume, and whether it’s in a bullish trend or bearish trend. Right now, the NASDAQ’s up/down volume trend is bearish.
On the chart below, we’ve actually plotted moving averages of the NASDAQ’s daily up volume (green) and the daily down volume (red). Over the last few weeks - and this includes last week - the NASDAQ has been averaging 1.2 billion in ‘up volume per day, versus 1.5 billion in ‘down’ volume. And, the divergence is getting wider. Until we see this volume trend change, we can’t really trust any directional change in the NASDAQ Composite itself.
NASDAQ Composite Up/Down Volume Trend
NASDAQ Up/Down Volume Average
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