Technical Market Report for May 17, 2014

By: Mike Burk | Sat, May 17, 2014
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The good news is:
• The Dow Jones Industrial Average (DJIA) and S&P 500 (SPX) closed at all time highs last Monday.


The negatives

The DJIA and the SPX, both blue chip indices closed at all time highs on Monday. None of the broader indices accompanied them.

The chart below covers the period from March 4 when the Russell 2000 (R2K) hit its all time high and the NASDAQ composite (OTC) hit a multi year high. It shows the major indices on log scales to illustrate the stratification in performance. Dashed vertical lines have been drawn on the 1st trading day of the week and the 1st trading day of the month.

Over the period the DJIA, in black, has lingered near its all time high followed closely by the SPX, in red. Next in performance has been the S&P mid cap (MID), in green, followed by the OTC, in blue, and, at the bottom, the R2K, in magenta. Highest quality on the top and lowest on the bottom.

Index 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 the one above except it shows the SPX in red and NY NH, in green has been calculated from NYSE data.

NY NH fell last week.

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 recovered a little last week, but remains at a dangerously high level.

OTC NLChart

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 bounced Monday then fell back to 22%, very negative.

OTC HL Ratio Chart


The positives

NYSE breadth, in all forms (volume, new highs, new lows, advancing issues and declining issues) weakened a little last week, but continued to hold up much better than breadth on the NASDAQ.

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 rose a bit last week to 68%.

NY HL Ratio Chart


Seasonality

From a seasonal perspective next week can be viewed as either the 5 trading days prior to the 4th Friday or the 5 trading days prior to Memorial Day during the 2nd year of the Presidential Cycle.

In the tables below I have chosen to show the 5 trading days prior to Memorial day, but, either way, the numbers are similar.

Since 1971 Memorial Day has been defined as the last Monday of May.

Average returns for the coming week have been slightly positive over all years and slightly negative during the 2nd year of the Presidential Cycle. Notice Thursday has been a blow out to the upside.

Report for the 5 trading days before Memorial Day
The number following the year represents its position in the Presidential Cycle.
The number following the daily return represents the day of the week;
1 = Monday, 2 = Tuesday etc.

OTC Presidential Year 2
  Day5 Day4 Day3 Day2 Day1 Totals
1974-2 -0.61% 1 -0.17% 2 -0.70% 3 -0.21% 4 1.12% 5 -0.58%
1978-2 0.30% 1 -0.79% 2 -0.97% 3 0.02% 4 0.03% 5 -1.41%
1982-2 -0.38% 1 -0.32% 2 -1.29% 3 -0.23% 4 0.10% 5 -2.13%
1986-2 -0.24% 1 0.40% 2 0.32% 3 0.81% 4 0.59% 5 1.87%
1990-2 1.02% 1 0.22% 2 0.66% 3 0.31% 4 -1.00% 5 1.21%
Avg 0.02% -0.13% -0.40% 0.14% 0.17% -0.21%
 
1994-2 -0.24% 1 0.90% 2 0.18% 3 -0.16% 4 0.21% 5 0.89%
1998-2 -0.82% 1 0.78% 2 -0.76% 3 -0.59% 4 -0.88% 5 -2.27%
2002-2 -2.29% 1 -2.20% 2 0.56% 3 1.44% 4 -2.13% 5 -4.61%
2006-2 -0.96% 1 -0.65% 2 0.48% 3 1.34% 4 0.55% 5 0.77%
2010-2 -0.69% 1 -0.12% 2 -0.68% 3 3.73% 4 -0.91% 5 1.32%
Avg -1.00% -0.26% -0.05% 1.15% -0.63% -0.78%
 
OTC summary for Presidential Year 2 1974 - 2010
Averages -0.49% -0.19% -0.22% 0.65% -0.23% -0.49%
% Winners 20% 40% 50% 60% 60% 50%
MDD 5/25/1970 9.39% -- 5/24/2002 4.59% -- 5/22/1998 2.26%
 
