Technical Market Report

By: Mike Burk | Sat, Feb 27, 2010
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The good news is:
• There has been no build up of new lows as the market has worked off its over bought condition.

The negatives

Nothing serious here.

It may require a few more days to work off the overbought condition.

The chart below covers the past 6 months showing the NASDAQ composite (OTC) in blue and an indicator showing momentum of NASDAQ downside volume (OTC DV 5% MoM 6) in green. OTC DV 5% MoM 6 has been plotted on an inverted Y axis so the indicator rises when downside volume decreases (up is good).

The indicator is below the neutral line and falling sharply.

The next chart shows the OTC in blue and a 10% trend (19 day EMA) of NASDAQ new highs (OTC NH) in green.

OTC NH as stalled, not alarming, but, if the market were surging, OTC NH would be rising in spite of stalled prices.

The Positives

In spite of stalled prices there has been no build up of new lows.

The chart below covers the past 6 months showing the OTC in blue and a 10% trend of NASDAQ new lows (OTC NL) in black. OTC NL has been plotted on an inverted Y axis so decreasing new lows move the indicator upward (up is good).

In spite of a modestly down week for prices OTC NL moved upward.

The NYSE advance - decline line (NY ADL) hit an all time high last Friday.

Advance - Decline lines are a running total of declining issues subtracted from advancing issues. Until recently (about 10 years ago) the NY ADL had a slightly negative bias making it useful for identifying developing tops. There has been a substantial increase in the number of fixed income issues traded on the NYSE which has caused this indicator to develop a wildly positive bias. Fixed income issues accrue value daily until they go ex-dividend, usually monthly or quarterly.

The chart below covers the past 3 years showing the S&P 500 (SPX) in grey and the NYSE ADL in blue. Dashed vertical lines have been drawn on the 1st trading day of each year.

Although the data has been contaminated, a new all time high for this indicator cannot be bad.

The next chart is similar to the one above except it shows the SPX in red and the NYSE ADL calculated from NYSE equity only issues in blue.

Not as pretty.

Seasonality

Next week includes the first 5 trading days of March during the 2nd year of the Presidential Cycle.

The tables below show the return on a percentage basis for the first 5 trading days of March during the 2nd year of the Presidential Cycle. OTC data covers the period from 1963 - 2009 and SPX data from 1928 - 2009. There are summaries for both the 2nd year of the Presidential Cycle and all years combined.

The SPX had some rough years in the late 1930's and early 1940's, but, aside from that period, average returns over all periods have been modestly positive.

First 5 days of March.
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 2
  Day1 Day2 Day3 Day4 Day5 Totals
1966-2 0.22% 2 -0.54% 3 -0.50% 4 -0.23% 5 -0.72% 1 -1.78%
 
1970-2 0.48% 1 0.13% 2 0.47% 3 0.06% 4 -0.23% 5 0.90%
1974-2 -0.32% 5 -0.27% 1 0.97% 2 0.43% 3 -0.62% 4 0.20%
1978-2 0.00% 3 0.24% 4 0.24% 5 -0.21% 1 0.28% 2 0.54%
1982-2 0.39% 1 0.01% 2 -1.18% 3 -0.97% 4 -1.32% 5 -3.07%
1986-2 0.07% 1 0.34% 2 -0.32% 3 0.46% 4 0.20% 5 0.75%
Avg 0.12% 0.09% 0.03% -0.04% -0.34% -0.14%
 
1990-2 0.32% 4 0.89% 5 -0.20% 1 0.51% 2 0.03% 3 1.55%
1994-2 -0.49% 2 -0.66% 3 0.14% 4 0.76% 5 0.57% 1 0.33%
1998-2 -0.67% 1 -0.09% 2 0.15% 3 -2.72% 4 2.43% 5 -0.90%
2002-2 4.11% 5 3.14% 1 0.37% 2 1.29% 3 -0.46% 4 8.46%
2006-2 1.46% 3 -0.15% 4 -0.37% 5 -0.72% 1 -0.77% 2 -0.55%
Avg 0.95% 0.63% 0.02% -0.18% 0.36% 1.78%
 
OTC summary for Presidential Year 2 1966 - 2006
Averages 0.51% 0.28% -0.02% -0.12% -0.06% 0.58%
% Winners 64% 55% 55% 55% 45% 64%
MDD 3/5/1982 3.43% -- 3/5/1998 3.31% -- 3/7/2006 2.00%
 
OTC summary for all years 1963 - 2009
Averages 0.19% -0.01% 0.33% -0.16% -0.05% 0.31%
% Winners 63% 49% 70% 57% 50% 62%
MDD 3/7/1980 7.49% -- 3/6/2009 6.10% -- 3/6/1968 4.86%
 
