Technical Market Report

By: Mike Burk | Sat, Nov 28, 2009
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The good news is:
• The blue chip indices all hit new recovery highs last Wednesday.

We have a record

Last Friday was the worst day after Thanksgiving ever for several of the major indices.

The NASDAQ composite (OTC) was down 1.73% more than doubling its previous record of -0.62% set in 2002.

The S&P 500 (SPX) was down 1.72% besting its previous record of -1.54% set in 1987. In spite of Friday's loss the SPX managed to gain 0.04% for the week, the only one of the major indices to be up for the week.

The Russell 2000 (R2K) was down 2.53% beating its previous record of -0.95% set in 2002.

The Dow Jones Industrial Average (DJIA), down 1.48% on Friday failed to exceed its 1987 loss of 1.87%.

Another extreme that caught my eye was the volume distribution in the blue chip indices. One of my programs reported 0% volume of advancing issues and 100% volume of declining issues for the components of the DJIA, S&P 100 (OEX) and SPX. 100% of the issues in the DJIA declined on Friday while 99% of the issues in the OEX and SPX declined on Friday. The 1% of advancing issues in the OEX and SPX must have accounted for less than 0.5% of all of the volume of the component issues in those indices. This phenomenon was not expressed in the small caps. In the R2K "only" 88% of the volume went to declining issues.

Short Term

Since the 1st of September the market has been in a cyclical pattern making a low around the 1st of the month and a high around the middle of the month.

The chart below covers the past 6 months showing the NASDAQ 100 (NDX) in red and momentum of new highs of the component issues of the NDX in green. For this indicator new highs have been calculated over the trailing 3 weeks rather than 52 weeks as reported by the exchanges. Dashed vertical lines have been drawn on the 1st trading day of each month.

I selected this indicator because it is the smoothest representation of the pattern visible in many indicators including price averages.

The pattern suggests we should see a low for this cycle next week.

Intermediate term

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

The chart below covers the past 184 trading days (from the March low) showing 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 last trading day of November and the 1st 4 trading days of December during the 1st year of the Presidential Cycle.

The tables below show the return on a percentage basis for the last trading day of November and the 1st 4 trading days of December during the 1st year of the Presidential Cycle. OTC data covers the period from 1963 - 2008 and SPX data from 1928 - 2008. There are summaries for both the 1st year of the Presidential Cycle and all years combined.

The seasonal pattern for the period has been positive by all measures and a little stronger during the 1st year of the Presidential Cycle than other years.

Last 1 day of November and first 4 days of December.
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 Day1 Day2 Day3 Day4 Totals
1965-1 0.11% 2 0.52% 3 0.21% 4 0.43% 5 -0.30% 1 0.97%
 
1969-1 -0.11% 5 0.16% 1 -0.55% 2 -0.23% 3 -0.97% 4 -1.70%
1973-1 -1.17% 5 -1.65% 1 -0.45% 2 -2.00% 3 1.72% 4 -3.55%
1977-1 -0.05% 3 0.51% 4 0.41% 5 0.05% 1 -1.13% 2 -0.21%
1981-1 0.17% 1 -0.12% 2 -0.39% 3 -0.22% 4 0.49% 5 -0.07%
1985-1 0.30% 5 -0.32% 1 0.06% 2 1.13% 3 0.48% 4 1.65%
Avg -0.17% -0.28% -0.18% -0.25% 0.12% -0.78%
 
1989-1 0.06% 4 0.22% 5 0.26% 1 0.06% 2 -0.41% 3 0.19%
1993-1 0.38% 2 1.25% 3 0.38% 4 0.72% 5 -0.15% 1 2.58%
1997-1 0.38% 5 1.88% 1 -1.49% 2 0.54% 3 -0.11% 4 1.21%
2001-1 -0.14% 5 -1.33% 1 3.06% 2 4.27% 3 0.36% 4 6.22%
2005-1 0.00% 3 1.54% 4 0.27% 5 -0.69% 1 0.14% 2 1.26%
Avg 0.14% 0.71% 0.50% 0.98% -0.03% 2.29%
 
OTC summary for Presidential Year 1 1965 - 2005
Averages -0.01% 0.24% 0.16% 0.37% 0.01% 0.78%
% Winners 64% 64% 64% 64% 45% 64%
MDD 12/5/1973 5.17% -- 12/4/1969 1.74% -- 12/2/1997 1.49%
 
OTC summary for all years 1963 - 2008
Averages -0.09% 0.14% 0.19% 0.49% -0.06% 0.67%
% Winners 65% 63% 63% 70% 54% 65%
MDD 12/1/2008 8.95% -- 12/4/1987 7.44% -- 12/5/1974 6.40%
 
