Technical Market Report for July 5, 2014

By: Mike Burk | Sun, Jul 6, 2014
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The good news is:
• The NASDAQ composite (OTC) closed at a multi year high Friday and the rest of the major indices closed at all time highs.


The negatives

The market is overbought.

For the past 6 weeks most of the major indices have been rising at an annualized rate that exceeds 50%.

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 recovered a bit last week, but remains closer to its low of the past 6, months or even 2 years, than its high.

OTC NH

The next chart is similar to the one above except it shows the S&P 500 (SPX) in red and NY NH has been calculated from NYSE data.

NY NH has been stronger than OTC NH, and hit a 6 month high last week, but is well below its high of the past 2 years.

NY NH


The positives

The secondaries continued to outperform the blue chips last week. The Russell 2000 closed at an all time high for the first time since early March.

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% levels for the indicator, the line is solid at the neutral 50% level.

NY HL Ratio at 96.4% is at its highest level in over a year.

NY HL Ratio

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

OTC HL Ratio rose to 85.6% on Friday.

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

OTC HL Ratio


Seasonality

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

The tables below show the change, on a percentage basis, of the OTC and SPX for the 5 trading days prior to the 2nd Friday of July during the 2nd year of the Presidential Cycle.

OTC data covers the period from 1963 to 2013 while SPX data runs from 1953 through 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 mixed, but weaker during the 2nd year of the Presidential Cycle than all years combined.

Report for the week before the 2nd Friday of July.
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 0.00% 0.30% -0.09% 0.64% 0.60% 1.45%
1970-2 0.55% -0.48% 1.04% 1.80% 1.93% 4.84%
 
1974-2 -3.55% -0.52% -1.09% -0.24% 2.84% -2.56%
1978-2 0.17% 0.38% 0.38% 0.12% 0.95% 2.00%
1982-2 0.00% -0.49% -0.67% -0.76% 0.76% -1.16%
1986-2 -1.72% -1.59% 0.27% 0.49% -0.14% -2.68%
1990-2 0.25% -0.15% 0.64% 0.70% 0.27% 1.71%
Avg -1.21% -0.47% -0.10% 0.06% 0.94% -0.54%
 
1994-2 0.00% -0.46% -0.37% 0.79% 0.13% 0.09%
1998-2 1.16% 0.15% 1.33% 0.31% 0.41% 3.35%
2002-2 -2.95% -1.74% -2.54% 2.11% -0.07% -5.19%
2006-2 -0.62% 0.56% -1.81% -1.73% -0.82% -4.41%
2010-2 0.00% 0.10% 3.13% 0.74% 0.97% 4.94%
Avg -0.80% -0.28% -0.05% 0.44% 0.13% -0.25%
 
OTC summary for Presidential Year 2 1966 - 2010
Avg -0.84% -0.33% 0.02% 0.41% 0.65% 0.20%
Win% 50% 42% 50% 75% 75% 58%
 
OTC summary for all years 1963 - 2013
Avg 0.04% -0.11% 0.35% 0.32% 0.39% 0.97%
Win% 67% 51% 60% 67% 75% 67%
 
SPX Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1954-2 -0.07% -0.33% 0.23% 0.33% -0.43% -0.26%
1958-2 1.22% 0.17% -0.02% 0.54% 0.69% 2.60%
1962-2 0.00% -1.82% -1.02% 0.39% 0.69% -1.75%
1966-2 -0.18% -0.65% -0.67% 0.60% 0.30% -0.60%
1970-2 0.04% -0.95% 0.06% 1.26% -0.23% 0.18%
Avg 0.25% -0.72% -0.28% 0.62% 0.20% 0.03%
 
1974-2 0.76% -1.16% 1.07% 0.10% -0.29% 0.48%
1978-2 0.20% -0.93% 1.29% -0.09% -0.29% 0.19%
1982-2 0.68% -0.11% 0.90% 0.03% 0.54% 2.05%
1986-2 -0.05% 0.82% 0.21% -0.30% 0.95% 1.63%
1990-2 0.45% -0.39% -0.90% 0.30% -1.02% -1.55%
Avg 0.41% -0.35% 0.52% 0.01% -0.02% 0.56%
 
1994-2 -0.33% -0.02% 0.17% 1.04% 0.17% 1.03%
1998-2 -0.22% -1.60% -0.09% -2.10% 0.10% -3.91%
2002-2 -0.38% -1.84% 0.55% -2.70% -3.83% -8.20%
2006-2 -0.14% 0.19% 1.86% -0.85% -0.71% 0.35%
2010-2 0.07% 1.54% -0.02% 0.12% -2.88% -1.17%
Avg -0.20% -0.35% 0.50% -0.90% -1.43% -2.38%
 
SPX summary for Presidential Year 2 1954 - 2010
Avg 0.15% -0.47% 0.24% -0.09% -0.42% -0.60%
Win% 50% 27% 60% 67% 47% 53%
 
SPX summary for all years 1953 - 2013
Avg -0.12% -0.21% 0.03% 0.00% -0.11% -0.40%
Win% 47% 32% 52% 58% 51% 39%


Money Supply (M2)

The money supply chart was provided by Gordon Harms. M2 growth has been holding close to its trend line.

SPX and M2 Money Supply Charts


Conclusion

The picture for the coming week is anything but clear.

The market is overbought at new highs.

Seasonally the market has been up more often than not but the average returns have been weak.

I expect the major averages to be higher on Friday July 11 than they were on Thursday July 3.

Last weeks negative forecast was a miss. This report is free to anyone who wants it, so please tell your friends. They can sign up at: http://www.stockmarket-ta.com/signup.html. If it is not for you, reply with REMOVE in the subject line.

These reports are archived at: http://www.safehaven.com/

Good Luck,

YTD W 8/L 10/T

 


 

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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