Technical Market Report

By: Mike Burk | Sat, Nov 15, 2008
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The good news is:
• The bottom indicators have been moving sharply upward suggesting a high likelihood of a rally lasting at least several weeks.

Short Term

Many indicators are coincident, i.e. they mirror what is happening. Oscillators and momentum indicators can be misleading because of their tendency to revert to 0 or neutral. The recent activity in volume indicators has been confusing.

The chart below covers the past year showing the NASDAQ composite in blue and a 5% trend (39 day EMA) of NASDAQ downside volume (OTC DV) in black. OTC DV 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.

OTC DV hit a high (low on the chart) at the October 24 low, moved upward when the market rallied and held at elevated levels as the market declined last week.

The next chart is similar to the one above except the indicator is a 5% trend (39 day EMA) of NASDAQ upside volume (OTC UV) shown in green. OTC UV has been rising sharply since the October low and hit an all time high last Monday.

The next chart shows the OTC with and indicator calculated by subtracting the momentum of OTC DV from OTC UV (OTC UD MoM Diff 15). This is where it gets odd. This indicator usually mirrors what is going on with prices but it remained elevated during last weeks decline.

Something has to give.

Intermediate term

There were 1514 new lows on the NASDAQ October 10.

There were 788 new lows on the NASDAQ on October 24.

There were 664 new lows on the NASDAQ on November 13.

Progressively fewer new lows on retests are a good thing, however, the numbers are too large and the implication is current bear market has not run its course.

The chart below covers the past 6 months showing the OTC in blue and a 10% trend (19 day EMA) of NASDAQ new lows (OTC NL) in black. OTC NL has been plotted on an inverted Y axis so decreasing new lows move the indicator upward (up is good).

In the past month there have been two unconfirmed lows suggesting a significant rally in the near future. However, the high number of new lows on the retests imply additional retests if not further declines.

Seasonality

Next week is the week prior to the 3rd Friday of November during the 4th year of the Presidential Cycle.

The tables show the daily return on a percentage basis for week prior to the 3rd Friday of November during the 4th year of the Presidential Cycle. OTC data covers the period from 1963 - 2007 and SPX data from 1953 - 2007. There are summaries for both the 4th year of the Presidential Cycle and all years combined. Prior to 1953 the market traded 6 days a week so that data has been ignored.

The averages, over all periods, have been up a little more than half of the time with modest gains.

Report for the week before the 3rd Friday of November.
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 0.27% 0.29% 0.27% 0.13% 0.04% 1.02%
 
1968-4 0.00% 0.27% 0.31% 0.13% 0.57% 1.29%
1972-4 -0.26% 0.10% -0.34% -0.14% 0.05% -0.59%
1976-4 0.03% 0.44% 0.55% 0.90% 0.18% 2.11%
1980-4 -0.08% 1.08% 0.62% 0.72% -0.21% 2.12%
1984-4 -0.10% -0.57% -0.35% -0.39% -0.36% -1.77%
Avg -0.10% 0.26% 0.16% 0.24% 0.05% 0.63%
 
1988-4 -0.37% -0.06% -1.17% -0.10% 0.04% -1.66%
1992-4 -0.49% -1.09% 1.24% 0.58% 0.63% 0.87%
1996-4 0.41% -0.49% 0.18% 0.93% -0.68% 0.35%
2000-4 -2.06% 5.78% 0.87% -4.22% -0.16% 0.22%
2004-4 0.42% -0.74% 1.01% 0.22% -1.60% -0.69%
Avg -0.42% 0.68% 0.43% -0.52% -0.35% -0.18%
 
OTC summary for Presidential Year 4 1964 - 2004
Avg -0.22% 0.46% 0.29% -0.11% -0.13% 0.30%
Win% 40% 55% 73% 64% 55% 64%
 
OTC summary for all years 1963 - 2007
Avg -0.11% 0.13% 0.09% 0.17% -0.07% 0.21%
Win% 48% 51% 60% 58% 53% 58%
 
SPX Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1956-4 0.32% -0.47% -0.56% -0.63% 0.04% -1.30%
1960-4 -0.50% 0.40% -0.20% -0.27% 0.49% -0.09%
1964-4 0.52% 0.44% 0.22% -0.05% 0.12% 1.25%
 
1968-4 0.00% 0.64% 0.49% 0.07% 0.55% 1.75%
1972-4 0.15% 0.92% -0.39% 0.55% 0.31% 1.54%
1976-4 0.67% 0.14% 0.57% 1.27% 0.03% 2.68%
1980-4 0.44% 1.42% -0.46% 0.96% -0.92% 1.44%
1984-4 -0.14% -0.83% 0.01% -0.06% -1.08% -2.10%
Avg 0.28% 0.46% 0.04% 0.56% -0.22% 1.06%
 
1988-4 -0.07% 0.23% -1.68% 0.30% 0.71% -0.53%
1992-4 -0.41% -0.34% 0.85% 0.18% 0.72% 1.00%
1996-4 0.15% -0.32% 0.21% 0.65% 0.24% 0.93%
2000-4 -1.08% 2.35% 0.50% -1.26% -0.34% 0.17%
2004-4 -0.03% -0.71% 0.55% 0.14% -1.12% -1.16%
Avg -0.29% 0.24% 0.09% 0.00% 0.04% 0.08%
 
SPX summary for Presidential Year 4 1956 - 2004
Avg 0.00% 0.30% 0.01% 0.14% -0.02% 0.43%
Win% 50% 62% 62% 62% 69% 62%
 
SPX summary for all years 1953 - 2007
Avg 0.01% 0.01% 0.10% 0.06% 0.01% 0.19%
Win% 46% 45% 65% 51% 61% 55%

Money Supply (M2)

The chart was provided by Gordon Harms. Money supply growth fell off a little last week despite herculean efforts of the Fed and Treasury to shovel money out the door.

Conclusion

Many records have been broken over the past few weeks so any conclusions drawn from past performance are suspect. That said, there have never been more than 2 retests of lows with the bottom indicators moving upward.

I expect the major indices to be higher on Friday November 21 than they were on Friday November 14.

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

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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