Technical Market Report

By: Mike Burk | Sat, Aug 1, 2009
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The good news is:
• New highs came to life last week.

Short Term

The NASDAQ composite (OTC) finished a run of 12 consecutive up days on July 23 a rare, almost unique occurrence.

Looking for 10 consecutive up days (there has only been one other run of 12) in the OTC since the early 1990's, there are several, the most recent in September 1997. The only one with similar conditions to those we have seen recently was in January 1991. The market had a major bottom in October 1990, rose about 15% through the end of the year, fell 5% in the 1st 2 weeks of January then shot up over 20% in a run of 11 consecutive up days. The index continued moving upward another 17% over the next 2 months making a high on April 17 that held until mid August.

The chart covers 9 months from August 1990 through May 1991 showing the OTC in red and an indicator showing the percentage of the previous 10 trading days that were up in green. Dashed vertical lines have been drawn on the 1st trading day of each month, the dashed line is red on the 1st trading day of the year.

All other times (since the early 1990's) there have been 10 or more consecutive up days the market was well off its lows before the occurrence.

Intermediate term

As long as NASDAQ new highs are expanding the market will have minimal risk.

New highs increased when the market began its rally 3 weeks ago and they held up as prices leveled off last week.

The chart below covers the past 6 months showing the OTC in blue and a 10% trend (19 day EMA) of NASDAQ new highs (OTC NH) in green.

Risk will be limited as long as OTC NH is moving upward. The value of OTC NH is 60 so any number of new highs greater than 60 will keep that indicator moving upward.

The next chart is similar to the one above except it covers the past 2 years.

There has been a lack of volume since the early March low. The lack of volume has been most pronounced in issues moving down.

The chart below covers the past 2 years showing the OTC in blue and a 5% trend (39 day EMA) of OTC 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).

The indicator is as high as it has been anytime since the October 2007 top.

Seasonality

Next week includes the first 5 trading days of August during the 1st year of the Presidential Cycle.

The tables show the daily return on a percentage basis for the first 5 trading days of August during the 1st year of the Presidential Cycle. OTC data covers the period from 1963 - 2008 and S&P 500 (SPX) data from 1928 - 2008. There are summaries for both the 1st year of the Presidential Cycle and all years combined.

By all measures the coming week has been modestly positive.

The average return for the OTC over all years is slightly negative, brought down by huge losses in 1969, 1974 and 2000.

First 5 days of August.
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
  Day1 Day2 Day3 Day4 Day5 Totals
1965-1 1.34% 1 -0.02% 2 0.02% 3 0.14% 4 0.33% 5 1.81%
 
1969-1 1.09% 5 1.52% 1 -0.42% 2 0.56% 3 0.08% 4 2.83%
1973-1 -1.39% 3 -0.14% 4 -0.15% 5 0.37% 1 0.08% 2 -1.23%
1977-1 0.11% 1 -0.36% 2 -0.38% 3 0.37% 4 0.47% 5 0.21%
1981-1 -0.58% 1 -0.15% 2 0.45% 3 0.30% 4 -0.15% 5 -0.12%
1985-1 0.90% 4 0.17% 5 -0.78% 1 -0.64% 2 -0.67% 3 -1.02%
Avg 0.03% 0.21% -0.26% 0.19% -0.04% 0.13%
 
1989-1 -0.12% 2 0.17% 3 0.63% 4 0.11% 5 0.94% 1 1.73%
1993-1 0.42% 1 0.19% 2 0.67% 3 0.24% 4 0.36% 5 1.89%
1997-1 0.03% 5 0.70% 1 1.00% 2 0.55% 3 -0.38% 4 1.90%
2001-1 2.03% 3 0.92% 4 -1.01% 5 -1.55% 1 -0.32% 2 0.07%
2005-1 0.48% 1 1.04% 2 -0.06% 3 -1.15% 4 -0.61% 5 -0.30%
Avg 0.57% 0.60% 0.25% -0.36% 0.00% 1.06%
 
OTC summary for Presidential Year 1 1965 - 2005
Averages 0.39% 0.37% 0.00% -0.06% 0.01% 0.71%
% Winners 73% 64% 45% 73% 55% 64%
MDD 8/7/2001 2.85% -- 8/7/1985 2.08% -- 8/5/2005 1.81%
 
OTC summary for all years 1963 - 2008
Averages -0.10% -0.14% -0.14% 0.16% 0.14% -0.08%
% Winners 53% 39% 48% 67% 61% 50%
MDD 8/5/2002 9.20% -- 8/6/1990 8.72% -- 8/6/2004 6.09%
 