SPX Presidential Year 1
  Day1 Day1 Day2 Day3 Day4 Totals
1929-1 1.26% 3 0.14% 1 3.34% 2 1.85% 3 -0.82% 4 5.77%
1933-1 1.86% 3 0.30% 5 0.10% 6 -0.20% 1 3.03% 2 5.09%
1937-1 1.37% 2 -1.26% 3 2.01% 4 1.34% 5 0.09% 6 3.54%
1941-1 -0.22% 6 -0.33% 1 2.09% 2 1.08% 3 0.21% 4 2.84%
1945-1 0.94% 5 0.58% 6 0.87% 1 -0.11% 2 -0.06% 3 2.22%
Avg 1.04% -0.11% 1.68% 0.79% 0.49% 3.89%
 
1949-1 0.25% 3 0.56% 4 0.80% 5 0.80% 6 0.00% 1 2.41%
1953-1 0.41% 1 0.08% 2 0.69% 3 0.08% 4 0.04% 5 1.29%
1957-1 1.14% 5 -0.86% 1 0.02% 2 0.41% 3 -0.05% 4 0.66%
1961-1 -0.53% 4 0.64% 5 0.32% 1 -0.11% 2 0.08% 3 0.41%
1965-1 -0.21% 2 -0.12% 3 -0.32% 4 0.07% 5 -0.75% 1 -1.32%
Avg 0.21% 0.06% 0.30% 0.25% -0.13% 0.69%
 
1969-1 0.58% 5 -0.63% 1 -0.61% 2 -1.08% 3 0.33% 4 -1.41%
1973-1 -1.39% 5 -2.15% 1 -0.33% 2 -1.53% 3 2.45% 4 -2.94%
1977-1 0.30% 3 -0.15% 4 -0.02% 5 -0.42% 1 -1.53% 2 -1.82%
1981-1 1.01% 1 -0.20% 2 -1.12% 3 0.34% 4 0.91% 5 0.95%
1985-1 -0.18% 5 -0.85% 1 0.20% 2 1.68% 3 -0.17% 4 0.68%
Avg 0.06% -0.79% -0.38% -0.20% 0.40% -0.91%
 
1989-1 0.70% 4 1.34% 5 0.22% 1 -0.52% 2 -0.29% 3 1.44%
1993-1 -0.02% 2 0.02% 3 0.26% 4 0.38% 5 0.33% 1 0.98%
1997-1 0.40% 5 2.03% 1 -0.32% 2 0.52% 3 -0.37% 4 2.25%
2001-1 -0.07% 5 -0.84% 1 1.32% 2 2.23% 3 -0.28% 4 2.37%
2005-1 -0.64% 3 1.22% 4 0.03% 5 -0.24% 1 0.13% 2 0.50%
Avg 0.07% 0.75% 0.30% 0.48% -0.10% 1.51%
 
SPX summary for Presidential Year 1 1929 - 2005
Averages 0.35% -0.02% 0.48% 0.33% 0.16% 1.30%
% Winners 60% 50% 70% 60% 50% 80%
MDD 12/5/1973 5.29% -- 12/3/1969 2.30% -- 12/6/1977 2.11%
 
SPX summary for all years 1928 - 2008
Averages 0.16% -0.05% 0.14% 0.26% 0.06% 0.57%
% Winners 56% 51% 57% 64% 53% 67%
MDD 12/1/2008 8.93% -- 12/4/1987 6.83% -- 12/5/1974 5.49%

December

Over all years since 1963, the OTC, in December, has been up 63% of the time with an average gain of 1.8% making it, on average, the 2nd strongest month of the year behind January. The best December ever was in 1999 up 21.3% and the worst in 2002 down 10.1%.

During the 1st year of the Presidential Cycle the OTC has been up 55% of the time with an average gain/loss of 0.0%. The largest OTC loss in December was 3.7% in 1997 while the largest gain was 3.7% in 1985.

The chart below shows the OTC average December 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 less 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.

Over all years since 1928, the SPX, in December, has been up 74% of the time with an average gain of 1.5%, making it the best month of the year. The best December ever was 2008 up 10.7% and the worst 1931, down 13.4%.

During the 1st year of the Presidential Cycle the SPX has been up 60% of the time in December with an average gain of 0.3% ranking it about in the middle. The largest December loss was 4.2% in 1941 and the largest gain 5.4% in 1985.

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

Conclusion

The market is nearing a short term cyclical low. Recently the market has been rallying early in the month and historically early December has been strong.

I expect the major indices to be higher on Friday December 4 than they were on Friday November 27.

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 SPX was up slightly while all of the other major indices were down so I am calling last weeks positive 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/

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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