Technical Market Report

By: Mike Burk | Sun, Oct 4, 2009
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The good news is:
• After a two week sell off there has been no build up of new lows.

Short Term

The market is oversold.

Most of the major indices were down in each of the last 4 trading days of last week. From their highs a week and a half ago, the major indices are down 3.5% - 6.5%. Many of the indicators are at or near their lowest extremes since this rally began last March.

The charts below cover the past 145 trading days (from the March low). The 1st chart shows the S&P 500 (SPX) in red and the McClellan Oscillator (MCO) in blue. The MCO is calculated by subtracting a 39 day EMA from a 19 day EMA of daily NYSE declining issues subtracted from advancing issues. Dashed vertical lines have been drawn on the 1st trading day of each month.

The MCO is at its lowest point since this rally began. A bounce is likely.

Advance decline lines (ADL) are a running total of declining issues subtracted from advancing issues. The chart below shows an indicator derived from the NYSE ADL. It shows the percentage of the previous 4 trading days the NYSE ADL has been up. As of Friday the NYSE ADL was down for 4 consecutive days for the 3rd time since the March lows. So far, since the March lows, it has not been down more than 4 consecutive days.

Intermediate term

Last week, new lows picked up a little hitting a high of 8 on the NYSE and 16 on the NASDAQ, however, new highs exceeded new highs by a comfortable margin every day last week on both the NYSE and NASDAQ.

The chart below shows the NASDAQ composite (OTC) in blue and a 40% trend (4 day EMA) of the ratio of NASDAQ new highs to new highs + new lows (OTC NH /(OTC NH + NL)), in red. Dashed horizontal lines have been drawn at 10% levels of the indicator; the line is solid at the neutral 50% level. The indicator has fallen from its historic highs, but remains comfortably high.

The chart below shows the SPX in red and the ratio calculated from NYSE data in black. This indicator has remained near historic highs.

Seasonality

Next week includes the 5 trading days prior to the 2nd Friday of October 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 October 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. The market traded 6 days a week prior to 1953 so that data has been ignored.

The average returns over all periods for the OTC have been modestly positive while the average returns for the SPX over all periods have been modestly negative in spite of the SPX being up more than 50% of the time. The SPX average loss was helped considerably by a 19.28% loss in this week last year.

Report for the week before the 2nd Friday of October.
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 -0.17% 0.30% 0.09% 0.21% 0.34% 0.77%
 
1969-1 -0.13% 0.38% -0.40% 0.14% -0.20% -0.21%
1973-1 0.54% -0.09% -0.80% 1.24% 0.48% 1.37%
1977-1 0.07% -0.45% -1.38% -0.80% 0.02% -2.55%
1981-1 0.84% -0.02% 1.57% 1.18% 0.14% 3.70%
1985-1 -0.77% -0.49% 0.48% 0.41% 0.84% 0.47%
Avg 0.11% -0.13% -0.11% 0.43% 0.25% 0.56%
 
1989-1 0.43% -0.33% -0.41% 0.01% -3.09% -3.39%
1993-1 0.21% -0.34% 0.33% -0.30% 0.23% 0.14%
1997-1 0.35% 0.89% 0.26% 0.23% -0.39% 1.34%
2001-1 0.04% -2.23% 3.57% 4.62% 0.11% 6.12%
2005-1 -0.55% -0.86% -1.15% 0.48% 0.86% -1.21%
Avg 0.10% -0.57% 0.52% 1.01% -0.45% 0.60%
 
OTC summary for Presidential Year 1 1965 - 2005
Avg 0.08% -0.29% 0.20% 0.67% -0.06% 0.60%
Win% 64% 27% 55% 82% 73% 64%
 
OTC summary for all years 1963 - 2008
Avg -0.09% -0.39% -0.11% 0.20% 0.53% 0.13%
Win% 61% 46% 49% 70% 70% 57%
 
SPX Presidential Year 1
Year Mon Tue Wed Thur Fri Totals
1953-1 -0.47% -0.38% 0.81% 0.17% 0.17% 0.30%
1957-1 -1.33% -0.64% 0.10% -2.45% -0.05% -4.38%
1961-1 -0.04% 0.25% 0.09% -0.01% -0.18% 0.10%
1965-1 0.20% 0.61% -0.10% -0.08% 0.42% 1.05%
 
1969-1 0.18% -0.29% -0.45% 0.39% 0.57% 0.40%
1973-1 0.35% -0.09% -0.83% 1.71% 0.32% 1.46%
1977-1 -0.23% -0.86% -0.94% -0.62% 0.11% -2.53%
1981-1 0.13% -0.10% 1.61% 0.82% -0.70% 1.75%
1985-1 -0.74% 0.00% 0.36% 0.14% 0.82% 0.58%
Avg -0.06% -0.33% -0.05% 0.49% 0.22% 0.33%
 
1989-1 0.28% -0.19% -0.60% -0.45% -6.12% -7.06%
1993-1 0.01% -0.03% -0.10% -0.34% 0.25% -0.21%
1997-1 0.79% 1.07% -0.94% -0.33% -0.38% 0.22%
2001-1 -0.83% -0.54% 2.29% 1.52% -0.53% 1.92%
2005-1 -0.72% -0.21% -0.61% -0.07% 0.83% -0.78%
Avg -0.09% 0.02% 0.01% 0.07% -1.19% -1.18%
 
SPX summary for Presidential Year 1 1953 - 2005
Avg -0.17% -0.11% 0.05% 0.03% -0.32% -0.51%
Win% 50% 23% 43% 43% 57% 64%
 
SPX summary for all years 1093 - 2008
Avg 0.04% -0.29% 0.10% -0.11% 0.14% -0.11%
Win% 56% 35% 45% 43% 54% 55%

Money supply (M2)

The money supply chart was provided by Gordon Harms. Money supply growth resumed its weakness last week.

Conclusion

After 3 consecutive down days and 2 consecutive down weeks the market is oversold. There is still no sign of a developing top.

I expect the major indices to be higher on Friday October 9 than they were on Friday October 2.

Last weeks positive forecast was a miss.

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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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