Technical Market Report

By: Mike Burk | Sat, May 9, 2009
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The good news is:
• Friday, most of the major indices closed at their highest levels since the early March low.

Short Term

Last week all of the major indices alternated up and down days, i.e. there was not 2 consecutive days in either direction. There were 3 up days and 2 down days and, except for the NASDAQ composite (OTC) the average percentage moves were higher on the up days than the down days. This choppiness makes the short term difficult to anticipate.

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.

There have been no new highs to speak of on either the NYSE or NASDAQ, but, more importantly, no new lows either.

New lows do a good job of defining bottoms because new lows evaporate within a few days of a bottom. New highs are better at defining tops, although not as decisively as new lows define bottoms. A ratio of the two (NH / (NH + NL) is one of the best indicators we have for defining both tops and bottoms and the general health of the market.

The chart below covers the past year showing the OTC in blue and a 40% trend (4 day EMA) of NASDAQ new highs / (new highs + new lows) in red. Dashed vertical lines have been drawn on the 1st trading day of each month and dashed horizontal lines have been drawn at 10% levels of the indicator. The horizontal line is solid at the 50% level.

The indicator hit its highest level in over a year Friday.

For a longer term perspective, the chart below is similar to the one above except it covers the past 5 years. Dashed vertical lines have been drawn on the 1st trading day of each year.

The next chart is similar to the 1st one except is shows the S&P 500 in red and the indicator, plotted in black, has been calculated using NYSE data.

The indicator hit a multi month high a week ago and fell sharply last week.

Seasonality

Next week includes the week prior to the 3rd Friday in May during the 1st year of the Presidential Cycle.

The tables show the daily return on a percentage basis for the week prior to the 3rd Friday of May during the 1st year of the Presidential Cycle. OTC data covers the period from 1963 - 2008 and SPX data from 1953 - 2008. Prior to 1953 the market traded 6 days a week so that data has been ignored. There are summaries for both the 1st year of the Presidential Cycle and all years combined.

The week has been very strong during the 1st year of the Presidential Cycle and flat over all other periods.

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

OTC Presidential Year 1
Year Mon Tue Wed Thur Fri Totals
1965-1 -0.06% -0.35% -0.21% -0.23% -0.45% -1.31%
1969-1 0.18% -0.67% 0.36% 0.78% 0.36% 1.01%
1973-1 -2.42% -0.30% -0.04% -0.86% -2.19% -5.80%
1977-1 0.39% 0.11% 0.58% -0.11% -0.37% 0.61%
1981-1 -0.95% 0.16% 0.31% 0.65% 0.62% 0.78%
1985-1 0.24% -0.15% 0.21% 0.49% 0.67% 1.47%
Avg -0.51% -0.17% 0.29% 0.19% -0.18% -0.39%
 
1989-1 0.32% -0.13% 0.66% 0.29% 0.51% 1.65%
1993-1 0.24% 0.42% 1.42% 1.01% -0.45% 2.63%
1997-1 0.68% -0.79% 0.15% 1.35% -0.95% 0.44%
2001-1 -1.21% 0.18% 3.87% 1.26% 0.24% 4.34%
2005-1 0.89% 0.49% 1.32% 0.59% 0.19% 3.48%
Avg 0.18% 0.03% 1.48% 0.90% -0.09% 2.51%
 
OTC summary for Presidential Year 1 1965 - 2005
Avg -0.16% -0.09% 0.78% 0.48% -0.17% 0.85%
Win% 64% 45% 82% 73% 55% 82%
 
OTC summary for all years 1963 - 2008
Avg -0.01% 0.07% 0.11% 0.06% -0.24% 0.00%
Win% 48% 48% 61% 52% 42% 50%
 
SPX Presidential Year 1
Year Mon Tue Wed Thur Fri Totals
1953-1 -0.20% -0.68% -0.04% 0.49% -0.04% -0.48%
1957-1 0.62% -0.45% 0.34% 0.41% 0.28% 1.20%
1961-1 0.57% 0.37% 0.46% -0.59% 0.42% 1.23%
1965-1 -0.62% -0.09% 0.23% -0.55% -0.48% -1.50%
 
1969-1 -0.15% 0.43% 0.78% -0.29% 0.09% 0.85%
1973-1 -2.10% 0.63% -0.13% -0.82% -1.61% -4.03%
1977-1 0.44% 0.30% 0.53% -0.42% -0.43% 0.43%
1981-1 -1.48% 0.78% -0.13% 0.56% 0.68% 0.40%
1985-1 0.18% -0.40% 0.36% 0.61% 0.95% 1.70%
Avg -0.62% 0.35% 0.28% -0.07% -0.07% -0.13%
 
1989-1 0.74% -0.28% 0.70% 0.15% 1.03% 2.34%
1993-1 0.18% -0.01% 1.64% 0.69% -1.05% 1.44%
1997-1 1.56% -0.54% 0.35% 0.70% -1.44% 0.63%
2001-1 0.26% 0.04% 2.85% 0.27% 0.27% 3.69%
2005-1 1.01% 0.70% 1.00% 0.47% -0.15% 3.02%
Avg 0.75% -0.02% 1.31% 0.46% -0.27% 2.22%
 
SPX summary for Presidential Year 1 1953 - 2005
Avg 0.07% 0.06% 0.64% 0.12% -0.11% 0.78%
Win% 64% 50% 79% 64% 50% 79%
 
SPX summary for all years 1953 - 2008
Avg 0.01% 0.10% 0.10% 0.01% -0.13% 0.10%
Win% 51% 55% 52% 52% 50% 52%

Conclusion

From the March 9 low, the SPX has been up at an annualized rate of 547%, the OTC 539%, the Dow Jones Industrial Average a mere 389% and the Russell 2000 949%. Something has to give.

I expect the major indices to be lower on Friday May 15 than they were on Friday May 8.

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Last week all of the major indices were up making last weeks negative forecast a miss.

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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