The SPDR S&P 500 ETF (SPY) was down over 3% on Wednesday. The sell-off was powered by a 200% increase in the 50 day moving average of volume.
The last time the fund saw that level of downside volume was on a Monday, in February this year. That particular day was followed by a rebound of similar range and volume. By the end of the week a bottom had be made.
Take a look at the highlighted section on the chart at the beginning of the year. The fund had been fading since late January but accelerated lower in February.
On Monday, February 5th, the SPY dropped $11.37. Volume that day was greater than 200% of the 50 day moving average of volume. The next day it rebounded and was up $5.14 on strong volume. Two follow-up down days and Friday’s rebound marked a short term low.
It may be that the past repeats and by Friday things are looking more positive. The SPY could be higher into the end of the month. Most traders would take that outcome at this point in time.
But even if that turns out to be the case, it is still going to be a tough climb back up to the highs of the year. There was a sense of fear in market on Wednesday, particularly going into the close. In the future traders will be more likely to sell into rallies, rather than buy into dips.