Technical Market Report

By: Mike Burk | Sat, Apr 3, 2010
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The good news is:
• The blue chip indices closed at recovery highs Friday.

The negatives

NYSE new highs picked up on Thursday after hitting their lowest point in a month on Wednesday.

The chart below covers the past 6 months showing the S&P 500 (SPX) in red and a 10% trend (19 day EMA) of NYSE new highs (NY NH) in green. Dashed vertical lines have been drawn on the 1st trading day of each month.

NY NH did not confirm the SPX high on Friday.

S&P500 and 19-Day EMA of NYSE New Highs

We have seen one of the best 1 year advances ever recorded and volume remains pathetic.

The chart below covers the past year showing the SPX in red and a 5% trend (39 day EMA) of total NYSE volume in grey.

Volume is near its lowest level in 9 years.

S&P500 and 39-Day EMA of Total NYSE Volume

Summation indices (SI) are a running total of oscillator values.

The chart below covers the past year showing the SPX in red and an SI calculated from NYSE new highs and new lows. The market has not been able to advance significantly while this indicator has been falling as it is now.

S&P500 With SI Calculated From New Highs and New Lows

SI's calculated from Advancing - declining issues and advancing - declining volume on both the NYSE and NASDAQ are also falling.

The Positives

Short term the market is suffering from fatigue, but, there are no visible longer term negatives. New highs have declined, but, new lows have remained dormant. NYSE new lows remained in single digits last week. A long standing rule of thumb says there is no reason for concern until NYSE new lows exceed 40 for several consecutive days. NASDAQ new lows hit a high of 16 on Wednesday. The rule of thumb for NASDAQ new lows says there is little reason for concern until the number exceeds 70 for several days.

Advance decline lines (ADL) are running totals of declining issues subtracted from advancing issues. The NYSE ADL hit a new all time high Friday.

The chart below covers the past year showing the SPX in red and the NYSE ADL in blue.

S&P500 and NYSE ADL

The next chart covers the past 25 years showing the SPX in red and the NYSE ADL in blue. Dashed vertical lines have been drawn on the 1st trading day of each year.

Around the year 2000 the NYSE ADL went from having a negative bias to a strongly positive one. The percentage of fixed income related issues on the NYSE has been growing for a long time and is currently a little over half. The move to record low interest rates in 2001 - 2002 appears to have been the turning point.

S&P500 and NYSE ADL Since 1995

Seasonality

Next week includes the 5 trading days prior to the 2nd Friday of April during the 2nd year of the Presidential Cycle.

The tables below show the return on a percentage basis for the 5 trading days prior to the 2nd Friday of April during the 2nd year of the Presidential Cycle. NASDAQ composite (OTC) data covers the period from 1963 - 2009 and SPX data from 1953 - 2009. 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.

Next week has had a modestly positive bias. The OTC loss of 28.16% for the week in April 2000 skews the all year average downward.

OTC loss of 28.16% in 2000 skews the all year average.

Report for the week before the 2nd Friday of April
The number following the year is the position in the presidential cycle.
Daily returns from Monday to 2nd Friday.
OTC Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1966-2 0.30% 0.20% -0.33% 0.10% 0.32% 0.59%
 
1970-2 -0.27% -0.23% -1.39% -0.40% -0.31% -2.60%
1974-2 -0.41% 1.02% 0.43% 0.20% -0.65% 0.59%
1978-2 0.28% -0.08% 0.40% 1.03% 1.18% 2.80%
1982-2 -0.14% -0.07% -0.19% 0.39% 0.62% 0.61%
1986-2 -0.68% 1.14% 0.07% 0.80% 0.46% 1.79%
Avg -0.25% 0.35% -0.14% 0.41% 0.26% 0.64%
 
1990-2 0.09% -0.29% -0.90% -0.58% -0.75% -2.43%
1994-2 -0.08% -1.19% -1.60% -0.01% 0.09% -2.79%
1998-2 0.26% 0.99% 1.10% -0.27% 0.45% 2.53%
2002-2 0.89% -2.42% 1.41% -2.37% 1.79% -0.70%
2006-2 -0.64% 1.95% 0.63% -0.35% -0.83% 0.74%
Avg 0.11% -0.19% 0.13% -0.72% 0.15% -0.53%
 
OTC summary for Presidential Year 2 1966 - 2006
Avg -0.04% 0.09% -0.03% -0.13% 0.22% 0.10%
Win% 45% 45% 55% 45% 64% 64%
 
OTC summary for all years 1963 - 2009
Avg 0.01% -0.10% -0.13% 0.23% -0.23% -0.22%
Win% 62% 51% 53% 57% 57% 62%
 
SPX Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1954-2 0.18% -0.92% 0.37% 1.00% 0.73% 1.36%
1958-2 0.62% 1.02% -0.78% 0.36% 1.09% 2.31%
1962-2 -0.77% 0.37% -0.22% -1.02% 0.28% -1.37%
1966-2 0.03% -0.37% 0.10% 0.36% 0.13% 0.25%
 
1970-2 -0.70% -0.27% -0.03% 0.05% -0.33% -1.29%
1974-2 -0.08% 1.75% 0.75% 0.45% -1.09% 1.78%
1978-2 0.35% -0.27% -0.16% 0.97% 2.13% 3.03%
1982-2 -0.19% -0.01% -0.14% 0.45% 0.40% 0.51%
1986-2 -0.03% 2.14% 0.10% 1.15% -0.20% 3.16%
Avg -0.13% 0.67% 0.10% 0.61% 0.18% 1.44%
 
1990-2 0.12% -0.02% -1.15% -0.77% -0.88% -2.70%
1994-2 0.62% -0.51% -0.29% 0.03% -0.04% -0.20%
1998-2 -0.09% 0.54% 0.32% -0.99% 1.31% 1.09%
2002-2 0.23% -0.67% 1.13% -2.37% 0.66% -1.01%
2006-2 -0.29% 1.74% 0.17% 0.12% -0.01% 1.72%
Avg 0.12% 0.22% 0.04% -0.80% 0.21% -0.22%
 
SPX summary for Presidential Year 2 1954 - 2006
Avg 0.00% 0.32% 0.01% -0.02% 0.30% 0.62%
Win% 50% 43% 50% 71% 57% 64%
 
SPX summary for all years 1959 - 2009
Avg 0.16% 0.07% 0.02% 0.01% -0.05% 0.21%
Win% 61% 54% 54% 54% 54% 58%

Conclusion

Most of the breadth indicators deteriorated last week and the secondaries underperformed the blue chips.

I expect the major averages to be lower on Friday April 9 than they were on Thursday April 1.

Last weeks negative forecast was a miss.

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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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