Technical Market Report

By: Mike Burk | Sat, Mar 28, 2009
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The good news is:
• No new lows (0) were recorded on the NYSE last Thursday.

Short Term

Between the low of March 9 and the high of last Thursday:

The Russell 2000 (R2K) was up 29.7% in 13 days.

The NASDAQ composite (OTC) was up 25.1% in 13 days.

The S&P 500 (SPX) was up 23.1% in 13 days.

The Dow Jones Industrial Average (DJIA) was up 21.0% in 13 days.

Volatility has spiked. Usually volatility spikes are caused by downward moves, but during this spike the trend has been upward.

The chart below covers the past 2 years showing the SPX in red and an indicator showing the average of the absolute value of the daily percentage change of the SPX over the previous 21 trading days. Dashed vertical lines have been drawn on the 1st trading day of each month.

I showed a chart similar to this one last November when the value was near its high point of 4.1% and pointed out that the highest level recorded had been in November of 1931. Not even the period around the crash of 87 came close.

The spike in volatility last October - November lasted much longer than the spike in 1931. There was a rally in February - March of 1932 that brought another smaller spike in volatility modestly similar (the spike was caused by an upside movement rather than a downside one) to the one we are seeing now.

If the current pattern plays out similar to the 1931 - 1932 pattern prices will move sideways for a week or two before resuming their decline.

Intermediate term

On March 6 there were 827 new lows on the NYSE and 567 on the NASDAQ. Those numbers are big enough to suggest a high likelihood of a retest of the March 9 lows.

I use a 5% trend (39 day EMA) of the various components in my volume indicators. One of them NYSE volume of advancing issues (NY UV) hit an all time high last Thursday. I could find only one other example of NY UV hitting an all time high shortly after a market low, 1987.

The chart below covers the past year showing the SPX in red and NY UV in green. There was a little build up of NY UV after the November low, but nothing like we have seen in the past two weeks.

The next chart is similar to the one above except it shows the period around the 1987 crash.

Seasonality

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

The tables show the daily return on a percentage basis for the last 2 trading days of March and the 1st 3 trading days of April 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.

Average returns over all years have been modestly positive while average returns during the 1st year of the Presidential Cycle have been negative.

Last 2 days of March and first 3 days of April.
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
  Day2 Day1 Day1 Day2 Day3 Totals
1965-1 -0.02%2 0.10%3 0.27%4 0.21%5 0.37%1 0.93%
 
1969-1 0.15%4 0.34%5 0.74%2 0.26%3 -0.18%4 1.30%
1973-1 0.90%4 -0.62%5 -1.42%1 -1.14%2 -1.38%3 -3.66%
1977-1 -0.73%3 -0.11%4 0.44%5 -0.68%1 -0.26%2 -1.33%
1981-1 0.07%1 0.58%2 0.55%3 0.29%4 0.33%5 1.82%
1985-1 0.22%4 0.37%5 0.40%1 -0.39%2 -0.49%3 0.11%
Avg 0.12% 0.11% 0.14% -0.33% -0.40% -0.35%
 
1989-1 0.21%4 0.54%5 0.23%1 -0.12%2 0.28%3 1.14%
1993-1 0.81%2 0.57%3 -0.51%4 -2.45%5 0.13%1 -1.45%
1997-1 -1.54%4 -2.22%1 -0.39%2 -1.31%3 1.07%4 -4.40%
2001-1 -1.81%4 1.08%5 -3.11%1 -6.17%2 -2.04%3 -12.05%
2005-1 1.61%3 -0.32%4 -0.72%5 0.32%1 0.41%2 1.30%
Avg -0.14% -0.07% -0.90% -1.94% -0.03% -3.09%
 
OTC summary for Presidential Year 1 1965 - 2005
Averages -0.01% 0.03% -0.32% -1.02% -0.16% -1.48%
% Winners 64% 64% 55% 36% 55% 55%
MDD 4/4/2001 11.61% -- 4/2/1997 5.37% -- 4/4/1973 4.48%
 
