Technical Market Report

By: Mike Burk | Sat, Oct 10, 2009
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The good news is:
• The blue chip indices closed at a recovery high on Friday and most of the other major indices are within 1% of their recovery highs.

Short Term

From its mid July low the NASDAQ composite (OTC) rose 13% in 12 consecutive up days (close to a record).

From its early September low it rose 9.1% in a little over 2 weeks.

Last week it was up every day rising 4.5%.

In July I incorrectly identified the blast off as a blow off. Many of the conditions that existed in July exist now.

The charts below cover the past 150 trading days (from the March low). The 1st chart shows the OTC in blue and the NASDAQ Advance decline line (OTC ADL) in green. The OTC ADL is a running total of NASDAQ declining issues subtracted from advancing issues. Dashed vertical lines have been drawn on the 1st trading day of each month.

The OTC ADL has lagged behind the index since the late September high. However the pattern is similar to the mid July and early September lows.

The next chart shows the OTC in blue and a 5% trend (39 day EMA) of NASDAQ total volume in orange.

Volume rose during September's rally, was little changed during July's rally and declined a little last week. It seems odd that the biggest rally in 70 years has generated so little volume.

The next chart is similar to the one above except is shows the S&P 500 (SPX) in red and the total volume indicator calculated from NYSE data in black.

NYSE volume has been weaker than NASDAQ volume.

Intermediate term

Last week, new highs picked up enough to assure us the rally is likely to continue.

The chart below shows the OTC in blue and a 10% trend (19 day EMA) of NASDAQ new highs (OTC NH) in green. OTC NH hit a new recovery high on Friday.

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 indicator usually deteriorates ahead of a top and that is not happening now.

The next chart covers the last 150 trading days showing the SPX in red and the indicator NY NH calculated from NYSE new highs in green. This indicator is even stronger than OTC NH.

The next chart shows the SPX and NY NH over the last 5 years.

Seasonality

Next week includes the 5 trading days prior to the 3rd 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 3rd 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 have been modestly positive.

Report for the week before the 3rd Friday of October.
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 0.13% 0.39% 0.37% 0.26% 0.04% 1.19%
 
1969-1 0.65% 1.26% 1.27% 0.83% 0.36% 4.37%
1973-1 -0.85% 0.01% -0.42% 0.14% 0.38% -0.74%
1977-1 0.09% 0.11% -0.81% 0.15% -0.06% -0.51%
1981-1 0.01% 0.33% -1.30% 0.22% 0.21% -0.53%
1985-1 0.89% 0.25% 0.60% 0.55% 0.05% 2.33%
Avg 0.16% 0.39% -0.13% 0.38% 0.19% 0.98%
 
1989-1 -1.35% -0.23% 0.73% 1.62% -0.03% 0.75%
1993-1 0.44% 0.63% 0.84% 0.83% 0.26% 2.99%
1997-1 0.18% -0.53% -0.54% -1.38% -1.93% -4.20%
2001-1 -0.42% 1.52% -4.40% 0.39% 1.12% -1.78%
2005-1 0.26% -0.69% 1.71% -1.11% 0.68% 0.86%
Avg -0.18% 0.14% -0.33% 0.07% 0.02% -0.28%
 
OTC summary for Presidential Year 1 1965 - 2005
Avg 0.00% 0.28% -0.18% 0.23% 0.10% 0.43%
Win% 73% 73% 55% 82% 73% 55%
 
OTC summary for all years 1963 - 2008
Avg 0.45% -0.09% -0.30% 0.52% -0.19% 0.39%
Win% 62% 50% 47% 67% 54% 52%
 
SPX Presidential Year 1
Year Mon Tue Wed Thur Fri Totals
1953-1 0.00% -0.38% 0.47% 1.14% 0.79% 2.02%
1957-1 0.73% 1.04% -0.82% -1.65% -0.79% -1.47%
1961-1 -0.28% 0.03% 0.50% 0.35% 0.04% 0.65%
1965-1 0.57% -0.02% -0.01% -0.16% 0.21% 0.58%
 
1969-1 1.06% 1.22% 0.02% 0.68% -0.11% 2.86%
1973-1 -1.25% 0.13% -0.20% 0.04% 0.19% -1.09%
1977-1 -0.10% -0.01% -1.16% 0.31% -0.38% -1.33%
1981-1 -0.20% -0.35% -1.64% 0.77% -0.43% -1.86%
1985-1 1.13% -0.16% 1.02% -0.17% -0.33% 1.50%
Avg 0.13% 0.16% -0.39% 0.33% -0.21% 0.02%
 
1989-1 2.76% -0.49% 0.18% 1.57% 0.01% 4.02%
1993-1 0.12% 0.05% 0.08% 1.16% 0.57% 1.99%
1997-1 0.12% 0.23% -0.47% -1.09% -1.16% -2.37%
2001-1 -0.15% 0.69% -1.86% -0.79% 0.46% -1.65%
2005-1 0.30% -1.00% 1.50% -1.50% 0.15% -0.56%
Avg 0.63% -0.11% -0.12% -0.13% 0.01% 0.28%
 
SPX summary for Presidential Year 1 1953 - 2005
Avg 0.37% 0.07% -0.17% 0.05% -0.06% 0.23%
Win% 62% 50% 50% 57% 57% 50%
 
SPX summary for all years 1953 - 2008
Avg 0.47% -0.05% -0.33% 0.26% -0.20% 0.15%
Win% 64% 36% 45% 59% 47% 57%

Money supply (M2)

The money supply chart was provided by Gordon Harms. Money supply growth picked up last week.

Conclusion

The market jumped off an oversold low last week. In the previous 2 occurrences (July and September) it continued upward for another week.

I expect the major indices to be higher on Friday October 16 than they were on Friday October 9.

This report is free to anyone who wants it, so please tell your friends. They can sign up at: http://alphaim.net/signup.html. If it is not for you, reply with REMOVE in the subject line.

Gordon Harms produces a power point for our local timing group. You can get a copy of it at: http://www.stockmarket-ta.com/

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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