Technical Market Report

By: Mike Burk | Sat, Nov 21, 2009
Print Email

The good news is:
• The blue chip indices all hit new recovery highs last week.

Short Term

Very short term, the market is oversold. The small cap Russell 2000 (R2K) was down each of the last 4 days of the week while the blue chip S&P 500 (SPX) was down each of the last 3 days of the week.

The charts below cover the past 180 trading days (from the March low). The first chart shows the NASDAQ composite (OTC) in blue and an indicator showing the percentage of the last 3 trading days the NASDAQ advance - decline line (ADL) has been up (OTC ADL %UP) in orange. The OTC ADL is not showing. ADL's are a running total of the number of declining issues subtracted from advancing issues. Dashed vertical lines have been drawn on the 1st trading day of each month.

You do not have to look at this chart very closely.

There are 2 characteristics to notice:

  1. There are open areas (lasting about 2 months each) at the bottom of the chart at the beginning of this really and after the July low identify periods of extreme strength. Recently there has been a 2 month open area at the top of the chart indicating deterioration.

  2. The indicator is now at the bottom of the chart and every instance of that has been followed by a short term rally.

The next chart shows the OTC in blue and an indicator showing momentum of the NASADAQ McClellan Oscillator (OTC AD MCO) in magenta. The OTC AD MCO is a 5% trend (39 day EMA) subtracted from a 10% trend (19 day EMA) of NASDAQ declining issues subtracted from advancing issues.

The indicator shows a well defined cyclical pattern over the past 3 months that topped out last week.

The next chart shows the SPX in red and an indicator that is calculated by subtracting momentum of new lows from momentum of new highs of the component issues of the SPX in blue. New highs and new lows have been calculated over the trailing 15 trading days for this indicator rather than the trailing 52 weeks as reported by the exchanges.

If the market continues to follow its pattern of the past several months we should be entering a period of weakness that should last 2-3 weeks.

Intermediate term

There are unlikely to be any sever problems as long as the number of new highs exceeds the number of new lows.

The chart below shows the OTC in blue and a 40% trend (4 day EMA) of the ratio of NASDAQ new highs to new lows (OTC HL Ratio) in red. OTC HL Ratio is calculated by dividing the number of new highs by new highs plus new lows. Dashed horizontal lines have been drawn at 10% levels of the indicator; the line is solid at the neutral 50% level.

The next chart is similar to the one above except it shows the SPX in red and the indicator has been calculated from NYSE data. The pattern is similar and a little stronger.

The rally from the March lows is likely to continue until new lows exceed new highs for an extended period (weeks).

Seasonality

Next week includes the week of Thanksgiving and 4 of the last 5 trading days of November during the 1st year of the Presidential Cycle.

There are two sets of tables showing the daily return on a percentage basis. The 1st shows the week of Thanksgiving and the 2nd the last 5 trading days of November during the 1st year of the Presidential Cycle. OTC data covers the period from 1963 - 2008 and SPX data from 1953 - 2008 on the Thanksgiving week table and 1928 - 2008 on the end of month table. There are summaries for both the 1st year of the Presidential Cycle and all years combined. Prior to 1953 the market traded 6 days a week so that data has been ignored on the SPX Thanksgiving week table.

The seasonal pattern for the week of Thanksgiving is well defined. Monday is usually very weak, Tuesday, not quite as weak as Monday while Wednesday and Friday are usually up on very low volume.

The end of month averages have been a little weaker during the 1st year of the Presidential Cycle than the average of all years.

3 days before Thanksgiving and 1 day after. Day1 = the day after
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
  Day4 Day3 Day2 Day1 Totals  
1965-1 -0.09% 1 0.04% 2 -0.02% 3 0.47% 5 0.40%  
 
1969-1 -0.55% 1 -1.24% 2 0.05% 3 -0.11% 5 -1.86%  
1973-1 -2.35% 1 0.00% 2 -2.44% 3 0.77% 5 -4.03%  
1977-1 0.13% 1 0.57% 2 0.79% 3 0.57% 5 2.05%  
1981-1 -0.30% 1 0.52% 2 0.49% 3 0.50% 5 1.22%  
1985-1 -0.33% 1 0.24% 2 0.81% 3 0.30% 5 1.01%  
Avg -0.68% 0.02% -0.06% 0.41% -0.32%  
 
1989-1 -0.22% 1 -0.34% 2 0.22% 3 0.33% 5 -0.02%  
1993-1 -1.79% 1 1.18% 2 0.85% 3 0.22% 5 0.47%  
1997-1 -2.09% 1 0.13% 2 0.35% 3 0.38% 5 -1.23%  
2001-1 1.89% 1 -2.79% 2 -0.29% 3 1.50% 5 0.31%  
2005-1 0.66% 1 0.53% 2 0.28% 3 0.13% 5 1.60%  
Avg -0.31% -0.26% 0.28% 0.51% 0.23%  
 
