Technical Market Report

By: Mike Burk | Sun, Feb 27, 2005
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The good news is:
 • Seasonally next week is very strong.

My definition of a classical top is one where a high in all of the major indices is followed by a dip, then another high by the blue chip indices, but not the small cap indices. This pattern usually develops in about a 6 week time frame, give or take a few weeks.

The chart below shows the Russell 2000 (R2K) in red, the S&P 500 (SPX) in grey and a 10% trend (19 day EMA) of NASDAQ new lows (NL) in blue. NL is plotted on an inverted Y axis so the indicator moves upward when new lows are decreasing and downward when they are increasing (Up is good & Down is bad). The R2K is 2.6% off its December high while the SPX is only 0.12% off its December high. Since its December high NL has been falling even during the market rise of the past 6 weeks.

A new high in the R2K would postpone the topping scenario.

The chart below shows the R2K in red and momentum of an oscillator of NASDAQ new highs and new lows in blue. The market has usually moved sharply upward for several days after the indicator has turned upward which it did last week.

The tables below show the last trading day of February and the first 4 trading days of March during the 1st year of the presidential cycle for the OTC and SPX with summary data for all years.

NASDAQ data covers the period from 1963 to 2004 while SPX data covers the period from 1928 to 2004. The 1st presidential year is broken into 5 period groups to help identify longer term trends.

Both indices have been very strong over the period overall and during the 1st year of the presidential cycle, but the SPX has been the stronger of the two for this period.

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.
MDD = Maximum Draw Down
Presidential years Year 1
  Day1 Day1 Day2 Day3 Day4 Totals
1965-1 -0.15% 5 0.25% 1 -0.23% 2 -0.12% 3 0.21% 4 -0.04%
1969-1 -0.82% 5 -0.13% 1 -0.16% 2 0.40% 3 0.07% 4 -0.65%
1973-1 0.51% 3 -0.73% 4 0.49% 5 0.37% 1 1.13% 2 1.76%
1977-1 -0.35% 1 0.60% 2 0.05% 3 0.36% 4 0.57% 5 1.23%
1981-1 0.96% 5 0.53% 1 -0.36% 2 0.20% 3 0.15% 4 1.48%
Average 0.03% 0.10% -0.04% 0.24% 0.42% 0.76%
 
1985-1 0.02% 4 1.05% 5 -0.03% 1 0.01% 2 -0.57% 3 0.48%
1989-1 0.19% 2 0.02% 3 0.68% 4 0.36% 5 0.56% 1 1.82%
1993-1 0.55% 5 -0.19% 1 1.23% 2 0.91% 3 -0.47% 4 2.04%
1997-1 -0.28% 5 0.17% 1 0.40% 2 0.96% 3 -1.03% 4 0.22%
2001-1 -2.54% 3 1.47% 4 -3.01% 5 1.19% 1 2.87% 2 -0.02%
Average -0.41% 0.50% -0.15% 0.69% 0.27% 0.91%
 
Averages -0.19% 0.30% -0.09% 0.46% 0.35% 0.83%
% Winners 50% 70% 50% 90% 70% 70%
MDD 3/2/2001 4.09% -- 3/4/1969 1.11% -- 3/6/1997 1.03%

SPX Summary of all years combined 1928 - 2005
Averages 0.13% 0.22% 0.20% 0.20% 0.01% 0.74%
% Winners 59% 64% 58% 63% 53% 68%
MDD 3/6/1980 4.41% -- 3/4/1931 3.83% -- 3/5/1935 3.64%
 
Presidential Year 1
  Day1 Day1 Day2 Day3 Day4 Totals
1929-1 1.35% 4 0.94% 5 -0.23% 6 -1.09% 1 -0.67% 2 0.30%
1933-1 2.35% 2 1.94% 3 -2.08% 4 3.36% 5 2.00% 3 7.58%
1937-1 0.17% 6 0.00% 1 1.38% 2 1.15% 3 -0.92% 4 1.78%
1941-1 0.40% 5 -0.20% 6 -1.31% 1 0.51% 2 -0.61% 3 -1.21%
 
1945-1 0.70% 3 0.14% 4 -0.63% 5 0.00% 6 0.49% 1 0.71%
1949-1 1.18% 1 0.62% 2 -0.27% 3 -0.14% 4 0.14% 5 1.52%
1953-1 -0.19% 5 0.12% 1 0.27% 2 -0.85% 3 0.04% 4 -0.61%
1957-1 -0.35% 4 1.11% 5 0.73% 1 0.36% 2 0.25% 3 2.11%
1961-1 0.22% 2 -0.02% 3 0.66% 4 0.16% 5 0.16% 1 1.18%
Average 0.31% 0.39% 0.15% -0.09% 0.21% 0.98%
 
1965-1 0.26% 5 -0.21% 1 0.17% 2 -0.16% 3 -0.32% 4 -0.25%
1969-1 -0.01% 5 0.25% 1 0.96% 2 0.39% 3 -1.01% 4 0.58%
1973-1 0.70% 3 -0.56% 4 1.11% 5 0.36% 1 1.26% 2 2.86%
1977-1 0.34% 1 0.84% 2 -0.27% 3 0.49% 4 0.32% 5 1.72%
1981-1 0.90% 5 0.56% 1 -1.10% 2 0.23% 3 -0.71% 4 -0.12%
Average 0.44% 0.18% 0.17% 0.26% -0.09% 0.96%
 
1985-1 0.26% 4 1.13% 5 -0.64% 1 0.09% 2 -0.87% 3 -0.02%
1989-1 0.36% 2 -0.61% 3 0.99% 4 0.42% 5 1.25% 1 2.42%
1993-1 0.24% 5 -0.31% 1 1.33% 2 0.30% 3 -0.43% 4 1.13%
1997-1 -0.54% 5 0.57% 1 -0.55% 2 1.40% 3 -0.43% 4 0.45%
2001-1 -1.43% 3 0.10% 4 -0.57% 5 0.59% 1 1.00% 2 -0.31%
Average -0.22% 0.18% 0.11% 0.56% 0.10% 0.73%
 
Averages 0.36% 0.34% 0.00% 0.40% 0.05% 1.15%
% Winners 74% 63% 47% 74% 53% 68%
MDD 3/2/1933 2.08% -- 3/5/1929 1.97% -- 3/2/2001 1.89%

The market appears to have put in a short term low last week. Add a strong seasonal bias and next week should be pretty good.

I expect the major indices to be higher on Friday March 4 than they were on Friday, February 25.

My forecast for a down market last week looked pretty good on Tuesday, but then the market put in three consecutive up days to close with all of the major indices in positive territory.


 

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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