OTC summary for all years 1963 - 2008
Averages -0.05% 0.13% -0.07% 0.12% 0.17% 0.30%
% Winners 57% 64% 50% 65% 72% 67%
MDD 4/4/2001 11.61% -- 4/4/2000 10.67% -- 4/2/1997 5.37%
 
Year 1
  Day2 Day1 Day1 Day2 Day3 Totals
1929-1 3.04%3 1.75%4 -2.55%1 1.17%2 -1.23%3 2.18%
1933-1 -0.33%4 -3.31%5 0.51%6 -0.17%1 0.51%2 -2.78%
1937-1 1.82%2 -0.17%3 -1.17%4 -1.24%5 0.29%6 -0.48%
1941-1 -0.20%6 0.40%1 0.10%2 0.40%3 1.50%4 2.20%
1945-1 0.22%4 0.22%6 0.95%1 0.15%2 -0.15%3 1.39%
Avg 0.91% -0.22% -0.43% 0.06% 0.18% 0.50%
 
1949-1 -0.07%3 -0.99%4 -0.80%5 0.40%6 -0.13%1 -1.58%
1953-1 -1.46%1 -1.25%2 -0.16%3 -0.08%4 -2.46%1 -5.41%
1957-1 0.20%4 -0.16%5 0.07%1 0.63%2 0.27%3 1.02%
1961-1 0.85%3 0.20%4 0.83%1 0.09%2 -0.30%3 1.67%
1965-1 0.20%2 -0.05%3 0.19%4 0.24%5 0.00%1 0.58%
Avg -0.05% -0.45% 0.03% 0.26% -0.53% -0.74%
 
1969-1 0.71%4 0.41%5 -0.09%2 -0.63%3 -0.10%4 0.29%
1973-1 0.98%4 -1.06%5 -1.20%1 -0.85%2 -0.43%3 -2.56%
1977-1 -1.15%3 -0.12%4 0.80%5 -0.99%1 -0.22%2 -1.68%
1981-1 -0.27%1 1.28%2 0.42%3 -0.18%4 -0.61%5 0.63%
1985-1 0.00%4 0.62%5 0.34%1 -0.41%2 -0.79%3 -0.23%
Avg 0.05% 0.23% 0.05% -0.61% -0.43% -0.71%
 
1989-1 0.06%4 0.80%5 0.52%1 -0.36%2 0.31%3 1.33%
1993-1 0.27%2 -0.07%3 -0.30%4 -1.98%5 0.20%1 -1.88%
1997-1 -2.10%4 -2.17%1 0.33%2 -1.25%3 0.03%4 -5.16%
2001-1 -0.46%4 1.08%5 -1.25%1 -3.44%2 -0.29%3 -4.36%
2005-1 1.38%3 -0.07%4 -0.65%5 0.27%1 0.45%2 1.38%
Avg -0.17% -0.08% -0.27% -1.35% 0.14% -1.74%
 
SPX summary for Presidential Year 1 1929 - 2009
Averages 0.18% -0.13% -0.16% -0.41% -0.16% -0.67%
% Winners 55% 45% 55% 40% 40% 50%
MDD 4/6/1953 5.31% -- 4/2/1997 5.11% -- 4/4/2001 4.92%
 
SPX summary for all years 1928 - 2008
Averages -0.01% -0.16% 0.13% 0.16% 0.11% 0.23%
% Winners 44% 43% 62% 57% 56% 64%
MDD 4/4/1932 8.79% -- 3/31/1939 7.89% -- 4/6/1953 5.31%

Money supply (M2)

The money supply chart was provided by Gordon Harms. Money supply growth has remained stalled.

Conclusion

It is possible the market could go higher next week, but pretty soon it is going to have to take a rest.

I expect the major indices to be lower on Friday April 3 than they were on Friday March 27.

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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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