OTC summary for Presidential Year 1 1965 - 2005
Averages -0.46% -0.11% 0.10% 0.46% -0.01%  
%Winners 27% 64% 73% 91% 64%  
MDD 11/21/1973 4.73% -- 11/21/2001 3.07% -- 11/24/1997 2.09%
 
OTC summary for all years 1963 - 2008
Averages -0.12% -0.18% 0.37% 0.55% 0.62%  
%Winners 46% 53% 76% 85% 65%  
 
SPX Presidential Year 1
  Day4 Day3 Day2 Day1 Totals  
1953-1 -0.33% 1 0.57% 2 0.08% 3 0.57% 5 0.90%  
1957-1 0.76% 1 -2.65% 2 2.89% 3 1.14% 5 2.14%  
1961-1 0.14% 1 0.08% 2 -0.11% 3 0.20% 5 0.31%  
1965-1 -0.65% 1 0.15% 2 0.17% 3 0.10% 5 -0.23%  
 
1969-1 -1.15% 1 -0.32% 2 0.36% 3 0.58% 5 -0.53%  
1973-1 -3.05% 1 -2.04% 2 1.11% 3 -0.32% 5 -4.29%  
1977-1 -0.08% 1 0.88% 2 0.42% 3 0.21% 5 1.42%  
1981-1 -0.09% 1 1.57% 2 0.44% 3 0.84% 5 2.76%  
1985-1 -0.58% 1 0.16% 2 0.93% 3 -0.18% 5 0.33%  
Avg -0.99% 0.05% 0.65% 0.22% -0.06%  
 
1989-1 -0.66% 1 0.07% 2 0.68% 3 0.60% 5 0.69%  
1993-1 -0.75% 1 0.41% 2 0.29% 3 0.15% 5 0.10%  
1997-1 -1.70% 1 0.44% 2 0.09% 3 0.40% 5 -0.78%  
2001-1 1.09% 1 -0.73% 2 -0.49% 3 1.17% 5 1.04%  
2005-1 0.53% 1 0.51% 2 0.35% 3 0.21% 5 1.59%  
Avg -0.30% 0.14% 0.18% 0.51% 0.53%  
 
SPX summary for Presidential Year 1 1953 - 2005
Averages -0.47% -0.06% 0.51% 0.40% 0.39%  
%Winners 29% 71% 86% 86% 71%  
MDD 11/20/1973 5.03% -- 11/26/1957 2.65% -- 11/24/1997 1.70%
 
SPX summary for all years 1952 - 2008
Averages -0.14% 0.13% 0.38% 0.43% 0.79%  
%Winners 44% 61% 79% 79% 68%  
 
Report for the last 5 days of November.
 
OTC Presidential Year 1
  Day5 Day4 Day3 Day2 Day1 Totals
1965-1 0.04% 2 -0.02% 3 0.47% 5 0.47% 1 0.11% 2 1.06%
 
1969-1 -0.88% 5 -0.55% 1 -1.24% 2 0.05% 3 -0.11% 5 -2.74%
1973-1 -0.02% 1 -3.26% 2 0.86% 3 -0.34% 4 -1.17% 5 -3.93%
1977-1 0.79% 3 0.57% 5 -0.26% 1 -0.83% 2 -0.05% 3 0.22%
1981-1 -0.30% 1 0.52% 2 0.49% 3 0.50% 5 0.17% 1 1.39%
1985-1 0.49% 5 -0.33% 1 0.24% 2 0.81% 3 0.30% 5 1.51%
Avg 0.02% -0.61% 0.02% 0.04% -0.17% -0.71%
 
1989-1 0.33% 5 -0.10% 1 0.11% 2 -0.19% 3 0.06% 4 0.21%
1993-1 1.18% 2 0.85% 3 0.22% 5 -0.44% 1 0.38% 2 2.19%
1997-1 -0.36% 5 -2.09% 1 0.13% 2 0.35% 3 0.38% 5 -1.59%
2001-1 2.00% 1 -0.27% 2 -2.48% 3 2.40% 4 -0.14% 5 1.51%
2005-1 0.28% 3 0.13% 5 -1.04% 1 -0.30% 2 0.00% 3 -0.92%
Avg 0.69% -0.29% -0.61% 0.36% 0.14% 0.28%
 
OTC summary for Presidential Year 1 1965 - 2005
Averages 0.32% -0.41% -0.23% 0.23% -0.01% -0.10%
%Winners 64% 36% 64% 55% 64% 64%
MDD 11/30/1973 3.91% -- 11/28/2001 2.74% -- 11/28/1969 2.71%
 
