As noted in the recent tweet, we had a strong downside momentum day on Monday, with Demand closing at 15 and Supply at 214. The general pattern following such downside momentum days is a bounce one day later followed by subsequent weakness, although this pattern is affected by larger-term market regimes.

Given the significant expansion in the number of stocks registering fresh 20-day lows, I went back to October, 2002 (when I first began archiving the 20-day high/low data) and examined what happens in the S&P 500 Index (SPY) after 20-day new lows make a 20-day new high. The next day, SPY averages a gain of .18% (91 occasions up, 59 down), versus no change for the rest of the sample (818 up, 712 down). Five days after a surge in 20-day lows, SPY averages a gain of .47% (88 up, 62 down), versus .02% for the remainder of the sample (836 up, 694 down).

It’s thus not unusual to get a bounce following significant market weakness. I will be watching to see how we trade relative to yesterday’s pivot level, as well as the usual sentiment gauges of NYSE TICK and volume transacted at bid/offer, to gauge the likelihood of sustaining a bounce on the day today. Alternatively, inability to sustain buying sentiment below the pivot would sustain the downtrend.

10:17 AM CT – I added the above chart of the NYSE TICK with a green 20-minute moving average to show how sentiment has weakened during the trading day, with more stocks transacting on downticks than upticks. Noticing that shift was key to anticipating the move below the overnight low. Should we continue with bearish sentiment, the next target would be S1. The fact that it’s taken us a while to even approach S1 suggests to me, however, that we could see more of a range environment, trading back into the overnight range, in advance of the Fed announcement and Wednesday’s numbers. I’m watching TICK closely to handicap that scenario (but not become wedded to it!)

Tuesday made it two days down in a row, as the S&P 500 Index (SPY) registered yet another 10-day low.

Since 1989, there have been 478 occasions in which we’ve had two days down in a row, culminating in a 10-day low. There is a bullish bias from one to five days out: a tendency to bounce following weakness. For example, the next day in SPY averages a gain of .20% (293 up, 185 down) vs. a gain of .01% for the remainder of the sample (2399 up, 2275 down). Five days out, SPY averages a gain of .62% (295 up, 183 down) vs. an average gain for the rest of the sample of .10% (2567 up, 2107 down).

It’s easy to get bearish after breaking out of a multiday range to the downside. Historical investigations are helpful checks on our biases, encouraging us to examine all possibilities, rather than get locked into easy assumptions.
.

Call me crazy, but lately I have been pondering the sudden disappearance of Nouriel Roubini from the media scene. You could probably add the likes of Meredith Whitney and others to the list of media sensations who rose to fame as a result of successful predictions about the financial crisis and have now been displaced by a different set of pundits who are talking about subjects like green shoots, TARP repayment, and the coming upturn in jobs and housing.

While Roubini’s media star may be setting, the man himself is not slowing down – nor is he backing away from his bearish leaning. Today Roubini is out with Latvia’s Currency Crisis Is a Rerun of Argentina’s and earlier in the week the issue was Green Shoots or Yellow Weeds?

So as I watch the S&P 500 index move above 950, I am thinking about complacency and the possibility of a ‘rebound bubble’ of sorts.

I checked with Google Trends to see what has happened to interest in Roubini and I was not surprised at all to see a chart that resembled that of the VIX. In fact, when I combined the Roubini Google Trends results with the VIX in the graphic below, I was interested to see that interest in Roubini seemed to be a leading indicator of sorts with respect to volatility.

Of course volatility looks as if it may have a stake driven through its heart today, but I am very skeptical that the VIX will be able to drop much below the current 27 level for at least the remainder of the month.

[graphic: VIXandMore]

Disclosure: Long VIX at time of writing.