Technical Market Report

By: Mike Burk | Sat, Dec 13, 2008
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The good news is:
• New lows have continued to decline.

Short Term

On October 10 88% of the issues traded on the NYSE hit new lows, the highest percentage, by almost double, ever recorded. The high percentage of issues hitting new lows makes unlikely we will see significant numbers of new highs any time soon.

Reported new highs and new lows have been calculated on an intraday trailing 52 week basis since the 1st of 1978.

I calculate new highs and new lows on a closing basis over the trailing 6 weeks on all of the major indices. The shorter time frame gives the indicators a little more life at times like these.

The chart below covers the past 6 months showing the S&P 500 (SPX) in red and a 10% trend (19 day EMA) of new highs of the component issues of the SPX in green.

The indicator is most revealing when, on a daily basis, it goes in the opposite direction of prices. On Wednesday and Friday last week, the indicator fell or was flat when prices rose.

The next chart is similar to the one above except it covers the same period a year earlier.

Lack of strength in this indicator makes the recent rally suspect.

The next chart offers a different take on the data.

The index is the Russell 2000 (R2K) and the indicator is a running total of new lows subtracted from new highs (An Advance - Decline Line of new highs and new lows). Similar to the data used in the charts above, new highs and new lows have been calculated on a trailing 6 week basis from the component issues of the R2K.

The chart covers the past year.

The indicator has remained flat in spite of a 21% rally in the index in the past month.

Intermediate term

We like to see volume increase as prices rise and that has not been happening. A few days either side of Thanksgiving often record the lowest volume of the year, however, volume has continued to fall during the recent rally.

The chart below covers the past 6 months showing the NASDAQ composite (OTC) in blue and a 5% trend (39 day EMA) of NASDAQ volume in orange. Volume has been declining since Thanksgiving.

Seasonality

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

The tables show the daily return on a percentage basis for the week prior to the 3rd Friday of December 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.

A big down week in 2000 skews the OTC averages negatively, otherwise, over all periods there have been modest gains with the indices up a little over half of the time.

Report for the week before the 3rd Friday of December
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 0.41% -0.05% -0.21% 0.14% 0.11% 0.42%
 
1968-4 0.03% 0.42% 0.00% -0.29% -0.08% 0.09%
1972-4 -0.24% -0.42% -0.45% -0.25% 0.15% -1.20%
1976-4 0.00% 0.03% 0.29% 0.01% -0.31% 0.02%
1980-4 0.32% 0.03% 1.12% 1.54% 0.46% 3.46%
1984-4 -0.24% 2.09% 0.59% -0.16% -0.09% 2.19%
Avg -0.03% 0.43% 0.38% 0.17% 0.03% 0.91%
 
1988-4 -0.27% -0.33% -0.06% 0.06% 0.75% 0.16%
1992-4 -0.16% -0.61% -0.17% 1.36% 0.43% 0.85%
1996-4 -1.86% 0.42% 1.50% 0.82% -0.56% 0.32%
2000-4 3.35% -2.76% -3.72% -3.34% -2.76% -9.23%
2004-4 0.96% 0.53% 0.13% -0.76% -0.51% 0.34%
Avg 0.40% -0.55% -0.46% -0.37% -0.53% -1.51%
 
OTC summary for Presidential Year 4 1964 - 2004
Avg 0.23% -0.06% -0.10% -0.08% -0.22% -0.23%
Win% 50% 55% 50% 55% 45% 82%
 
OTC summary for all years 1963 - 2007
Avg 0.02% 0.01% -0.04% 0.02% 0.16% 0.17%
Win% 51% 51% 50% 60% 58% 58%
 
SPX Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1956-4 0.00% 0.00% -0.24% -0.78% 0.65% -0.36%
1960-4 0.35% 0.05% -0.07% -0.28% 0.92% 0.97%
1964-4 -0.25% -0.28% 0.40% 0.42% 0.46% 0.75%
 
1968-4 -0.45% -0.41% 0.00% 0.29% -0.59% -1.16%
1972-4 0.22% -0.39% -0.08% -0.27% 0.02% -0.50%
1976-4 -0.07% 0.42% 0.07% -0.32% -0.52% -0.42%
1980-4 0.17% 0.89% 1.75% 0.08% 0.53% 3.42%
1984-4 0.49% 2.83% -0.57% -0.47% -0.52% 1.76%
Avg 0.07% 0.67% 0.29% -0.14% -0.22% 0.62%
 
1988-4 -0.18% -0.08% -0.36% -0.37% 0.73% -0.26%
1992-4 -0.21% -0.06% -0.24% 0.91% 1.34% 1.74%
1996-4 -1.05% 0.70% 0.76% 1.94% 0.42% 2.77%
2000-4 0.75% -0.65% -0.82% -1.40% -2.15% -4.26%
2004-4 0.90% 0.39% 0.19% -0.21% -0.75% 0.53%
Avg 0.04% 0.06% -0.09% 0.17% -0.08% 0.10%
 
SPX summary for Presidential Year 4 1956 - 2004
Avg 0.06% 0.29% 0.07% -0.04% 0.04% 0.38%
Win% 50% 50% 42% 38% 62% 54%
 
SPX summary for all years 1953 - 2007
Avg 0.06% 0.11% 0.07% 0.01% 0.18% 0.42%
Win% 56% 50% 54% 47% 58% 62%

Money supply (M2)

The chart below was provided by Gordon Harms. Money supply has growth picked up a little over the past week.

Conclusion

Although most of the major indices were up last week there was very little strength in the short term indicators.

I expect the major indices to be lower on Friday December 19 than they were on Friday December 12.

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.

All of the major indices were up last week except the Dow Jones Industrial Average which was down 0.07%. 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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