SPX Presidential Year 1
  Day1 Day2 Day3 Day4 Day5 Totals
1929-1 0.69% 4 1.65% 5 0.85% 6 -0.91% 1 -0.37% 2 1.91%
1933-1 3.02% 2 2.34% 3 -1.24% 4 -2.22% 5 -0.79% 1 1.11%
1937-1 0.53% 1 -0.82% 2 0.53% 3 -0.65% 4 -0.35% 5 -0.76%
1941-1 -0.48% 5 -0.19% 6 0.39% 1 0.00% 2 0.00% 3 -0.29%
1945-1 0.14% 3 -0.41% 4 0.41% 5 0.27% 1 -1.36% 2 -0.95%
Avg 0.78% 0.51% 0.19% -0.70% -0.58% 0.20%
 
1949-1 0.53% 1 0.26% 2 -0.07% 3 -0.13% 4 1.45% 5 2.05%
1953-1 0.36% 1 -0.24% 2 -0.40% 3 0.49% 4 -0.08% 5 0.12%
1957-1 -0.25% 4 -0.23% 5 -0.88% 1 -1.25% 2 0.77% 3 -1.84%
1961-1 0.91% 2 -0.64% 3 0.52% 4 0.58% 5 -0.01% 1 1.36%
1965-1 0.20% 1 0.05% 2 0.39% 3 0.00% 4 0.33% 5 0.96%
Avg 0.35% -0.16% -0.09% -0.06% 0.49% 0.53%
 
1969-1 1.79% 5 -0.51% 1 0.45% 2 0.55% 3 0.07% 4 2.34%
1973-1 -1.28% 3 -0.15% 4 -0.17% 5 0.23% 1 -0.17% 2 -1.55%
1977-1 0.27% 1 -0.63% 2 -0.13% 3 0.38% 4 0.02% 5 -0.09%
1981-1 -0.34% 1 0.54% 2 1.14% 3 -0.02% 4 -0.67% 5 0.64%
1985-1 0.62% 4 -0.33% 5 -0.45% 1 -1.41% 2 -0.13% 3 -1.70%
Avg 0.21% -0.22% 0.17% -0.06% -0.18% -0.07%
 
1989-1 -0.67% 2 0.17% 3 0.12% 4 -0.24% 5 1.60% 1 0.97%
1993-1 0.45% 1 -0.20% 2 -0.16% 3 -0.09% 4 0.12% 5 0.12%
1997-1 -0.75% 5 0.33% 1 0.22% 2 0.83% 3 -0.95% 4 -0.31%
2001-1 0.39% 3 0.40% 4 -0.52% 5 -1.14% 1 0.33% 2 -0.56%
2005-1 0.09% 1 0.71% 2 0.07% 3 -0.74% 4 -0.76% 5 -0.62%
Avg -0.10% 0.28% -0.06% -0.28% 0.07% -0.08%
 
SPX summary for Presidential Year 1 1929 - 2005
Averages 0.31% 0.11% 0.05% -0.27% -0.05% 0.15%
% Winners 70% 45% 55% 35% 40% 50%
MDD 8/7/1933 4.19% -- 8/6/1957 2.59% -- 8/7/1985 2.31%
 
SPX summary for all years 1928 - 2008
Averages 0.07% 0.00% 0.10% -0.10% 0.14% 0.21%
% Winners 54% 49% 52% 48% 55% 47%
MDD 8/5/2002 8.45% -- 8/6/1990 6.10% -- 8/6/1982 4.84%

August

Over all years since 1963, the OTC, in August, has been up 63% of the time with an average gain of 0.6% making it the 5th strongest month of the year behind January, April, December and November. During the 1st year of the Presidential Cycle the OTC has been up only 36% of the time with an average loss of 0.8% (helped considerably by a 12.7% loss in 2001) making it second to February as the worst month of the year.

The chart below shows the average August over all years in blue and the average during the 1st year of the Presidential Cycle in green.

On average there are 21 trading days in a month. The chart has been calculated by averaging the daily gain of each of the 1st 11 trading days and the last 10. When there have been more than 21 trading days in the month some of the days in the middle were omitted. When there have been more than 21 trading days in the month some of the days in the middle have been counted twice. Dashed vertical lines have been drawn on the 1st trading day of the month and at 5 trading day intervals after that. A solid vertical line has been drawn on the 11th trading day, the dividing point.

August is a month that usually has more than 21 trading days and the middle of month has had some of the worst days so the chart looks a little better than it should.

Over all years since 1928, the SPX, in August, has been up 62% of the time with an average gain of 0.8%. During the 1st year of the Presidential Cycle the SPX has been up 45% of the time with an average loss of 0.5%.

The chart below is similar to the one above except it shows the average performance for the SPX in August. The average for all years is shown in red and the average for the 1st year of the Presidential Cycle is shown in green.

Money supply (M2)

The money supply chart was provided by Gordon Harms. Money supply growth continued to deteriorate last week.

Conclusion

As long as NASDAQ new highs continue to expand there will be little risk in the market.

I expect the major indices to be higher on Friday August 7 than they were on Friday July 31.

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Last weeks positive forecast was 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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