Technical Market Report

By: Mike Burk | Sat, Jun 18, 2005
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The good news is:
 • The market is very strong paralleling the advance from the low of March 2003.

As of last Friday's close the Russell 2000 (R2K) had its 7th consecutive up day. The last time that happened was April 5th of last year.

The chart below shows the R2K in red and an indicator showing the percentage of the previous 7 trading days that were up in blue. Dashed vertical lines are drawn on the first trading day of the month. The extremes usually mark short term highs or lows.

Most of the major indices have also had good runs.

Some of the others are:
NASDAQ composite (OTC) 5 days
S&P 500 (SPX) 5 days
Dow Jones Industrial Average (DJIA) 7 days
Valueline Arithmetric (VLE) 7 days
Wilshire 5000 (WIL) 5 days

The question is, are we looking at a blow off top marking an intermediate high, similar to April 2004, or an exuberant bull market?

New highs and new lows can help.

The NASDAQ new high indicator (NH) is a 10% trend (19 day EMA) of NASDAQ new highs. The new low indicator (NL) is a 10% trend of NASDAQ new lows plotted on an inverted Y axis so decreasing new lows move the indicator upward.

The chart below shows the past year with the OTC in red, NH in green and NL in blue. At bottoms new lows diminish quickly moving the indicator sharply upward. There are two clearly indicated bottoms, the one that occurred late last April and the one of mid August 2004.

The chart below shows the period from April 16, 2003 (shortly after the low) to April 19, 2004 (shortly after the intermediate high). The R2K is shown in red and the 7 day percent up indicator is shown in blue. There were 5 occurrences of the indicator reaching the top of the screen. The first four were in the first half of the run and the last one marked and intermediate high that held for six months.

The chart below shows NH and NL over the same period. Both indicators moved sharply upward during the blow off, but resumed their downward trends in the correction that followed.

This run will pause or stop soon. When it does pause or stop, if either NH or NL continue moving upward the pause in the upward movement of prices will be brief. If new lows increase and new highs decrease enough to move both of their indicators downward, the decline will be more severe.

The numbers to watch are:
New highs 90 (The indicator will move upward if NASDAQ new highs are greater than 90)
New lows 35 (The indicator will move upward if NASDAQ new lows are less than 35)

Index futures and options as well as stock options expired last Friday. This condition occurs quarterly and is called triple witching. Futures and options were not a factor prior to the 1980's.

The tables below show the week following the 3rd Friday of June during the 1st year of the presidential cycle with summaries for both the 1st year of the presidential cycle and all years.

The tables cover 1963 - 2004 for the OTC and 1928 - 2004 for the SPX.

The week following the 3rd Friday of June during the 1st year of the presidential cycle has been an interesting one.
Monday has been weak.
Tuesday strong
Wednesday weak
Thursday and Friday strong

On average the week has had modest gains.

Report for the week after witching Friday during June.
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 -0.50% -0.11% -0.11% -0.78% -1.51% -3.01%
 
1969-1 -0.66% 0.09% -0.03% 0.09% 0.23% -0.29%
1973-1 -1.46% 0.19% -0.76% 0.21% 0.59% -1.23%
1977-1 0.11% 0.11% -0.05% 0.39% 0.49% 1.06%
1981-1 -0.44% 0.29% -0.21% 0.25% 0.21% 0.09%
1985-1 0.44% 0.80% 0.38% 0.66% 0.29% 2.57%
Avg -0.40% 0.30% -0.14% 0.32% 0.36% 0.44%
 
1989-1 -0.25% -0.34% -0.16% 0.33% 0.68% 0.26%
1993-1 -0.12% -0.29% -0.29% 0.57% 0.88% 0.76%
1997-1 -0.88% 1.26% -0.43% -0.68% 0.13% -0.60%
2001-1 -1.96% 0.21% 1.93% 1.36% -1.17% 0.37%
Avg -0.81% 0.21% 0.26% 0.40% 0.13% 0.20%
 
OTC average for all Presidential year 1
Avg -0.57% 0.22% 0.03% 0.24% 0.08% 0.00%
Win% 20% 70% 20% 80% 80% 60%
 
OTC average for all years 1963 - 2004
Avg -0.07% 0.06% 0.07% -0.03% -0.09% -0.06%
Win% 43% 64% 51% 62% 55% 50%
 
 
SPX Presidential Year 1
Year Mon Tue Wed Thur Fri Totals
1929-1 -0.37% 1.05% 0.59% 0.18% 0.00% 1.46%
1933-1 2.00% -1.50% 0.57% -3.40% 0.00% -2.33%
1937-1 -0.78% 0.20% 0.85% 0.71% 0.00% 0.97%
1941-1 1.63% -0.70% 0.20% 0.40% 0.00% 1.54%
1945-1 -0.26% 0.13% 0.46% 0.53% 0.00% 0.86%
Avg 0.44% -0.16% 0.54% -0.32% 0.00% 0.50%
 
1949-1 1.44% 0.07% -0.28% 0.50% 0.14% 1.87%
1953-1 0.50% 0.67% -0.12% 0.42% 0.08% 1.54%
1957-1 -0.78% 0.79% -0.13% 0.36% 0.23% 0.47%
1961-1 -0.92% 0.88% -0.02% -0.37% 0.40% -0.02%
1965-1 -0.34% 0.19% -0.63% -1.31% -0.60% -2.69%
Avg -0.02% 0.52% -0.24% -0.08% 0.05% 0.23%
 
1969-1 -0.46% 1.13% -0.32% 0.25% 0.08% 0.69%
1973-1 -1.43% 0.38% 0.43% -1.18% 0.47% -1.32%
1977-1 0.45% 0.32% -0.28% 0.16% 0.57% 1.22%
1981-1 -0.24% 1.06% -0.52% 0.11% -0.19% 0.23%
1985-1 -0.24% 0.31% 0.17% 0.62% 0.32% 1.18%
Avg -0.38% 0.64% -0.10% -0.01% 0.25% 0.40%
 
1989-1 0.17% -0.20% -0.24% 0.57% 1.76% 2.07%
1993-1 0.57% -0.06% -0.61% 0.77% 0.22% 0.89%
1997-1 -2.23% 2.02% -0.82% -0.60% 0.41% -1.23%
2001-1 -0.49% 0.34% 0.87% 1.14% -0.95% 0.92%
Avg -0.50% 0.52% -0.20% 0.47% 0.36% 0.66%
 
SPX average for all presidential year 1
Avg -0.09% 0.37% 0.01% -0.01% 0.21% 0.44%
Win% 37% 79% 42% 74% 79% 74%
 
SPX average for all years 1928 - 2004
Avg 0.05% -0.09% 0.19% 0.05% -0.12% 0.12%
Win% 45% 51% 55% 56% 46% 57%

After a modest consolidation the market is overbought again.

I expect the major indices to be lower on Friday June 24 than they were on Friday June 17.

All of the major indices were up sharply last week making last weeks negative forecast a miss.

This report is free to anyone who wants it, so please tell your friends. If it is not for you, reply with REMOVE in the subject line.

If you are lucky enough to be in Minnesota this summer and would like to attend our FastTrack user group meeting on the 1st Wednesday of the month, let me know and I will put you on the meeting notification list.


 

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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