Technical Market Report

By: Mike Burk | Sat, Mar 12, 2005
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The good news is:
 • The market needs occasional down periods to control exuberance. We appear to be at the beginning of one of those down periods. When this period is over, the market will be free to rise again.

New lows are the best indicator for identifying bottoms.

New lows peak at or very near bottoms and diminish very quickly following a bottom.

The chart below shows the S&P 500 in red and a 10% trend (19 day EMA) of NASDAQ new lows in blue. The new low indicator is plotted on an inverted Y axis so that declining new lows move the indicator upward while increasing new lows move the indicator downward. The chart covers the period from about 6 weeks before the August bottom through last Friday.

Dashed vertical lines mark the 1st trading day of each month.

You can see how new lows declined quickly after the August bottom. Later, when the market was rallying to new highs during the last week of February and 1st week of March new lows held steady at relatively high levels. During the past week as the market declined new lows began increasing. There has been a rule of thumb that says you need not worry about new lows until there have been several consecutive days of more than 40 on the NYSE and/or more than 70 on the NASDAQ. The highs for new lows last week occurred on Friday with 37 on the NYSE and 80 on the NASDAQ.

In market decline from July to October 1990 energy stocks did very well and they have been doing well recently. Like 1990 this coming decline will probably be blamed on high energy prices. Unlike 1990 energy sector stocks will probably decline with the rest of the market.

The chart below shows an average of about 60 energy specific mutual funds and indices (The FastTrack energy family) in red and summation indices (SI) calculated from the components of the average. SI's are a running total of oscillator values and rise when the oscillator is positive and fall when the oscillator is negative. The SI's in this chart are calculated from advancing - declining issues in the average (AD) and new highs - new lows (HL). New highs and new lows were calculated over a trailing 6 week period.

When the SI's are both moving in the same direction they do a good job of identifying the direction of the index. In the past week both SI's turned sharply downward.

So far March has closely followed its typical seasonal pattern for the 1st year of the presidential cycle.

Next Friday is futures and options expiration.

The tables below show the week ahead of the 3rd Friday of March during the 1st year of the presidential cycle going back to 1965 and 1929 respectively. Futures and options were not an issue before the mid 1980's and you can see that if they are to be credited with changing market behavior, that change would be negative.

Witching Summary
Report for the week before witching Friday during March
The number following the year is the position in the presidential cycle.
Daily returns from Monday to Friday after witching.

OTC Presidential year 1
Year Mon Tue Wed Thur Fri Totals
1965-1 0.62% 0.08% 0.14% 0.04% -0.27% 0.62%
1969-1 -0.44% -0.22% 0.01% 0.47% 0.60% 0.43%
1973-1 -0.11% 0.19% 0.01% 0.41% -1.13% -0.63%
1977-1 0.12% 0.21% 0.20% -0.17% 0.02% 0.39%
1981-1 0.63% -0.12% 0.40% 0.22% 0.90% 2.02%
1985-1 -0.41% 0.08% -1.14% -0.27% 0.18% -1.56%
1989-1 0.16% -0.14% 0.24% 0.62% -1.79% -0.90%
1993-1 0.35% 0.04% -1.16% 0.00% -0.68% -1.45%
1997-1 -1.05% -0.75% -1.60% 0.78% -0.41% -3.03%
2001-1 -2.00% 4.75% -2.12% -1.59% -2.57% -3.53%
 
Summary for presidential 1st years 1963 - 2004
Avg -0.21% 0.41% -0.50% 0.05% -0.51% -0.76%
Win% 50% 60% 60% 70% 40% 40%
 
Summary for all years 1963 - 2004 (OTC)
Avg -0.16% -0.01% -0.01% 0.23% -0.04% 0.01%
Win% 48% 55% 64% 74% 55% 55%
 
 
SPX presidential year 1
Year Mon Tue Wed Thur Fri Totals
1929-1 -1.42% 0.08% 1.08% 1.94% 1.36% 3.04%
1933-1 -1.66% -4.62% -1.29% 2.12% 0.00% -5.45%
1937-1 -0.77% 0.50% -0.66% -2.10% -0.06% -3.08%
1941-1 -0.20% 0.40% -0.60% 0.10% -0.90% -1.19%
1945-1 0.50% 0.00% 0.14% 0.43% 0.14% 1.22%
1949-1 0.07% -0.60% -0.40% 0.34% -0.20% -0.80%
1953-1 0.15% 0.42% -0.34% -0.08% -0.15% 0.00%
1957-1 -0.66% -0.07% 0.66% 0.07% -0.05% -0.04%
1961-1 0.28% -0.44% 0.30% 1.01% 0.61% 1.76%
1965-1 0.03% -0.13% -0.13% -0.24% 0.03% -0.42%
1969-1 0.26% 0.24% 0.73% 0.64% -0.21% 1.66%
1973-1 0.06% 0.54% 0.44% -0.75% -0.51% -0.21%
1977-1 0.77% 0.55% 0.19% -0.09% -0.22% 1.20%
1981-1 1.18% -0.56% 0.22% -0.57% 0.46% 0.74%
1985-1 -0.17% 0.49% -0.82% -0.20% -0.74% -1.44%
1989-1 0.83% -0.06% 0.52% 0.93% -2.25% -0.03%
1993-1 0.36% -0.01% -0.68% 0.80% -0.38% 0.08%
1997-1 0.32% -0.76% -0.49% -0.40% 0.19% -1.14%
2001-1 -4.32% 1.48% -2.58% 0.59% -1.96% -6.79%
 
Summary for presidential 1st years 1929 - 2004
Avg -0.23% -0.14% -0.19% 0.24% -0.27% -0.57%
Win% 63% 50% 47% 58% 33% 42%
 
SPX summary for all years 1928 - 2004 (SPX)
Avg -0.03% 0.13% -0.04% 0.22% 0.02% 0.30%
Win% 57% 57% 55% 58% 59% 60%

Because of the seasonal weakness ahead, it is likely that highs of last Monday and the previous Friday were the completion of a topping pattern that will represent the highs for the near future.

I expect the major indices to be lower on Friday March 18 than they were on Friday March 11.


 

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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