OTC summary for all years 1971 - 2013
Averages -0.15% -0.18% 0.02% 0.24% 0.11% 0.05%
% Winners 43% 47% 56% 58% 58% 60%
 
SPX Presidential Year 2
  Day5 Day4 Day3 Day2 Day1 Totals
1974-2 -0.40% 1 0.06% 2 -0.93% 3 0.23% 4 1.48% 5 0.43%
1978-2 0.99% 1 -1.05% 2 -0.99% 3 -0.29% 4 -0.23% 5 -1.57%
1982-2 -0.09% 1 -0.34% 2 -1.13% 3 -0.40% 4 -0.69% 5 -2.64%
1986-2 0.19% 1 1.25% 2 -0.28% 3 1.98% 4 0.51% 5 3.65%
1990-2 0.95% 1 0.12% 2 0.24% 3 -0.24% 4 -1.07% 5 -0.01%
Avg 0.33% 0.01% -0.62% 0.26% 0.00% -0.03%
 
1994-2 -0.38% 1 0.36% 2 0.34% 3 0.16% 4 0.06% 5 0.53%
1998-2 -0.26% 1 0.33% 2 0.87% 3 -0.40% 4 -0.37% 5 0.17%
2002-2 -1.33% 1 -1.10% 2 0.57% 3 1.02% 4 -1.21% 5 -2.05%
2006-2 -0.39% 1 -0.43% 2 0.16% 3 1.14% 4 0.57% 5 1.04%
2010-2 -1.29% 1 0.04% 2 -0.57% 3 3.29% 4 -1.24% 5 0.23%
Avg -0.73% -0.16% 0.27% 1.04% -0.44% -0.02%
 
SPX summary for Presidential Year 2 1974 - 2010
Averages -0.20% -0.08% -0.17% 0.65% -0.22% -0.02%
% Winners 30% 60% 50% 60% 40% 60%
MDD 5/28/1962 12.72% -- 5/25/1970 8.72% -- 5/28/1982 2.62%
 
SPX summary for all years 1971 - 2013
Averages -0.02% -0.07% -0.07% 0.12% 0.09% 0.04%
% Winners 53% 49% 51% 53% 56% 58%


Money Supply (M2)

The Money supply chart has been provided by Gordon Harms. M2 continued its fall.

SPX and M@ Money Supply Chart

May through October during the 2nd year of the Presidential Cycle.

The period beginning around May 1 during the 2nd year of the Presidential Cycle has, on average, been the weakest 6 month period of the cycle. The charts below all cover the period from around May 1 through November 1 during the 2nd year of the Presidential Cycle showing the major indices on log scales to offer a perspective on the relative performance of various segments of the equity market during that period.

The DJIA is shown in black, the SPX in red, OTC in blue and in the more recent charts the R2K in magenta and MID in green. Prior to the early 1990's the OTC was very similar to the R2K. Dashed vertical lines have been drawn on the 1st trading day of the month. The middle month is May.

1966
May to October 1966 Index Performance Chart

1970
May to October 1970 Index Performance Chart

1974
May to October 1974 Index Performance Chart

1978
May to October 1978 Index Performance Chart

1982
May to October 1982 Index Performance Chart

1986
May to October 1986 Index Performance Chart

1990
May to October 1990 Index Performance Chart

1994
May to October 1994 Index Performance Chart

1998
May to October 1998 Index Performance Chart

2002
May to October 2002 Index Performance Chart

2006
May to October 2006 Index Performance Chart

2010
May to October 2010 Index Performance Chart


Conclusion

In spite of the blue chip record highs on Monday the breadth indicators continued to deteriorate.

I expect the major averages to be lower on Friday May 23 than they were on Friday May 16.

Last week the OTC was up while all of the other major indices were down so I am calling last weeks negative forecast a tie.

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Good Luck,

YTD W 6/L 6/T 8

 


 

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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