OTC summary for all years 1963 - 2008
Averages 0.37% 0.25% 0.05% 0.44% -0.09% 1.02%
%Winners 57% 59% 65% 72% 65% 72%
MDD 11/30/2000 10.55% -- 11/30/1987 3.97% -- 11/30/1973 3.91%
 
SPX Presidential Year 1
  Day5 Day4 Day3 Day2 Day1 Totals
1929-1 1.60% 4 -0.37% 5 -1.16% 1 -2.91% 2 1.26% 3 -1.59%
1933-1 1.42% 5 0.30% 6 -3.49% 1 0.10% 2 1.86% 3 0.19%
1937-1 -2.49% 3 4.92% 5 4.78% 6 -1.97% 1 1.37% 2 6.60%
1941-1 -0.53% 2 -0.86% 3 -0.65% 4 -0.98% 5 -0.22% 6 -3.23%
1945-1 1.26% 1 1.24% 2 -0.52% 3 -0.18% 4 0.94% 5 2.73%
Avg 0.25% 1.05% -0.21% -1.19% 1.04% 0.94%
 
1949-1 -0.56% 5 0.25% 6 -0.56% 1 -0.19% 2 0.25% 3 -0.80%
1953-1 -0.33% 1 0.57% 2 0.08% 3 0.57% 5 0.41% 1 1.31%
1957-1 0.96% 5 0.76% 1 -2.65% 2 2.89% 3 1.14% 5 3.11%
1961-1 0.20% 5 0.01% 1 -0.14% 2 -0.07% 3 -0.53% 4 -0.53%
1965-1 0.15% 2 0.17% 3 0.10% 5 -0.25% 1 -0.21% 2 -0.03%
Avg 0.09% 0.35% -0.63% 0.59% 0.21% 0.61%
 
1969-1 -0.62% 5 -1.15% 1 -0.32% 2 0.36% 3 0.58% 5 -1.15%
1973-1 -2.88% 1 -0.91% 2 2.04% 3 -0.35% 4 -1.39% 5 -3.49%
1977-1 0.42% 3 0.21% 5 -0.67% 1 -1.55% 2 0.30% 3 -1.30%
1981-1 -0.09% 1 1.57% 2 0.44% 3 0.84% 5 1.01% 1 3.76%
1985-1 0.05% 5 -0.58% 1 0.16% 2 0.93% 3 -0.18% 5 0.38%
Avg -0.62% -0.17% 0.33% 0.05% 0.06% -0.36%
 
1989-1 0.60% 5 0.48% 1 0.05% 2 -0.63% 3 0.70% 4 1.19%
1993-1 0.41% 2 0.29% 3 0.15% 5 -0.25% 1 -0.02% 2 0.58%
1997-1 0.43% 5 -1.70% 1 0.44% 2 0.09% 3 0.40% 5 -0.36%
2001-1 0.62% 1 -0.68% 2 -1.83% 3 1.03% 4 -0.07% 5 -0.92%
2005-1 0.35% 3 0.21% 5 -0.85% 1 0.00% 2 -0.64% 3 -0.93%
Avg 0.48% -0.28% -0.41% 0.05% 0.07% -0.09%
 
SPX summary for Presidential Year 1 1929 - 2005
Averages 0.05% 0.24% -0.23% -0.13% 0.35% 0.28%
%Winners 65% 65% 45% 45% 60% 45%
MDD 11/26/1929 4.40% -- 11/27/1973 3.76% -- 11/27/1933 3.49%
 
SPX summary for all years 1928 - 2008
Averages 0.13% 0.14% -0.01% 0.05% 0.16% 0.46%
%Winners 56% 64% 51% 54% 56% 52%
MDD 11/28/1931 7.09% -- 11/30/1987 6.53% -- 11/29/1950 4.68%

Money supply (M2)

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

Conclusion

The market is oversold going into the weakest part of Thanksgiving week so there should not be much, if any, decline early in the week while the end of the week should be up modestly on minimal volume.

I expect the major indices to be higher on Friday November 27 than they were on Friday November 20.

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.

Last week the Dow Jones Industrial Average was up while all of the other major indices were down so I am calling last weeks negative forecast a tie.

In the latest Alpha newsletter, Jerry Minton argues that we are in a secular bear market- the fourth one in the past 109 years. The name of the game for the next 7-10 years is gain-and-retain. Jerry discusses one of the best strategies for making and holding onto gains in this environment. To read, go to: http://alphaim.net/

 


 

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.

Copyright © 2003-2016 Mike Burk

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com