Technical Market Report

By: Mike Burk | Sat, Aug 2, 2008
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The good news is:
• The market has been working off its overbought condition about as well as could be hoped for.

Short Term

In 7 trading days following the mid-July lows most of the major indices jumped 5%-6% leaving the market overbought. Since then, it has been working off the overbought condition about as well as could be hoped; new lows declined quickly and the secondaries have been outperforming the blue chips.

The chart below covers the past 3 weeks showing, in order of quality, the Dow Jones Industrial Average (DJIA) in green, the S&P 500 (SPX) in red, The S&P mid cap (MID) in black, the NASDAQ composite (OTC) in blue and the Russell 2000 (R2K) in magenta. The indices have been plotted on log scales so you can see their relative performance. Dashed vertical lines have been drawn on the 1st trading day of each week.

The R2K has been the strongest, followed by the OTC and then MID, SPX and the DJIA at the bottom. It would be nice to see MID a little stronger, but aside from that, this is about as good as it gets.

Intermediate Term

Summation indexes (SI) are a running total of oscillator values, i.e. when the oscillator is above 0 the SI rises and when it is below 0 the SI falls.

The chart below covers this year showing the OTC in blue and SI's calculated from NASDAQ advancing - declining issues in green, new highs - new lows in black and upside - downside volume in red. Dashed vertical lines have been drawn on the 1st trading day of each month.

All of the NASDAQ SI's have been moving sharply upward since the July lows.

The next chart is similar to the one above except the index is the SPX in red and the SI's have been calculated from NYSE data.

Seasonality

Next week is the week prior to the 2nd Friday in August during the 4th year of the Presidential Cycle.

The tables show the daily return on a percentage basis for the 5 trading days prior to the 2nd Friday in August during the 4th year of the Presidential Cycle. NASDAQ composite (OTC) data covers the period from 1963 - 2007 and SPX data from 1953 - 2007. Prior to 1953 the market traded 6 days a week so that data has been ignored. There are summaries for both the 4th year of the Presidential Cycle and all years combined.

By all measures the coming week has had modest gains with the 4th year of the Presidential Cycle slightly stronger than the overall averages.

Report for the week before the 2nd Friday of Aug
The number following the year is the position in the presidential cycle.
Daily returns from Monday to 2nd Friday.

OTC Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1964-4 0.10% 0.17% 0.72% 0.47% 0.12% 1.58%
 
1968-4 -0.97% 0.40% 0.00% 0.42% -0.08% -0.23%
1972-4 0.02% -0.27% 0.11% 0.07% 0.64% 0.57%
1976-4 -0.34% 0.61% -0.09% 0.09% -0.09% 0.19%
1980-4 -0.35% 0.37% 0.54% 1.03% 0.37% 1.95%
1984-4 1.23% -0.07% -0.43% 0.93% 0.84% 2.50%
Avg -0.08% 0.21% 0.03% 0.51% 0.34% 1.00%
 
1988-4 -0.01% -0.88% -1.49% 0.16% -0.04% -2.27%
1992-4 -0.10% -0.27% -0.13% 0.02% 0.38% -0.10%
1996-4 -0.39% 0.75% 1.08% -0.32% -0.02% 1.11%
2000-4 2.00% -0.37% 0.13% -2.43% 0.78% 0.11%
2004-4 -0.13% 1.92% -1.45% -1.68% 0.27% -1.07%
Avg 0.27% 0.23% -0.37% -0.85% 0.28% -0.44%
 
OTC summary for Presidential Year 4 1964 - 2004
Avg 0.10% 0.21% -0.10% -0.11% 0.29% 0.39%
Win% 36% 55% 50% 73% 64% 64%
 
OTC summary for all years 1963 - 2007
Avg -0.24% 0.07% 0.25% 0.00% 0.00% 0.08%
Win% 42% 56% 64% 64% 47% 60%
 
SPX Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1956-4 -1.57% 0.61% 0.41% -0.08% -0.47% -1.10%
1960-4 0.14% 0.58% 0.41% 0.37% 0.68% 2.18%
1964-4 -0.10% -0.02% 0.50% 0.29% -0.07% 0.60%
 
1968-4 0.23% 0.41% 0.00% -0.22% -0.03% 0.39%
1972-4 0.16% 0.07% 0.15% 0.17% 0.81% 1.37%
1976-4 -0.29% 0.89% -0.34% 0.15% 0.03% 0.45%
1980-4 -0.19% -0.20% 0.67% 1.44% 0.25% 1.97%
1984-4 0.15% 0.07% -0.59% 2.34% -0.07% 1.90%
Avg 0.01% 0.25% -0.03% 0.78% 0.20% 1.22%
 
1988-4 -0.43% -1.29% -1.72% 0.32% -0.08% -3.20%
1992-4 0.13% -0.12% -0.27% -0.01% 0.52% 0.25%
1996-4 -0.34% 0.33% 0.27% -0.24% -0.07% -0.06%
2000-4 1.12% 0.24% -0.67% -0.86% 0.79% 0.62%
2004-4 0.12% 1.30% -0.30% -1.17% 0.15% 0.09%
Avg 0.12% 0.09% -0.54% -0.39% 0.26% -0.46%
 
SPX summary for Presidential Year 4 1956 - 2004
Avg -0.07% 0.22% -0.12% 0.19% 0.19% 0.42%
Win% 54% 69% 50% 54% 54% 77%
 
SPX summary for all years 1953 - 2007
Avg -0.23% 0.14% 0.19% 0.03% 0.03% 0.14%
Win% 40% 62% 54% 49% 53% 58%

Money Supply (M2)

The money supply chart was provided by Gordon Harms.

It would be good for the market if the money supply was growing more rapidly.

Conclusion

For the past week or so the market has been consolidating without any major glitches. There should be another leg up, soon.

I expect the major indices to be higher on Friday August 8 than they were on Friday August 1.

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.

Last week the DJIA was down modestly while most of the other major indices were up modestly so I am calling last weeks positive forecast a tie.

Thank you,

 


 

Author: Mike Burk

Mike Burk

Mike Burk independently publishes a weekly newsletter on the stock market from a technical perspective.

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.

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