Tuesday's trading session marked the first time in a while where NYSE internals were >2:1 to the downside for the second consecutive session. On Monday, NYSE declining issues outnumbered advancing issues almost 6:1 with down volume outpacing up volume 15:1. Internals on Tuesday were 2.5:1 and 4.3:1 to the bad, respectively. Typically, consecutive sessions such as the last 2 herald the beginning of a selling stampede.
By my definition, a selling stampede requires two consecutive sessions where NYSE internals are >2:1 to the downside to signal the start followed by many more days of >2:1 negative internals over a relatively short timeframe and a pullback of >5% in the S&P500. Between July 2007 and March 2009 I have been able to count 10 such completed short-term market conditions that met my definition of a selling stampede. Normally, selling stampedes occur once every 3 to 9 months. In downtrends they happen much more frequently as can be seen by the average of 1 selling stampede every 2 months during the most recent downtrend. These 10 selling stampedes lasted an average of 22 trading sessions and knocked an average of almost 16% off the S&P500 before exhausting themselves to the downside.
If this is indeed the start of a selling stampede and said stampede runs true to its averages, we should expect to see this pullback end sometime around the middle of July with the S&P clinging to an 8-handle. Given that the last S&P pullback low reached a nadir of 787 on a closing basis on March 30th, the thesis of an uptrend (higher rally highs and higher pullback lows) would still be intact and it would remain to be seen if the S&P could surpass the June 12th closing high of 946 to keep the uptrend thesis viable.
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