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September 26, 2009

Technical Market Report
by Mike Burk

The good news is:
• There was no build up of new lows in last weeks sell off.

Short Term

Most of the major indices sold off about 2.5% in the last 3 days of last week. There was nothing to suggest this was anything more than a routine pull back in a bull market.

Most of the charts I looked at were un remarkable, the one shown below was the exception.

The chart covers the past 140 trading days (from the March low) showing the S&P 500 (SPX) in red and momentum of NYSE downside volume (NY DV MoM) in olive drab. NY DV MoM has been plotted on an inverted Y axis so decreasing downside volume moves the indicator upward (up is good). Dashed vertical lines have been drawn on the 1st trading day of each month.

Unlike every other indicator I looked at NY DV MoM is at its lowest point since the March lows. By this measure the market is oversold.

Intermediate term

In spite of 3 consecutive down days, new lows remained in single digits on both the NYSE and NASDAQ.

The chart below shows the NASDAQ composite (OTC) in blue and a 40% trend (4 day EMA) of the ratio of NASDAQ new highs to new highs + new lows (OTC NH /(OTC NH + NL)). Dashed horizontal lines have been drawn at 10% levels of the indicator; the line is solid at the neutral 50% level. This indicator remains near historic highs and nothing bad is likely to happen as long as it remains above the 50% level.

The chart below shows the SPX in red and the indicator calculated from NYSE data in blue. This indicator is also near historic highs.

Seasonality

Next week includes the last 3 trading days of September and the 1st 2 trading days of October during the 1st year of the Presidential Cycle.

The tables show the daily return on a percentage basis for the last 3 trading days of September and the 1st 2 trading days of October during the 1st year of the Presidential Cycle. OTC data covers the period from 1963 - 2008 and SPX data from 1928 - 2008. There are summaries for both the 1st year of the Presidential Cycle and all years combined.

The average returns over all periods for the OTC have been modestly negative, average returns by all other measures have been modestly positive.

Report for the last 3 days of September and first 2 days of October.
The number following the year represents its position in the presidential cycle.
The number following the daily return represents the day of the week;
1 = Monday, 2 = Tuesday etc.

OTC Presidential Year 1
	Day3	Day2	Day1	Day1	Day2	Totals
1965-1	0.19% 2	0.07% 3	-0.88% 4	-0.06% 5	-0.17% 1	-0.84%

1969-1	-0.27% 5	-0.36% 1	-0.39% 2	0.42% 3	-0.61% 4	-1.22%
1973-1	0.75% 3	0.59% 4	-0.06% 5	-0.21% 1	0.71% 2	1.78%
1977-1	0.22% 3	0.31% 4	0.58% 5	0.31% 1	-0.35% 2	1.07%
1981-1	-0.05% 1	1.99% 2	0.85% 3	0.59% 4	1.81% 5	5.19%
1985-1	-0.81% 3	-0.57% 4	0.05% 1	0.51% 2	-0.22% 3	-1.04%
Avg	-0.03%	0.39%	0.20%	0.32%	0.27%	1.15%

1989-1	-0.01% 3	0.72% 4	0.38% 5	0.48% 1	0.44% 2	2.00%
1993-1	0.49% 2	-0.06% 3	-0.05% 4	0.06% 5	0.21% 1	0.64%
1997-1	0.20% 5	0.70% 1	-0.48% 2	0.27% 3	0.72% 4	1.40%
2001-1	-2.50% 3	-0.23% 4	2.61% 5	-1.22% 1	0.80% 2	-0.55%
2005-1	-0.05% 3	1.22% 4	0.49% 5	0.17% 1	-0.75% 2	1.09%
Avg	-0.38%	0.47%	0.59%	-0.05%	0.28%	0.92%

OTC summary for Presidential Year 1 1965 - 2005
Averages	-0.17%	0.40%	0.28%	0.12%	0.24%	0.86%
% Winners	45%	64%	55%	73%	55%	64%
MDD 9/27/2001 2.73% -- 9/26/1985 1.38% -- 10/2/1969 1.22%

OTC summary for all years 1963 - 2008
Averages	-0.19%	-0.17%	-0.01%	0.03%	-0.11%	-0.44%
% Winners	46%	49%	50%	53%	57%	52%
MDD 10/2/2008 9.60% -- 10/3/2000 8.54% -- 10/1/1998 7.53%

SPX Presidential Year 1
	Day3	Day2	Day1	Day1	Day2	Totals
1929-1	-2.76% 5	0.56% 6	-0.92% 1	-0.60% 2	0.73% 3	-2.98%
1933-1	1.45% 4	-0.72% 5	1.13% 6	-2.14% 1	0.52% 2	0.25%
1937-1	0.66% 2	0.51% 3	-0.22% 4	-0.29% 5	0.29% 6	0.95%
1941-1	0.40% 6	0.00% 1	0.69% 2	-0.29% 3	-0.29% 4	0.50%
1945-1	-0.38% 4	1.20% 5	0.69% 6	1.05% 1	0.00% 2	2.56%
Avg	-0.13%	0.31%	0.27%	-0.45%	0.25%	0.26%

