Technical Market Report for February 14, 2014

By: Mike Burk | Sat, Feb 15, 2014
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The good news is:
• The NASDAQ composite (OTC) closed at a multi year high on Friday while the S&P 500 (SPX) missed its all time high by only 0.5%.


The negatives

The market is overbought.

The OTC has been up for 7 consecutive days and a Telecomm fund I watch has been up for 9 consecutive days.

New highs picked up last week, but remain well below their levels of a month ago when the major indices were making new highs.

The chart below covers the past 6 months showing the OTC in blue and a 10% trend (19 day EMA) of NASDAQ new highs (OTC NH) in green. Dashed vertical lines have been drawn on the 1st trading day of each month.

OTC NH is well below its level at the previous high for the OTC, a month ago.

OTC versus OTC NH Chart

The next chart is similar to the one above except is shows the SPX in red and NY NH has been calculated from NYSE data.

NY NH has also had progressively declining highs since last October.

SPX versus NYSE NH Chart


The positives

New lows have disappeared and nothing really bad happens without new lows increasing.

The chart below covers the past 6 months showing the OTC in blue and a 40% trend (4 day EMA) of NASDAQ new highs divided by new highs + new lows (OTC HL Ratio) in red. Dashed horizontal lines have been drawn at 10% levels for the indicator, the line is solid at the neutral 50% level.

OTC HL Ratio rose sharply to 86% on Friday.

OTC versus OTC HL Ratio Chart

There are trading systems that impose a No Sell Filter when variations of this indicator are above 80%.

The next chart is similar to the one above except it shows the SPX in red and NY HL Ratio, in blue, has been calculated from NYSE data.

NY HL Ratio also rose to 86% on Friday.

SPX versus NYSE HL Ratio Chart


Seasonality

Next week includes the 4 trading days prior to the 3rd Friday of February during the 2nd year of the Presidential Cycle.

The tables show the daily percentage return for the 5 trading days prior to the 3rd Friday of February during the 2nd year of the Presidential Cycle. The market is closed Monday in observance of Presidents day. Presidents day is defined as the 3rd Monday in February and precedes the 3rd Friday in February about half of the time.

OTC data covers the period from 1963 - 2013 while SPX data runs from 1953 - 2013. 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 market has had modestly positive returns for the coming week.

Report for the week before the 3rd Friday of February.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday through 3rd Friday.

OTC Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1966-2 0.23% -0.22% -0.47% 0.50% 0.13% 0.19%
1970-2 -0.17% -0.10% -0.17% 0.67% 0.02% 0.26%
 
1974-2 -1.16% -0.69% -0.46% 0.14% 0.85% -1.32%
1978-2 -0.23% -0.54% -0.21% -0.38% 0.08% -1.29%
1982-2 0.00% -0.99% 0.30% 0.07% -0.40% -1.02%
1986-2 0.00% 0.61% 0.15% 0.06% 0.72% 1.54%
1990-2 -0.57% -0.15% 0.19% 0.72% -0.14% 0.04%
Avg -0.66% -0.35% -0.01% 0.12% 0.22% -0.41%
 
1994-2 0.52% 0.59% 0.32% -0.30% -0.18% 0.95%
1998-2 0.00% -0.41% 0.72% 0.66% 0.06% 1.04%
2002-2 1.53% -0.67% 1.36% -0.85% -2.07% -0.71%
2006-2 -0.98% 1.00% 0.63% 0.80% -0.53% 0.92%
2010-2 0.00% 1.40% 0.55% 0.69% 0.10% 2.74%
Avg 0.36% 0.38% 0.72% 0.20% -0.52% 0.99%
 
OTC summary for Presidential Year 2 1966 - 2010
Avg -0.10% -0.01% 0.24% 0.23% -0.11% 0.28%
Win% 38% 33% 67% 75% 58% 67%
 
OTC summary for all years 1963 - 2013
Avg 0.08% -0.15% 0.07% 0.17% -0.16% -0.02%
Win% 58% 46% 57% 63% 47% 57%
 
SPX Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1954-2 -0.31% -0.88% 0.19% 0.39% -0.15% -0.76%
1958-2 -0.53% 0.15% -0.05% -0.58% -0.07% -1.09%
1962-2 -0.03% -0.01% -0.04% 0.45% -0.21% 0.16%
1966-2 -0.17% -0.51% -0.01% -0.54% -0.27% -1.50%
1970-2 -0.08% -0.12% 1.24% 0.37% 0.31% 1.72%
Avg -0.22% -0.28% 0.27% 0.02% -0.08% -0.30%
 
1974-2 -1.81% 0.31% 0.04% -0.03% 1.45% -0.04%
1978-2 -0.24% -0.91% -0.24% -0.84% -0.14% -2.37%
1982-2 0.00% -0.28% -0.32% 0.11% -0.53% -1.02%
1986-2 0.00% 1.22% -1.21% 1.12% 1.08% 2.21%
1990-2 -1.06% 0.28% 0.30% 0.87% -0.65% -0.26%
Avg -1.04% 0.13% -0.29% 0.24% 0.24% -0.29%
 
1994-2 0.01% 0.49% 0.06% -0.52% -0.56% -0.53%
1998-2 0.00% 0.26% 0.91% -0.37% 0.57% 1.38%
2002-2 1.43% -0.40% 0.99% -0.18% -1.10% 0.75%
2006-2 -0.33% 1.00% 0.35% 0.73% -0.17% 1.59%
2010-2 0.00% 1.80% 0.42% 0.66% 0.22% 3.10%
Avg 0.37% 0.63% 0.55% 0.06% -0.21% 1.26%
 
SPX summary for Presidential Year 2 1954 - 2010
Avg -0.28% 0.16% 0.18% 0.11% -0.01% 0.22%
Win% 18% 53% 60% 53% 33% 47%
 
SPX summary for all years 1953 - 2013
Avg 0.06% -0.05% 0.18% -0.01% -0.01% 0.15%
Win% 47% 53% 59% 51% 48% 59%


Money Supply (M2)

The money supply chart was provided by Gordon Harms. Money supply growth has been following its trend pretty closely.

SPX versus M2 Money Supply Chart


Conclusion

The market rose sharply last week, but the breadth indicators did not keep up. Seasonality suggests the trend should flatten over the next 2 months prior to beginning a decline in mid to late April.

I expect the major averages to be higher on Friday February 21 than they were on Friday February 14.

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Good Luck,

YTD W 1/L 3/T 3

 


 

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.

Copyright © 2003-2014 Mike Burk

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