Technical Market Report

By: Mike Burk | Sun, Jul 10, 2005
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The good news is:
• Every indicator that matters is heading upward.

The first chart shows the Russell 2000 (R2K) in red, the S&P 500 (SPX) in green and a FastTrack relative strength indicator called Accutrack as a histogram in yellow. The chart begins March 2003, the beginning of the recent bull market. You have to go back to the beginning of this bull market to find Accutrack levels like we are seeing now. Normally the R2K outperforming the SPX is a positive, however, I am a little concerned that too many speculators have discovered the R2K.

The next two charts show the past year with the index in red and the percentage of the component issues of the R2K and SPX that are above their 50 day EMA's in green. As of Friday's close 85% of the component issues of the R2K were above their 50 day EMA's while only 51% of the component issues of the SPX were above their 50 day EMA's. The horizontal dashed lines are drawn at 25%, 50% & 75%.

A summation index (SI) is a running total of oscillator values. The chart below shows the NASDAQ composite (OTC) and SI's calculated from NASDAQ advancing issues - declining issues (AD), new highs - new lows (HL) and upside volume - downside volume (UD). SI's are a good intermediate term trend indicator. The UD SI has not turned as strongly upward as you would expect with such a strong move in prices.

Defining next week as the week prior to July options expiration there is a modestly negative pattern. A positive pattern emerges when we isolate the OTC during the 1st year of the presidential cycle and Friday is the best day of the week.

Report for the week before options expiration Friday during July.
Daily returns from Monday to witching Friday.

OTC presidential year 1
Year Mon Tue Wed Thur Fri Totals
1965-1 0.47% 0.27% -0.04% 0.99% 2.06% 3.75%
1969-1 0.00% -0.35% -0.99% -0.56% -0.13% -2.04%
1973-1 0.91% 0.64% 1.08% 0.71% 1.09% 4.43%
1977-1 0.04% -0.10% 0.18% 0.00% 0.48% 0.59%
1981-1 -1.64% -1.00% -0.49% 0.12% 0.77% -2.24%
5 period avg
Avg -0.06% -0.11% -0.05% 0.31% 0.85% 0.90%
 
1985-1 0.21% 0.70% 0.85% -0.29% 0.29% 1.77%
1989-1 0.22% -0.45% 0.75% -0.44% 0.01% 0.09%
1993-1 0.26% 0.11% 0.57% -0.53% -1.26% -0.85%
1997-1 -0.76% 1.80% 0.24% 0.09% 0.03% 1.41%
2001-1 -2.67% 1.88% -2.47% 1.51% -0.84% -2.59%
5 period avg
Avg -0.55% 0.81% -0.01% 0.07% -0.36% -0.04%
 
OTC Avgs for all Pres yr 1 1963 - 2004
Avg -0.33% 0.35% -0.03% 0.18% 0.25% 0.43%
Win% 67% 60% 60% 56% 70% 60%
 
OTC summary for all years 1963 - 2004
Avg -0.13% -0.26% -0.08% 0.07% -0.09% -0.49%
Win% 56% 29% 44% 59% 50% 43%
 
SPX presidential year 1
Year Mon Tue Wed Thur Fri Totals
1929-1 -0.66% 0.70% 0.24% -0.21% 0.35% 0.42%
1933-1 0.84% 1.58% -4.92% -2.00% -2.00% -6.50%
1937-1 1.60% -0.85% -0.12% 0.49% -0.24% 0.87%
1941-1 1.45% -0.10% -0.29% -0.58% -0.19% 0.30%
 
1945-1 -0.73% -2.21% -0.34% 0.69% 0.00% -2.60%
1949-1 0.00% 0.69% 1.16% 0.07% -0.20% 1.72%
1953-1 -0.98% -0.37% 0.29% 0.12% 0.70% -0.24%
1957-1 0.10% -0.51% -0.61% -0.10% 0.10% -1.02%
1961-1 -0.75% -0.59% 0.45% 0.02% 0.23% -0.64%
5 period avg
Avg -0.59% -0.60% 0.19% 0.16% 0.21% -0.56%
 
1965-1 -0.02% -0.12% 0.33% -0.17% -0.03% -0.02%
1969-1 0.00% -1.51% -0.43% -0.34% -0.91% -3.18%
1973-1 1.52% 0.05% 0.60% 0.19% 0.55% 2.90%
1977-1 -0.24% -0.10% 0.14% 0.00% 0.59% 0.39%
1981-1 -1.56% -0.30% -0.94% 0.21% 0.83% -1.75%
5 period avg
Avg -0.08% -0.39% -0.06% -0.03% 0.21% -0.33%
 
1985-1 -0.29% 1.04% 0.48% -0.65% 0.39% 0.96%
1989-1 0.18% -0.33% 1.32% -0.66% 0.72% 1.23%
1993-1 0.19% -0.20% 0.44% -0.19% -0.77% -0.53%
1997-1 -0.26% 2.30% 0.28% 0.40% -0.16% 2.56%
2001-1 -1.09% 1.00% -0.55% 0.61% -0.34% -0.38%
5 period avg
Avg -0.25% 0.76% 0.39% -0.10% -0.03% 0.77%
 
SPX avgs for all Pres yr 1 1928 - 2004
Avg -0.04% 0.01% -0.13% -0.12% -0.02% -0.29%
Win% 41% 37% 58% 50% 50% 47%
 
SPX summary for all years 1928 - 2004
Avg -0.15% -0.08% 0.06% -0.07% -0.08% -0.30%
Win% 44% 40% 54% 49% 46% 43%

After last weeks strong move the market has upward momentum and for the past 30 years or so the 2nd week of July during the 1st year of the presidential cycle has had a slightly positive bias.

I expect the major indices to be higher on Friday July 15 than they were on Friday July 8.

I expected weakness early last week to overwhelm the likely strength on Friday so the strength on Tuesday made it apparent that my negative forecast was going to be a miss.

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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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