Technical Market Report

By: Mike Burk | Sat, Sep 5, 2009
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The good news is:
• Although the averages were down, there were no new lows to speak of last week.

Short Term

New highs continued to deteriorate last week. The NASDAQ composite (OTC) closed just 0.5% off its recent high while NASDAQ new highs were well off their recent highs.

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. Dashed vertical lines have been drawn on the 1st trading day of each month.

OTC NH fell in spite of the strong rally Thursday and Friday.

Intermediate term

Although new highs deteriorated last week, there were remarkably few new lows and as long as new lows remain dormant nothing really bad is likely to happen.

The chart below covers the past 6 months showing the S&P 500 (SPX) in red and a 40% trend (4 day EMA) of the ratio of NYSE new highs to new lows (NY NH / (NY NH + NH NL)) in blue. 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 neutral, 50% level of the indicator.

This indicator has remained near an all time high.

The next chart covers the past 10 years showing the SPX in red and a 10% trend (19 day EMA) of NYSE new lows (NY NL) in blue.

NY NL has been plotted on an inverted Y axis so decreasing new lows move the indicator upward (up is good). The indicator is at its lowest level (highest on the chart) for any time since new highs and new lows began being calculated on a trailing 52 week basis in 1978.

Risk is limited as long as the number of new lows remains minimal.

Seasonality

Next week includes the 4 trading days prior to the 2nd Friday of September during the 1st year of the Presidential Cycle.

The tables show the daily return on a percentage basis for the 5 trading days prior to the 2nd Friday of September during the 1st year of the Presidential Cycle. OTC data covers the period from 1963 - 2008 and SPX data from 1953 - 2008. There are summaries for both the 1st year of the Presidential Cycle and all years combined. There have been 5 trading days prior to the 2nd Friday in September when the 1st of September fell on a Saturday, Sunday or Monday.

The average returns over all periods have been negative, helped by huge losses in 2001, the week prior to 9-11.

Report for the week before the 2nd Friday of Sepember.
The number following the year is the position in the presidential cycle.
Daily returns from Monday to 2nd Friday.

OTC Presidential Year 1
Year Mon Tue Wed Thur Fri Totals
1965-1 0.00% 0.48% 0.62% 0.35% 0.61% 2.06%
 
1969-1 -0.32% -0.90% 0.09% 1.13% 0.54% 0.54%
1973-1 -0.72% -0.45% -0.42% 0.26% 0.45% -0.89%
1977-1 0.00% -0.05% 0.38% 0.12% -0.37% 0.08%
1981-1 0.00% -2.55% -0.01% 1.50% 1.21% 0.15%
1985-1 -0.04% -0.53% -1.04% -0.51% -0.94% -3.07%
Avg -0.36% -0.90% -0.20% 0.50% 0.18% -0.64%
 
1989-1 0.00% 0.02% -0.46% 0.09% 0.35% 0.00%
1993-1 0.00% -1.38% -1.17% 0.96% 0.89% -0.70%
1997-1 0.59% 0.66% -1.02% 0.04% 0.57% 0.83%
2001-1 -6.83% -1.55% -1.75% -3.72% -3.25% -17.10%
2005-1 0.00% 1.20% 0.24% -0.28% 0.44% 1.60%
Avg -3.12% -0.21% -0.83% -0.58% -0.20% -3.07%
 
OTC summary for Presidential Year 1 1965 - 2005
Avg -1.47% -0.46% -0.41% -0.01% 0.05% -1.50%
Win% 20% 36% 36% 73% 73% 55%
 
OTC summary for all years 1963 - 2008
Avg -0.39% -0.02% -0.24% 0.05% 0.14% -0.24%
Win% 45% 50% 51% 63% 61% 59%
 
SPX Presidential Year 1
Year Mon Tue Wed Thur Fri Totals
1953-1 0.00% 0.17% 0.17% -1.01% -1.15% -1.83%
1957-1 -0.90% -0.93% 0.89% 1.27% -0.04% 0.29%
1961-1 0.00% -0.34% 0.74% -0.16% -0.69% -0.45%
1965-1 0.00% 0.34% 0.34% 0.26% 0.26% 1.20%
 
1969-1 -1.00% 0.73% 1.68% -0.77% 0.14% 0.78%
1973-1 -0.87% -0.61% -0.16% 0.29% 1.04% -0.29%
1977-1 0.00% 0.27% 0.31% -0.74% -0.94% -1.11%
1981-1 0.00% -1.74% 0.36% 1.47% 1.22% 1.31%
1985-1 0.01% -0.72% -1.00% -0.72% -0.42% -2.86%
Avg -0.62% -0.41% 0.24% -0.10% 0.21% -0.43%
 
1989-1 0.00% -0.33% -0.94% -0.25% 0.12% -1.41%
1993-1 0.00% -0.61% -0.41% 0.19% 0.92% 0.09%
1997-1 0.23% 0.26% -1.56% -0.70% 1.24% -0.53%
2001-1 -4.92% -0.58% -1.61% -3.11% -1.90% -12.12%
2005-1 0.00% 1.26% 0.24% -0.38% 0.80% 1.92%
Avg -2.34% 0.00% -0.86% -0.85% 0.23% -2.41%
 
SPX summary for Presidential Year 1 1953 - 2005
Avg -1.24% -0.20% -0.07% -0.31% 0.04% -1.07%
Win% 33% 43% 57% 36% 57% 43%
 
SPX summary for all years 1953 - 2008
Avg -0.30% -0.03% -0.13% -0.21% 0.11% -0.39%
Win% 46% 52% 53% 46% 64% 50%

Money supply (M2)

The money supply chart was provided by Gordon Harms. Money supply growth stabilized last week at the lowest level seen in a long time.

Conclusion

September has a reputation for being a tough month for the market, but there is no evidence this September is going to be one of them. On the other hand the recent upward surge has been weakening.

I expect the major indices to be lower on Friday September 11 than they were on Friday September 4.

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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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