Technical Market Report

By: Mike Burk | Sat, Mar 19, 2005
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The good news is:
•The market is oversold as it enters a short but seasonally strong period.

The first chart sums it up.

The chart shows the NASDAQ composite (OTC) in red a 10% trend (19 day EMA) of NASDAQ new highs in green and a 10% trend of NASDAQ new lows on an inverted Y axis 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 2 weeks before the August bottom through last Friday.

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

For the past 2 weeks, new lows have been increasing and new highs decreasing as prices have been declining. Last Friday there were 88 new lows on the NASDAQ, the highest number since last August. There is no sign of a bottom.

Short term the market is over sold.

The Chart below shows the Russell 2000 (R2K) in red and an indicator showing the percentage of the previous 10 trading days that were up in green. As of last Friday, only 2 of the previous 10 trading days had been up, a figure matched only twice before, in early January (since the rally began last August).

The chart below shows the R2K in red and an indicator showing momentum of downside volume subtracted from momentum of upside volume in blue. The indicator is at a low level reached only twice before since this rally began. Each previous low was at or near the beginning of a short term rally.

So far March has closely followed its typical seasonal pattern for the 1st year of the presidential cycle. If March follows the monthly seasonal pattern precisely, the low for the month will occur next Tuesday. The low for the week preceding Good Friday during the first year of the presidential cycle usually occurs on Monday. If the market continues to follow the seasonal patterns, there should be a short term low early next week.

Seasonal report for the week preceding Good Friday.
Monday is the worst day of the week.
Average performance was positively skewed by large gains in 2001.
Some of the largest drawdowns occurred in 1997 when Good Friday was near the end of March.
4 days before Good Friday
The number following the daily return represents the day of the week;
1 = Monday, 2 = Tuesday etc.

OTC Presidential Year 1
  Day4 Day3 Day2 Day1 Totals
1965-1 1.01% 1 0.20% 2 0.36% 3 0.66% 4 2.23%
1969-1 0.34% 5 0.74% 2 0.26% 3 -0.18% 4 1.16%
1973-1 -0.58% 1 -0.79% 2 0.06% 3 0.39% 4 -0.93%
1977-1 -0.68% 1 -0.26% 2 0.25% 3 0.15% 4 -0.54%
1981-1 -0.38% 1 -0.44% 2 0.75% 3 0.77% 4 0.70%
 
Avg -0.06% -0.11% 0.33% 0.36% 0.52%
 
1985-1 0.40% 1 -0.39% 2 -0.49% 3 -0.15% 4 -0.63%
1989-1 -0.92% 1 0.82% 2 -0.30% 3 0.09% 4 -0.30%
1993-1 0.13% 1 -0.98% 2 0.71% 3 -0.38% 4 -0.52%
1997-1 -0.92% 1 0.44% 2 1.68% 3 -1.54% 4 -0.34%
2001-1 1.47% 1 2.00% 2 2.54% 3 3.29% 4 9.29%
 
Avg 0.03% 0.38% 0.83% 0.26% 1.50%
 
Averages -0.01% 0.14% 0.58% 0.31% 1.01%
%Winners 50% 50% 80% 60% 40%
MDD 3/27/1997 1.54% -- 4/17/1973 1.37% -- 4/4/1985 1.03%
 
OTC Summary of all years 1963 - 2004
Averages 0.05% 0.12% 0.27% 0.37% 0.81%
% Winners 52% 62% 67% 74% 62%
 
 
S&P 500 (SPX) Presidential year 1
  Day4 Day3 Day2 Day1 Totals
1953-1 -1.46% 1 -1.25% 2 -0.16% 3 -0.08% 4 -2.95%
1957-1 -0.20% 1 0.16% 2 0.13% 3 0.73% 4 0.82%
1961-1 -0.11% 1 0.05% 2 0.85% 3 0.20% 4 0.99%
 
1965-1 0.43% 1 0.11% 2 0.23% 3 -0.10% 4 0.67%
1969-1 0.41% 5 -0.09% 2 -0.63% 3 -0.10% 4 -0.41%
1973-1 -0.57% 1 -0.45% 2 0.54% 3 0.56% 4 0.09%
1977-1 -0.99% 1 -0.22% 2 -0.10% 3 0.35% 4 -0.97%
1981-1 -1.01% 1 -0.35% 2 1.12% 3 0.40% 4 0.15%
 
Avg -0.35% -0.20% 0.23% 0.22% -0.09%
 
1985-1 0.34% 1 -0.41% 2 -0.79% 3 -0.04% 4 -0.90%
1989-1 -0.95% 1 0.49% 2 -0.29% 3 -0.52% 4 -1.27%
1993-1 0.20% 1 -0.26% 2 0.36% 3 -0.20% 4 0.10%
1997-1 0.86% 1 -0.23% 2 0.18% 3 -2.10% 4 -1.29%
2001-1 0.81% 1 2.71% 2 -0.21% 3 1.51% 4 4.82%
 
Avg 0.25% 0.46% -0.15% -0.27% 0.29%
 
Averages -0.17% 0.02% 0.10% 0.05% -0.01%
%Winners 46% 38% 54% 46% 54%
MDD 4/2/1953 2.92% -- 3/27/1997 2.15% -- 4/14/1981 1.36%
 
SPX Summary of all years 1953 - 2004
Averages 0.05% 0.18% 0.07% 0.24% 0.55%
% Winners 48% 56% 53% 66% 68%

The market is oversold and entering a period of modest seasonal strength.

I expect the major indices to be higher on Thursday March 24 than they were on Friday March 18.


 

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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