Technical Market Report

By: Mike Burk | Sat, Dec 12, 2009
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The good news is:
• The Dow Jones Industrial Average hit new recovery high last Friday.

Short Term

The market is comatose, no movement, no volume.

The charts below cover the last 194 trading days (since the March low) showing the S&P 500 (SPX) in red and a 5% trend (39 day EMA) of NYSE volume in black. Dashed vertical lines have been drawn on the 1st trading day of each month.

This indicator is at its lowest point in over 8 years. If they manage to get rid of the "Flash traders" there will be nothing left.

In technical analysis we use moving averages to smooth things out and momentum indicators to get a feel for the strength of moves.

The chart below shows the NASDAQ composite (OTC) in blue and the OTC high - low summation index (OTC HL SI) in black. OTC HL SI is a running total of high - low oscillator values. OTC HL SI moves up when the oscillator is positive and down when the oscillator is negative.

For the past month OTC HL SI has been flat.

The chart below shows the OTC in blue and momentum of OTC HL SI (the indicator shown above) in black.

Sometimes you have to create your own excitement (the parameters for the indicator are very short).

Intermediate term

There has been nothing to punctuate the boredom.

The next 2 charts are updates of ones shown last week. The first 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 market has not been getting stronger, but, it has not been getting any weaker either. As these indicators remain above the 50% level, not much bad is going to happen.

Seasonality

Next week includes the 5 trading days prior to the 3rd Friday of December during the 1st year of the Presidential Cycle.

The tables below show the return on a percentage basis for the 5 trading days prior to the 3rd Friday of December during the 1st year of the Presidential Cycle. OTC data covers the period from 1963 - 2008 and SPX data from 1953 - 2008. Prior to 1953 the market traded 6 days a week so that data has been ignored. There are summaries for both the 1st year of the Presidential Cycle and all years combined.

Seasonal averages for next week offer no suggestion of excitement. Average returns for the coming week have been less then +/- 0.5%.

Report for the week before the 3rd Friday of December.
The number following the year is the position in the presidential cycle.
Daily returns from Monday through 3rd Friday.

OTC Presdental Year 1
Year Mon Tue Wed Thur Fri Totals
1965-1 0.81% 0.12% 0.27% 0.14% -0.07% 1.27%
 
1969-1 0.04% 0.14% -0.54% -0.66% 1.28% 0.26%
1973-1 -0.56% 1.60% -0.35% 0.03% -0.83% -0.10%
1977-1 0.31% 0.20% -0.13% -0.07% 0.15% 0.46%
1981-1 -1.50% -0.26% -0.04% 0.31% 0.67% -0.81%
1985-1 0.36% -0.59% -0.24% 0.06% 0.14% -0.27%
Avg -0.27% 0.22% -0.26% -0.06% 0.28% -0.09%
 
1989-1 -0.83% -0.44% 0.16% -0.81% -0.81% -2.74%
1993-1 -0.13% -1.09% 0.20% 0.34% 0.49% -0.19%
1997-1 0.00% 1.07% -0.36% -1.56% 0.10% -0.76%
2001-1 1.76% 0.87% -1.09% -3.25% 1.42% -0.29%
2005-1 0.19% 0.18% -0.11% -0.09% -0.36% -0.19%
Avg 0.24% 0.12% -0.24% -1.07% 0.17% -0.83%
 
OTC summary for Presdential Year 1 1965 - 2005
Avg 0.04% 0.16% -0.20% -0.50% 0.20% -0.31%
Win% 60% 64% 27% 45% 64% 27%
 
OTC summary for all years 1963 - 2008
Avg -0.03% 0.13% -0.06% -0.01% 0.17% 0.20%
Win% 50% 52% 49% 59% 59% 59%
 
SPX Presidental Year 1
Year Mon Tue Wed Thur Fri Totals
1953-1 -0.28% 0.08% 1.01% -0.08% 0.20% 0.93%
1957-1 -1.50% -1.74% -0.10% 1.07% -0.80% -3.08%
1961-1 0.49% 0.35% -0.15% -0.76% 0.04% -0.04%
1965-1 0.03% 0.05% 0.15% 0.11% -0.04% 0.30%
 
1969-1 -0.30% -0.91% -0.58% 1.58% 0.85% 0.65%
1973-1 -0.58% 2.15% 0.08% -0.28% -1.07% 0.30%
1977-1 -0.02% -0.07% 0.50% -0.51% -0.16% -0.26%
1981-1 -1.72% 0.17% -0.46% 0.57% 0.71% -0.73%
1985-1 0.99% -0.65% -0.40% 0.10% 0.44% 0.48%
Avg -0.33% 0.14% -0.17% 0.29% 0.15% 0.09%
 
1989-1 -0.04% 0.91% 0.29% -0.52% -0.23% 0.42%
1993-1 0.38% -0.57% -0.26% 0.32% 0.66% 0.53%
1997-1 1.05% 0.48% -0.26% -1.06% -0.89% -0.68%
2001-1 1.00% 0.75% 0.58% -0.84% 0.44% 1.94%
2005-1 0.08% 0.56% 0.42% -0.14% -0.28% 0.63%
Avg 0.50% 0.43% 0.15% -0.45% -0.06% 0.57%
 
SPX summary for Presidential Year 1 1953 - 2005
Avg -0.03% 0.11% 0.06% -0.03% -0.01% 0.10%
Win% 50% 64% 50% 43% 50% 64%
 
SPX summary for all years 1953 - 2008
Avg 0.04% 0.20% 0.06% -0.03% 0.18% 0.44%
Win% 55% 51% 53% 46% 59% 63%

Money Supply (M2)

The money supply chart was provided by Gordon Harms. Money supply growth fell a little last week.

Conclusion

The Santa Clause rally is not scheduled to begin for another week and a half, in the mean time there is not much pushing the market either way.

I expect the major indices to be higher on Friday December 18 than they were on Friday December 11.

Last week the blue chips were up less than 1% and the secondaries were down less than 1% so I am calling last week's negative forecast a tie.

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In the current Power Investing newsletter, entitled "Steamrollers and Politicians", Jerry Minton explores a casino business model for investors. Sign up for the newsletter at www.alphaim.net. While you're there, take a look at Alpha's newest program: The MidCap Power Index Managed Account.

Tom Malone is an active trader who documents and explains his trading approach in a barrage of daily e-mails. He is a permabull so I pay closer attention when he is negative. I have been reading his stuff for years and am addicted to it. If you are interested in the thoughts of an active trader you can reach him at: tomandprisha@msn.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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