Technical Market Report for May 3, 2014

By: Mike Burk | Sat, May 3, 2014
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The good news is:
• The Dow Jones Industrial Average (DJIA) hit an all time high last week.


The negatives

The DJIA, the bluest of the blue chips closed at an all time high last Wednesday likely marking the top of the cycle that began 5 years ago with the bottom in March 2009. There was a confirmation of the DJIA high by the NYSE advance – decline line which I consider contaminated by the high percentage of fixed income issues. Other breadth indicators failed to confirm and the stratification of the lower quality indices imply a cycle top.

The chart below covers the past 2 months showing the major indices on log scales to illustrate the stratification. Dashed vertical lines have been drawn on the 1st trading day of the week and the 1st trading of the month.

Over the past 2 months the DJIA, in black, has lingered near its all time high followed closely by the S&P 500 (SPX), in red. Next in performance has been the S&P mid cap (MID), in green, followed by the NASDAQ composite (OTC), in blue, and, at the bottom, the Russell 2000 (R2K), in magenta.

Highest quality on the top and lowest on the bottom.

Indices Performance Chart

The next chart 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 at its lowest level in nearly a year and a half.

OTC NH Chart

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

NY NH has been a little stronger, but is only a little above its lowest level in over a year.

NY NH Chart

The next chart covers the past 6 months showing the OTC in blue and a 10% trend of NASDAQ new lows (OTC NL) in red. OTC NL has been plotted on an inverted Y axis so decreasing new lows move the indicator upward (up is good).

OTC NL continued falling during last weeks rally and is at its lowest level in over a year.

OTC NL Chart

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

This chart is not that bad, but notice that NY NL fell during last week’s rally.

NY NL Chart

The next chart shows the OTC in blue and a 40% trend (19 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 fell below the neutral level as the DJIA (not shown) hit its all time high.

OTC HL Ratio Chart


The positives

NYSE breadth, in all forms (volume, new highs, new lows, advancing issues and declining issues) has held up remarkably well.

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

NY HL Ratio finished last week where it was at the end of the previous week, at a strong 82%.

NY HL Ratio Chart


Seasonality

Next week includes the 5 trading days prior to the 2nd Friday of May during the 2nd year of the Presidential Cycle.

The tables below show the daily percentage return for the 5 trading prior to the 2nd Friday of May during the 2nd year of the Presidential Cycle.

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.

Average returns for the coming week have been negative by all measures.

Report for the week before the 2nd Friday of May.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday to 2nd Friday.

OTC Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1966-2 -0.56% -1.30% 0.12% 0.07% -0.86% -2.53%
1970-2 0.05% -2.37% 0.26% 0.01% 1.27% -0.78%
 
1974-2 -0.18% -0.74% -1.06% 0.08% -1.76% -3.67%
1978-2 -0.11% -0.08% 0.43% 0.60% 0.97% 1.81%
1982-2 -0.30% -0.74% 1.00% -0.21% 0.30% 0.06%
1986-2 0.74% 0.07% -0.25% 0.54% 0.44% 1.54%
1990-2 0.61% 0.14% -0.12% 0.43% 1.13% 2.20%
Avg 0.15% -0.27% 0.00% 0.29% 0.22% 0.39%
 
1994-2 -1.35% 0.28% -1.10% 0.36% -0.37% -2.18%
1998-2 0.20% -0.66% -0.44% -1.16% 1.60% -0.46%
2002-2 -2.14% -0.30% 7.78% -2.70% -3.01% -0.36%
2006-2 0.10% -0.29% -0.75% -2.07% -1.27% -4.28%
2010-2 4.81% 0.03% 2.09% -1.26% -1.98% 3.68%
Avg 0.33% -0.19% 1.52% -1.37% -1.01% -0.72%
 
OTC summary for Presidential Year 2 1966 - 2010
Avg 0.16% -0.49% 0.66% -0.44% -0.30% -0.41%
Win% 50% 33% 50% 58% 50% 42%
 
OTC summary for all years 1963 - 2013
Avg 0.06% -0.09% -0.01% -0.09% 0.06% -0.07%
Win% 55% 51% 53% 57% 59% 55%
 
SPX Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1954-2 -0.10% -0.45% 0.81% -0.56% 0.84% 0.53%
1958-2 0.23% 0.50% -0.18% 0.14% 0.02% 0.71%
1962-2 -0.33% -1.29% -1.40% -1.07% -1.45% -5.54%
1966-2 -1.73% 0.88% 0.17% -1.15% -0.88% -2.71%
1970-2 -2.54% -0.97% 1.11% 0.45% -0.49% -2.44%
Avg -0.90% -0.27% 0.10% -0.44% -0.39% -1.89%
 
1974-2 -0.19% 0.37% 0.20% 1.44% -1.60% 0.22%
1978-2 -0.35% -0.30% 0.02% 1.33% 0.90% 1.60%
1982-2 -0.91% 0.88% -0.21% -0.80% -0.18% -1.22%
1986-2 1.25% -0.21% -0.49% 0.44% 0.30% 1.31%
1990-2 0.63% 0.43% 0.25% 0.28% 2.38% 3.97%
Avg 0.09% 0.24% -0.05% 0.54% 0.36% 1.18%
 
1994-2 -1.23% 0.83% -1.01% 0.51% 0.09% -0.81%
1998-2 0.10% -0.58% -0.96% -0.89% 1.19% -1.14%
2002-2 -1.93% -0.30% 3.75% -1.45% -1.68% -1.62%
2006-2 -0.08% 0.04% -0.17% -1.28% -1.12% -2.62%
2010-2 4.40% -0.34% 1.37% -1.21% -1.88% 2.34%
Avg 0.25% -0.07% 0.60% -0.86% -0.68% -0.77%
 
SPX summary for Presidential Year 2 1954-2010
Avg -0.19% -0.03% 0.22% -0.25% -0.24% -0.49%
Win% 33% 47% 53% 47% 47% 47%
 
SPX summary for all years 1953 - 2013
Avg 0.01% 0.01% -0.01% -0.14% 0.03% -0.11%
Win% 43% 48% 52% 48% 53% 43%


Money Supply (M2)

The Money supply chart has been provided by Gordon Harms. M2 has been tumbling.

M2 Money Supply and SPX Chart


Conclusion

Topping patterns show up from time to time and sometimes they amount to something and other times they do not. This time the topping pattern coincides with the beginning of a seasonal pattern which includes the worst 6 months of the 4 year Presidential Cycle.

I expect the major averages to be lower on Friday May 9 than they were on Friday May 2.

Last weeks negative forecast was a miss.

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Good Luck,

YTD W 6/L 6/T 6

 


 

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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Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
austrian-money-supply/