1949-1	0.78% 3	0.58% 4	-0.26% 5	-0.39% 6	0.52% 1	1.23%
1953-1	0.64% 1	0.17% 2	-0.60% 3	0.60% 4	0.43% 5	1.24%
1957-1	0.26% 4	-0.05% 5	-0.31% 1	0.80% 2	0.80% 3	1.50%
1961-1	1.05% 3	0.17% 4	0.23% 5	0.06% 1	-0.06% 2	1.44%
1965-1	-0.24% 2	-0.45% 3	-0.07% 4	-0.07% 5	0.20% 1	-0.63%
Avg	0.50%	0.08%	-0.20%	0.20%	0.38%	0.96%

1969-1	-0.64% 5	-0.80% 1	-0.31% 2	-0.64% 3	0.78% 4	-1.62%
1973-1	0.72% 3	0.23% 4	-0.60% 5	-0.20% 1	0.54% 2	0.69%
1977-1	0.07% 3	0.57% 4	0.71% 5	0.22% 1	-0.73% 2	0.83%
1981-1	2.45% 1	0.35% 2	0.21% 3	0.77% 4	1.95% 5	5.73%
1985-1	-1.07% 3	0.35% 4	0.44% 1	1.64% 2	-0.55% 3	0.81%
Avg	0.31%	0.14%	0.09%	0.36%	0.40%	1.29%

1989-1	0.22% 3	1.01% 4	0.16% 5	0.49% 1	1.09% 2	2.98%
1993-1	-0.06% 2	-0.31% 3	-0.26% 4	0.51% 5	0.01% 1	-0.10%
1997-1	0.78% 5	0.86% 1	-0.64% 2	0.86% 3	0.53% 4	2.39%
2001-1	-0.52% 3	1.15% 4	2.19% 5	-0.23% 1	1.23% 2	3.83%
2005-1	0.10% 3	0.89% 4	0.09% 5	-0.17% 1	-1.00% 2	-0.09%
Avg	0.11%	0.72%	0.31%	0.29%	0.37%	1.80%

SPX summary for Presidential Year 1 1929 - 2005
Averages	0.20%	0.31%	0.12%	0.10%	0.35%	1.08%
% Winners	65%	70%	50%	50%	70%	75%
MDD 10/1/1929 3.69% -- 10/1/1969 2.37% -- 10/2/1933 2.14%

SPX summary for all years 1928 - 2008
Averages	0.09%	-0.24%	0.01%	0.12%	0.15%	0.13%
% Winners	57%	53%	48%	49%	67%	54%
MDD 10/1/1931 11.18% -- 9/29/2008 8.79% -- 10/2/1974 6.20%

October

Over all years since 1963, the OTC, in October, has been up 58% of the time with an average gain of 0.6% making it, on average the 5th strongest month of the year. During the 1st year of the Presidential Cycle the OTC has been up 55% of the time with an average loss of 2.4% (helped considerably by an 11.2% gain in 1969 and a 14.2% gain in 2001) making it second to April as the best month of the year based on average return.

The chart below shows the OTC average October over all years in blue and the average during the 1st year of the Presidential Cycle in green.

On average there are 21 trading days in a month. The chart has been calculated by averaging the daily gain of each of the 1st 11 trading days and the last 10. When there have been more than 21 trading days in the month some of the days in the middle were omitted. When there have been more than 21 trading days in the month some of the days in the middle have been counted twice. Dashed vertical lines have been drawn on the 1st trading day of the month and at 5 trading day intervals after that. A solid vertical line has been drawn on the 11th trading day, the dividing point.

Over all years since 1928, the SPX, in October, has been up 59% of the time with an average gain of 0.1%, making it the 9th strongest month of the year.

During the 1st year of the Presidential Cycle the SPX has been up 55% of the time with an average loss of 1.5% making it the 3rd. worst month of year in the 1st year of the Presidential Cycle behind September and February. Losses of 12.5% in 1933 and 11.9% in 1937 contributed significantly to the negative average.

The chart below is similar to the one above except it shows the average performance for the SPX in October. The average for all years is shown in red and the average for the 1st year of the Presidential Cycle is shown in green.

Money supply (M2)

The money supply chart was provided by Gordon Harms. Money supply growth picked up a little, but remains weak.

Conclusion

After 3 consecutive down days the market is a little oversold and seasonally the coming week has been modestly strong. There is still no sign of a developing top.

I expect the major indices to be higher on Friday October 2 than they were on Friday September 25.

This report is free to anyone who wants it, so please tell your friends. They can sign up at: http://alphaim.net/signup.html. If it is not for you, reply with REMOVE in the subject line.

Thank you,

Mike Burk

Mike Burk is an employee and principal of Alpha Investment Management (Alpha) a registered investment advisor. Charts and figures presented herein are believed to be reliable but we cannot attest to their accuracy. Recent (last 10-15 yrs.) data has been supplied by CSI (csidata.com), FastTrack (fasttrack.net), Quotes Plus (qp2.com) and the Wall Street Journal (wsj.com). Historical data is from Barron's and ISI price books. The views expressed are provided for information purposes only and should not be construed in any way as investment advice. Furthermore, the opinions expressed may change without notice.