SPX Presidential Year 2
  Day1 Day2 Day3 Day4 Day5 Totals
1930-2 0.73% 6 -0.38% 1 0.77% 2 -0.76% 3 0.98% 4 1.34%
1934-2 -0.37% 4 3.26% 5 0.00% 6 -0.54% 1 -1.18% 2 1.17%
1938-2 1.06% 2 -0.96% 3 -0.97% 4 -0.98% 5 -0.09% 6 -1.94%
1942-2 -1.40% 1 1.53% 2 -1.05% 3 -1.53% 4 -2.63% 5 -5.06%
1946-2 -0.41% 5 -0.64% 6 -0.06% 1 1.05% 2 -0.46% 3 -0.51%
Avg -0.08% 0.56% -0.26% -0.55% -0.67% -1.00%
 
1950-2 0.12% 3 -0.06% 4 0.35% 5 0.23% 6 -0.06% 1 0.58%
1954-2 0.38% 1 0.27% 2 0.00% 3 0.34% 4 0.42% 5 1.41%
1958-2 0.71% 1 0.53% 2 0.29% 3 1.28% 4 0.17% 5 2.98%
1962-2 0.34% 4 -0.06% 5 -0.21% 1 -0.33% 2 -0.13% 3 -0.39%
1966-2 -1.27% 2 -1.01% 3 0.36% 4 -0.26% 5 -1.34% 1 -3.52%
Avg 0.06% -0.06% 0.16% 0.25% -0.19% 0.21%
 
1970-2 0.23% 1 0.58% 2 -0.21% 3 -0.04% 4 -0.62% 5 -0.06%
1974-2 -0.72% 5 0.00% 1 1.87% 2 0.68% 3 -1.06% 4 0.77%
1978-2 0.17% 3 0.15% 4 0.15% 5 -0.63% 1 0.53% 2 0.37%
1982-2 0.18% 1 -0.56% 2 -1.56% 3 -0.94% 4 -0.49% 5 -3.37%
1986-2 -0.66% 1 -0.46% 2 -0.02% 3 0.35% 4 0.20% 5 -0.59%
Avg -0.16% -0.06% 0.05% -0.12% -0.29% -0.58%
 
1990-2 0.26% 4 0.84% 5 -0.54% 1 1.26% 2 -0.29% 3 1.53%
1994-2 -0.58% 2 0.08% 3 -0.39% 4 0.37% 5 0.47% 1 -0.05%
1998-2 -0.15% 1 0.41% 2 -0.45% 3 -1.17% 4 2.00% 5 0.64%
2002-2 2.26% 5 1.95% 1 -0.67% 2 1.45% 3 -0.45% 4 4.55%
2006-2 0.83% 3 -0.16% 4 -0.15% 5 -0.70% 1 -0.19% 2 -0.37%
Avg 0.52% 0.62% -0.44% 0.24% 0.31% 1.26%
 
SPX summary for Presidential Year 2 1930 - 2006
Averages 0.09% 0.27% -0.12% -0.04% -0.21% -0.03%
% Winners 60% 50% 30% 45% 35% 50%
MDD 3/6/1942 5.12% -- 3/5/1982 3.50% -- 3/7/1966 3.49%
 
SPX summary for all years 1928 - 2009
Averages 0.16% 0.16% 0.22% 0.12% 0.01% 0.65%
% Winners 64% 54% 63% 52% 51% 62%
MDD 3/5/2009 7.15% -- 3/7/1980 5.95% -- 3/6/1942 5.12%

March

Since 1963 the OTC in March has been up 62% of the time with an average return of 0.5%. During the 2nd year of the Presidential Cycle March has been up 55% of the time with an average return of 0.3%.

The average month has 21 trading days. The chart below has been calculated by averaging the daily percentage change of the OTC for each of the 1st 11 trading days and each of the last 10. In months when there were more than 21 trading days some of the days in the middle were not counted. In months when there were less than 21 trading days some of the days in the middle of the month were counted twice. Dashed vertical lines have been drawn after the 1st trading day and at 5 trading day intervals after that. The line is solid on the 11th trading day, the dividing point.

The blue line shows the daily average of all years since 1963 while the red line shows the daily average during the 2nd year of the Presidential Cycle.

Since 1928 the SPX has been up 60% of the time in March with an average gain of 0.3%. During the 2nd year of the Presidential Cycle the SPX has been up 60% of the time with an average loss of 0.2%. The averages were skewed by a huge 25.8% loss in 1938.

The chart below is similar to the one above except it shows the daily performance over all years for the SPX in March in grey and the performance during the 2nd year of the Presidential Cycle in red.

Conclusion

The market comfortably consolidated its mid February gains last week. That consolidation may continue for a few more days, but, the 1st few days of March are seasonally very strong.

I expect the major averages to be higher on Friday March 5 than they were on Friday February 26.

Last weeks positive forecast was a miss. 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.

In his latest newsletter, "Let's Get Real", Jerry Minton examines the real stock market and how adjusting returns for inflation affects our perception of the market as a long-term investment medium. You can sign up for a free subscription at: http://www.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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