Technical Market Report for April 17, 2010

By: Mike Burk | Sat, Apr 17, 2010
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The good news is:
• All of the major indices closed at recovery highs on Thursday.

The Negatives

The market is overbought.

By my way of counting where all of the major indices must be down to count the week as down, there has not had a down week in the past 10 weeks.

Most of the indicators confirmed Thursday's highs, NYSE volume is the exception. I do not know of any volume indicators that generate buy and sell signals. There is usually a nebulous pattern of volume increasing when the market is rising and volume decreasing when the market is falling. I think of it as a matter of interest. That is, a rising market generates more interest which is reflected in rising volume. Over the past 13 months we have witnesses one of the greatest bull markets in history and it has not generated any interest.

The chart below covers the past 8 years showing the S&P 500 (SPX) in orange and a 5% trend (39 day EMA) of NYSE total volume in grey. Dashed vertical lines have been drawn on the 1st trading day of each year.

NYSE Volume has fallen to an 8 year low.

NYSE Total Volume

The next chart is similar to the one above except is shows the NASDAQ composite (OTC) in blue and the indicator has been calculated from NASDAQ total volume.

The NASDAQ chart is not as dramatic as the NYSE, however, although not falling dramatically, volume has not been increasing.

NASDAQ Total Volume

The Positives

The positives are numerous.

There were 611 new highs on the NYSE Wednesday and 388 new highs on the NASDAQ Thursday; both highs for this advance and both big enough numbers to make additional index highs very likely.

Advance - Decline lines (ADL) are running totals of declining issues subtracted from advancing issues. Both the NYSE ADL and NASDAQ (OTC) ADL hit recovery highs on Thursday. These indicators also suggest additional index highs in the near future.

The chart below covers the past year showing the OTC in blue and the ratio of NASDAQ new highs to new lows (OTC HL Ratio) in red. OTC HL Ratio = OTC new highs / (OTC new highs + OTC new lows). Dashed vertical lines have been drawn on the 1st trading day of each month and dashed horizontal lines have been drawn at 10% levels of the indicator, the line is solid at the neutral 50% level.

At 95.7% the indicator is extremely high. From this level a short term decline is likely, but a long term decline is not.

NASDAQ Hi/Lo Ratio 2009-2010

The next chart is similar to the one above except it covers the past 8 years to give you a longer term perspective on this indicator, dashed vertical lines have been drawn on the 1st trading day of each year.

The last time OTC HL Ratio was at current levels was in late 2002 and early 2003.

NASDAQ Hi/Lo Ratio 2002-2010

Seasonality

Next week includes the 5 trading days prior to the 4th 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 4th Friday of April 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. 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. The report generator counts Friday-s the market traded. Since Good Friday usually falls in April there are errors in the tables indicated by the weeks filled with 000's.

On average the coming week has not been a good one and it has been at its worst during the 2nd year of the Presidential Cycle.

Report for the week before the 4th Friday of April.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday through the 4th Friday.

OTC Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1966-2 0.25% 1.10% 0.03% -0.81% -0.07% 0.50%
 
1970-2 -1.37% -1.70% -1.37% -1.55% -2.78% -8.77%
1974-2 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
1978-2 0.25% 0.60% 0.37% -0.10% 0.51% 1.63%
1982-2 0.47% -0.58% 0.09% -0.40% 0.30% -0.12%
1986-2 0.20% -0.24% -0.25% 0.52% 0.21% 0.45%
Avg -0.11% -0.48% -0.29% -0.38% -0.44% -1.70%
 
1990-2 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
1994-2 1.14% 0.47% 0.00% -0.34% 0.29% 1.56%
1998-2 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
2002-2 -2.12% -1.61% -0.98% 0.02% -2.91% -7.60%
2006-2 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Avg -0.49% -0.57% -0.98% -0.16% -1.31% -3.02%
 
OTC summary for Presidential Year 2 1966 - 2006
Avg -0.17% -0.28% -0.35% -0.38% -0.63% -1.77%
Win% 71% 43% 50% 29% 57% 57%
 
OTC summary for all years 1963 - 2009
Avg -0.12% -0.10% -0.04% 0.03% -0.27% -0.48%
Win% 56% 48% 71% 63% 52% 64%
 
SPX Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1954-2 0.36% -0.43% 0.00% 1.51% 0.28% 1.73%
1958-2 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
1962-2 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
1966-2 -0.21% -0.10% -0.25% -0.69% -0.08% -1.32%
 
1970-2 0.19% -0.52% -1.30% -1.46% -0.33% -3.42%
1974-2 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
1978-2 1.52% 0.91% 0.19% -0.99% 1.01% 2.63%
1982-2 0.52% -1.06% -0.63% -0.96% 0.27% -1.86%
1986-2 0.97% -0.95% -0.28% 0.11% 0.11% -0.03%
Avg 0.80% -0.41% -0.50% -0.83% 0.27% -0.67%
 
1990-2 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
1994-2 1.13% -0.19% 0.00% -0.61% 0.40% 0.74%
1998-2 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
2002-2 0.00% -2.15% -0.71% -0.15% -1.39% -4.40%
2006-2 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Avg 1.13% -1.17% -0.71% -0.38% -0.49% -1.83%
 
SPX summary for Presidential Year 2 1954 - 2006
Avg 0.64% -0.56% -0.50% -0.41% 0.04% -0.74%
Win% 86% 13% 17% 25% 63% 38%
 
SPX summary for all years 1953 - 2009
Avg -0.05% 0.04% -0.27% -0.08% 0.03% -0.30%
Win% 50% 52% 32% 37% 55% 48%

Money Supply (M2)

The money supply chart below was provided by Gordon Harms. Money supply has been under trend all year and deteriorated further over the past month.

M2 Money Supply

Conclusion

All of the major indices hit recovery highs on Thursday and those highs were confirmed by most of the indicators. The market is about as overbought as it has ever been; 10 consecutive up weeks.

I expect the major averages to be lower on Friday April 23 than they were on Thursday April 16.

Last week the SPX was down while the rest of the major indices were up so I am calling last weeks negative forecast a tie. 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, Jerry Minton asks three "What ifs" and comes up with "The Formula". You can read about it and 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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