A 90% upside volume day occurs when 90% of the NYSE volume occurs in stocks which finished positive on the day, while a 90% downside day means 90% or more of the NYSE volume occurred in stocks that were down. According to technical analysts, an occurrence of either event is considered to signify extreme sentiment on the part of investors i.e., "Get me out of the market at any cost." or "Get me into the market at any cost." So it makes sense that if one of these occurs on one day, the opposite is unlikely to occur the next, right?
On Monday, when the S&P 500 fell 0.94%, downside volume on the NYSE was 91.5% of total volume, implying panic selling on the part of investors. Yesterday, after the S&P 500's 1.55% rise, upside volume was 93.8% of total volume! Yes that's right, on Monday we had panic selling and then Tuesday we had panic buying. Talk about indecisiveness.
We looked back as far as 1970 to see what happens after prior periods where we had such a dramatic shift in sentiment (90% downside day followed by a 90% upside day) to see what happens going forward. To our surprise, this was the first such occurrence in over 37 years! Digging a little deeper however, we found a paper (pg 14) (pdf doc) which shows that in 1967, the NYSE actually did have a 90% downside day (6/5) followed by a 90% upside day (6/6). The chart below shows the S&P 500 before and after that occurrence in 1967. Following that period, the market never looked back.
click to enlarge