Stock Trading Dominated by Bears as S&P 500 Nears August Low

  • Volume for down days is 27 percent higher than up days
  • Two industry groups are within 1 percent from breaching lows

Bears are winning out when it comes to daily U.S. stock trading.

Volume on days when the Standard & Poor’s 500 Index falls has been 27 percent heavier than the up days this month. That’s about eight times the average gap in the past decade, data compiled by Bloomberg and Bespoke Investment Group LLC show.

The volume disparity highlights the risk of more losses for investors who have been whipsawed in a market where stocks have alternated between gains and losses for 10 weeks. The S&P 500 has slipped back to within 3.5 percent of its August bottom, with a third of its constituents already breaking below those lows.

“The next few weeks are going to be very dicey for the market,” Peter Tuz, who helps manage more than $400 million as president of Chase Investment Counsel Corp. in Charlottesville, Virginia, said by phone. “I’d be happy if  markets test those lows and rebound again. I’d be more worried if we went through those lows and had to look for new levels of support.”

Heightened Volatility

The S&P 500 rose 0.7 percent at 10:04 a.m. in New York, with trading staying 8 percent below the 30-day average at this time of the day. The Chicago Board Options Exchange Volatility Index fell 6.2 percent 22. The gauge is poised to close above 20 for 25 days, the longest stretch above that level since January 2012 amid increased anxiety over China’s growth and the Federal Reserve’s interest rate policy.

“There are a lot of uncertainties that have been mounting -- How bad is China? What is the Fed’s game plan? What happens to global growth if China fails to grow for the next 5 years, or devalues further,” said Brian Barish, who helps oversee about $12.5 billion at Denver-based Cambiar Investors LLC. “Some of these are unanswerable but have become top of mind.”

The S&P 500 has been stuck in an 85-point range since reaching a 10-month nadir on Aug. 25, rallying 6.8 percent from that low before the Fed’s decision last week to delay an increase in interest rates ignited a new round of selling.

Bears Rule

Looking by trading, bears seem to be in control, at least for now. Volume among S&P 500 stocks on the down days has averaged 795 million shares this month, compared with 625 million shares on the up days, data compiled by Bloomberg show. The 27 percent gap compares with 3.4 percent in the past decade.

“We’re seeing down volume overwhelming up volume,” Katie Stockton, chief market strategist at BTIG LLC in New York, said by phone. “It’s one more check in favor of a retest of August’s lows.”

Volume on the S&P 500 has exceed 1 billion shares on four down days in the past two months, with trading hitting a three-year high of 1.9 billion shares on Sept. 18. By contrast, volume of that size has occurred just once on up days, on Aug. 26.

Stocks have fallen on five of the past six days, amid confusion over the Fed’s interest rate policy, fallout from the Volkswagen AG scandal and data showing a drop in Chinese manufacturing.

The S&P 500 Materials Index Wednesday broke through the August low. At yesterday’s close, the indexes tracking financial and phone stocks were about 1 percent away from last month’s lows.

Limited Downside

Any retreat will be likely be limited as stocks have become cheaper and the U.S. economy is improving, according to Aaron Clark, a portfolio manager at GW&K Investment Management in Boston, which oversees about $25 billion. At its worst point last month, the S&P 500 traded at 16.5 times earnings, down 12 percent from its July peak.

“You’re getting people piling on and selling on the downtrend,” said Clark. “That could get reversed pretty quickly. Given where valuations and fundamentals are, you’re more likely to be close to the bottom than another big leg down.”

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