Technical Market Report

By: Mike Burk | Sat, Feb 13, 2010
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The good news is:
• The correction that began in mid January is likely over.

The negatives

It would be nice to see some volume on the up moves.

Volume has been rising since the 1st of the year then began falling as the market found a bottom early last week.

The chart below covers the past 6 months showing the NASDAQ composite (OTC) in blue and a 5% trend (39 day EMA) of NASDAQ total volume in orange. Dashed vertical lines have been drawn on the 1st trading day of each month.

The pattern of declining volume on rallies has been consistent since shortly after the lows last March.

The Positives

It may be a little early to call last Monday's low the bottom, but, there never was any reason to believe the pull back of the past month was anything but a bull market correction.

The chart below covers the past year showing the OTC in blue and a 40% trend (4 day EMA) of NASDAQ new highs divided by new highs + new lows (OTC HL Ratio) in red. Dashed horizontal lines have been drawn at 10% levels of the indicator; the line is solid at the neutral 50% level.

OTC HL Ratio moved sharply upward after briefly dropping below the neutral point. This pattern has been consistent with previous corrections in this rally.

Seasonality

Next week includes 4 trading days prior to the 3rd Friday in February during the 2nd year of the Presidential Cycle.

The tables below show the return on a percentage basis for the 5 trading days of prior to the 3rd Friday of February during the 2nd year of the Presidential Cycle. OTC data covers the period from 1963 - 2009 and S&P 500 (SPX) data from 1953 - 2009. Presidents Day, the 3rd Monday in February can fall in different weeks when measured by Friday's. There are summaries for both the 2nd 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.

Average returns over most periods have been modestly positive.

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

OTC Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1966-2 0.23% -0.22% -0.47% 0.50% 0.13% 0.19%
 
1970-2 -0.17% -0.10% -0.17% 0.67% 0.02% 0.26%
1974-2 -1.16% -0.69% -0.46% 0.14% 0.85% -1.32%
1978-2 -0.23% -0.54% -0.21% -0.38% 0.08% -1.29%
1982-2 0.00% -0.99% 0.30% 0.07% -0.40% -1.02%
1986-2 0.00% 0.61% 0.15% 0.06% 0.72% 1.54%
Avg -0.52% -0.34% -0.08% 0.11% 0.25% -0.37%
 
1990-2 -0.57% -0.15% 0.19% 0.72% -0.14% 0.04%
1994-2 0.52% 0.59% 0.32% -0.30% -0.18% 0.95%
1998-2 0.00% -0.41% 0.72% 0.66% 0.06% 1.04%
2002-2 1.53% -0.67% 1.36% -0.85% -2.07% -0.71%
2006-2 -0.98% 1.00% 0.63% 0.80% -0.53% 0.92%
Avg 0.12% 0.07% 0.64% 0.20% -0.57% 0.45%
 
OTC summary for Presidential Year 2 1966 - 2006
Avg -0.10% -0.14% 0.21% 0.19% -0.13% 0.05%
Win% 38% 27% 64% 73% 55% 64%
 
OTC summary for all years 1963 - 2009
Avg 0.05% -0.18% 0.05% 0.13% -0.17% -0.13%
Win% 57% 46% 55% 60% 47% 55%
 
SPX Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1954-2 -0.31% -0.88% 0.19% 0.39% -0.15% -0.76%
1958-2 -0.53% 0.15% -0.05% -0.58% -0.07% -1.09%
1962-2 -0.03% -0.01% -0.04% 0.45% -0.21% 0.16%
1966-2 -0.17% -0.51% -0.01% -0.54% -0.27% -1.50%
 
1970-2 -0.08% -0.12% 1.24% 0.37% 0.31% 1.72%
1974-2 -1.81% 0.31% 0.04% -0.03% 1.45% -0.04%
1978-2 -0.24% -0.91% -0.24% -0.84% -0.14% -2.37%
1982-2 0.00% -0.28% -0.32% 0.11% -0.53% -1.02%
1986-2 0.00% 1.22% -1.21% 1.12% 1.08% 2.21%
Avg -0.71% 0.04% -0.10% 0.14% 0.44% 0.10%
 
1990-2 -1.06% 0.28% 0.30% 0.87% -0.65% -0.26%
1994-2 0.01% 0.49% 0.06% -0.52% -0.56% -0.53%
1998-2 0.00% 0.26% 0.91% -0.37% 0.57% 1.38%
2002-2 1.43% -0.40% 0.99% -0.18% -1.10% 0.75%
2006-2 -0.33% 1.00% 0.35% 0.73% -0.17% 1.59%
Avg 0.01% 0.33% 0.52% 0.11% -0.38% 0.59%
 
SPX summary for Presidential Year 2 1954 - 2006
Avg -0.28% 0.04% 0.16% 0.07% -0.03% 0.02%
Win% 18% 50% 57% 50% 29% 43%
 
SPX summary for all years 1953 - 2009
Avg 0.05% -0.08% 0.18% -0.05% -0.02% 0.06%
Win% 45% 54% 58% 47% 46% 56%

Money supply (M2)

The money supply chart was provided by Gordon Harms. Money supply growth has remained comatose.

Conclusion

Since Monday the secondaries have led the way upward, new highs have picked up a little and new lows have remained low. These are reasons to think last Monday's lows will be the lows for this correction.

I expect the major averages to be higher on Friday February 19 than they were on Friday February 12.

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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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