Monday, September 22, 2014

What Can Help You Identify Downside Trend Days in the Stock Market?

I quickly threw this chart up to show the price action in SPY and the percentage of NYSE stocks trading above their day's VWAP thus far today.  There are several clues to downside trend days; here are the ones I most focus on at present:

*  Lopsided advance-decline ratios on the day; many more stocks declining on the day than advancing.  This suggests the weakness is broad.  Note also it implies that correlations are rising among stock sectors.

*  Persistent low percentage of stocks trading above their day's volume-weighted average price (VWAP), per the chart above.

*  Many more stocks making fresh lows for the day session than highs throughout the session, suggesting that weakness is persisting.

*  Cumulative NYSE TICK negative on the day and trending lower, with relatively few TICK readings above +500 and numerous readings below -800.  

*  Weakness across stock sectors, generally with "beta" sectors weaker than defensive ones.

All you can do is put the odds in your favor.  When you see unusual weakness or strength early in the session, it is generally worth considering the possibility of a trend day.

Further Reading:  Keys to an Upside Trend Day