Technical Market Report

By: Mike Burk | Sat, Oct 11, 2008
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The good news is:
• We are living through great theatre.

On October 20, 1987 there were 1174 new lows on the NYSE, about 57% of the 2076 issues that traded that day, a percentage record that held until recently. Last Friday there were 2901 new lows on the NYSE, about 88% of the 3306 issues traded. New lows have been calculated with their present methodology since January 1, 1978. At the 1987 low the S&P 500 (SPX) was 33.2% off its all time high set about 6 weeks earlier. On Friday the SPX was 42.5% off its all time high set about 1 year earlier.

Technical, as with most other forms of analysis looks for similar patterns in the past from which we make assumptions about the present. Records are being set daily, there are not many similar patterns in our market history.

I read a report that someone from Standard and Poors said we had the worst period (1 week, I think) for the SPX since December 1931. From December 5, 1931 to December 14, 1931 the SPX lost 14.1%, putting it 73% below its high of September 1929. It then bounced around until March 1932 when it was about 15% above the December lows before falling 51% to its final low on June 1, 1932. A total decline of 83%. In the past 8 trading days the SPX has fallen 22.8%, about the same as the crash of 1987.

The chart below covers the period from September 1931 to July 1932 showing the SPX in red. Dashed vertical lines have been drawn on the 1st trading day of each month.

How bad is it?

In the past couple weeks Warren Buffet has given 5 Billion each to Goldman Sachs and General Electric for 10% + incentives. That makes credit card rates look pretty good.

Seasonality

Next week includes the 5 trading days prior to the 3rd Friday of October 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 3rd Friday of October during the 4th year of the Presidential Cycle. 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.
Returns for the week have been modestly positive by all measures and a little stronger during the 4th year of the Presidential Cycle.

Report for the week before the 3rd Friday of October.
The number following the year is the position in the presidential cycle.
Daily returns from Monday through 3rd Friday.

OTC Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1964-4 0.00% 0.09% -0.07% -0.27% 0.11% -0.14%
 
1968-4 0.04% 0.35% 0.00% 0.27% -0.01% 0.65%
1972-4 -1.04% 0.44% 0.49% -0.11% 0.86% 0.65%
1976-4 -0.40% -0.29% 0.61% -0.64% 0.37% -0.35%
1980-4 0.55% 0.08% 0.21% -0.74% -0.36% -0.27%
1984-4 0.63% -0.16% -0.07% 1.08% 0.57% 2.05%
Avg -0.04% 0.08% 0.31% -0.03% 0.29% 0.54%
 
1988-4 0.11% 0.32% -0.13% 0.74% -0.01% 1.04%
1992-4 0.58% 0.45% -0.04% 0.42% 0.69% 2.10%
1996-4 0.65% 0.14% -0.56% -0.72% 0.04% -0.46%
2000-4 -0.80% -2.32% -1.32% 7.79% 1.89% 5.24%
2004-4 0.46% -0.19% -0.24% -0.91% 0.45% -0.44%
Avg 0.20% -0.32% -0.46% 1.46% 0.61% 1.50%
 
OTC Presidential Year 4 1964 - 2004
Avg 0.08% -0.10% -0.11% 0.63% 0.42% 0.92%
Win% 70% 64% 30% 45% 73% 55%
 
OTC all years 1963 - 2007
Avg 0.19% -0.01% -0.11% 0.41% -0.18% 0.29%
Win% 61% 51% 48% 67% 56% 51%
 
SPX Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1956-4 -0.30% -0.51% -0.77% 0.17% -0.22% -1.63%
1960-4 -0.42% -0.51% -0.18% -0.72% -1.00% -2.84%
1964-4 0.02% -0.33% -0.20% -0.64% 0.69% -0.45%
 
1968-4 0.14% 0.20% 0.00% 0.46% 0.78% 1.58%
1972-4 -1.07% 0.68% 0.64% -0.13% 1.10% 1.23%
1976-4 -0.90% -0.82% 1.30% -1.21% -0.03% -1.66%
1980-4 1.34% -0.01% 1.27% -1.11% -0.53% 0.96%
1984-4 0.97% -0.60% -0.39% 2.41% -0.08% 2.31%
Avg 0.10% -0.11% 0.71% 0.09% 0.25% 0.89%
 
1988-4 0.33% 1.07% -0.86% 2.13% 0.28% 2.95%
1992-4 1.19% 0.46% 0.02% 0.06% 0.52% 2.24%
1996-4 0.41% -0.14% 0.26% 0.37% 0.54% 1.44%
2000-4 0.03% -1.79% -0.58% 3.47% 0.59% 1.72%
2004-4 0.20% -0.23% -0.73% -0.93% 0.45% -1.24%
Avg 0.43% -0.13% -0.38% 1.02% 0.47% 1.42%
 
SPX summary for Presidential Year 4 1956 - 2004
Avg 0.15% -0.19% -0.02% 0.33% 0.24% 0.51%
Win% 69% 31% 42% 54% 62% 62%
 
SPX summary for all years 1953 - 2007
Avg 0.27% -0.04% -0.17% 0.19% -0.20% 0.05%
Win% 63% 36% 46% 58% 48% 56%

In case you missed it or forgot, I am including the chart showing the mean daily performance during the 4th year of the Presidential Cycle of the SPX for the month of October since 1928. On average the SPX has had a pretty rough go through the 1st 7 trading days before rallying through the end of the month. Last Friday was the 8th trading day of the month.

Money supply (M2)

The chart below was provided by Gordon Harms. More good news. M2 has increased more sharply than at any time I can recall, if there was anything normal about these times that would spark a significant rally in stocks.

Conclusion

Many indicators are at historic extremes, the Fed and Treasury are getting creative and seasonally the low for the month and quarter is usually right about now.

I expect the major indices to be higher on Friday October 17 than they were on Friday October 10.

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Last weeks positive forecast was a miss.

 


 

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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