Technical Market Report for July 26, 2014

By: Mike Burk | Sat, Jul 26, 2014
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The good news is:
• The S&P 500 (SPX) closed at an all time high last Thursday.


The negatives

There was little in the way of identifiable patterns last week. The Dow Jones Industrial Average (DJIA) was down a little while the SPX was up a little. The NASDAQ composite (OTC) was up a little while the Russell 2000 (R2K) was down a little. New highs and new lows were also unraveling.

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 in blue and a 10% trend (19 day EMA) of NASDAQ new highs (OTC NH) in green.

OTC NH leveled off last week, but remains close to its lows.

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

NY NH also arrested its fall last week.

NY NH

The next chart covers the past year showing the R2K in red and the percentage of the component issues of the R2K that are above their 21 day EMA in olive drab. Dashed horizontal lines have been drawn at 25%, 50% & 75% levels for the indicator.

As of Friday's close 36% of the component issues of the R2K were above their 21 day EMA.

R2K

The next chart is similar to the one above except is shows the SPX in red and the olive drab line shows the percentage of the component issues of the SPX that are above their 21 day EMA.

AS of Friday's close 51% of the component issues of the SPX were above their 21 day EMA.

SPX


The positives

New lows picked up a little on Friday, but remain at non threatening levels.

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 remains at a very strong at 80%.

NY HL Ratio

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

OTC HL Ratio rose sharply from below to above the neutral line last week.

OTC HL Ratio


Seasonality

Next week includes the last 4 trading days of July and the 1st trading day of August 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 last 4 trading days of July and the 1st trading day of August during the 2nd year of the Presidential Cycle.

OTC data covers the period from 1963 to 2013 while SPX data runs from 1928 through 2013. There are summaries for both the 2nd year of the Presidential Cycle and all years combined.

Average returns for the coming week have been modestly negative for the OTC and modestly positive for the SPX. Similar to what we have been witnessing.

Report for the last 4 days of July and first 1 day of August.
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
  Day4 Day3 Day2 Day1 Day1 Totals
1966-2 0.49% 2 -0.92% 3 0.30% 4 -0.21% 5 0.00% 1 -0.34%
1970-2 0.13% 2 0.46% 3 0.38% 4 -0.22% 5 -0.83% 1 -0.09%
 
1974-2 -0.93% 5 -1.84% 1 -0.27% 2 -1.84% 3 -0.51% 4 -5.38%
1978-2 0.56% 3 0.52% 4 0.56% 5 0.39% 1 0.39% 2 2.42%
1982-2 -0.43% 2 -1.37% 3 -0.46% 4 -0.15% 5 0.61% 1 -1.80%
1986-2 -1.33% 1 -0.73% 2 -0.32% 3 0.15% 4 -0.19% 5 -2.43%
1990-2 0.00% 4 -0.64% 5 -0.73% 1 -0.26% 2 -0.53% 3 -2.16%
Avg -0.43% -0.81% -0.24% -0.34% -0.05% -1.87%
 
1994-2 -0.17% 2 -0.49% 3 0.04% 4 1.37% 5 0.37% 1 1.12%
1998-2 -1.90% 2 -0.79% 3 2.02% 4 -2.46% 5 -1.14% 1 -4.27%
2002-2 1.78% 5 5.79% 1 0.67% 2 -1.19% 3 -3.63% 4 3.42%
2006-2 -0.17% 3 -0.77% 4 1.93% 5 -0.13% 1 -1.41% 2 -0.54%
2010-2 -0.36% 2 -1.04% 3 -0.57% 4 0.13% 5 1.80% 1 -0.02%
Avg -0.16% 0.54% 0.82% -0.45% -0.80% -0.06%
 
OTC summary for Presidential Year 2 1966 - 2010
Averages -0.19% -0.15% 0.30% -0.37% -0.42% -0.84%
% Winners 33% 25% 58% 33% 33% 25%
MDD 8/1/1974 5.28% -- 8/1/2002 4.78% -- 8/3/1998 4.25%
 
OTC summary for all years 1963 - 2013
Averages 0.02% -0.12% -0.01% -0.01% -0.02% -0.13%
% Winners 47% 45% 61% 51% 54% 51%
MDD 7/28/2000 9.10% -- 8/1/1974 5.28% -- 7/31/1969 4.84%
 
SPX Presidential Year 2
  Day4 Day3 Day2 Day1 Day1 Totals
1930-2 0.51% 1 -0.78% 2 -2.63% 3 0.62% 4 -0.47% 5 -2.76%
 
1934-2 2.87% 5 1.51% 6 -0.69% 1 0.12% 2 3.11% 3 6.92%
1938-2 -2.93% 3 1.88% 4 -1.20% 5 0.57% 6 -1.21% 1 -2.90%
1942-2 -0.12% 2 -1.62% 3 0.24% 4 0.71% 5 0.00% 6 -0.80%
1946-2 0.57% 5 0.34% 1 0.57% 2 1.13% 3 0.28% 4 2.88%
1950-2 0.23% 3 1.33% 4 1.09% 5 0.85% 1 1.01% 2 4.51%
Avg 0.13% 0.69% 0.00% 0.67% 0.64% 2.12%
 
1954-2 0.59% 2 0.20% 3 0.36% 4 0.62% 5 0.36% 1 2.12%
1958-2 0.38% 1 -0.40% 2 0.28% 3 0.21% 4 0.64% 5 1.11%
1962-2 0.55% 4 0.76% 5 1.10% 1 0.69% 2 -0.82% 3 2.28%
1966-2 -0.16% 2 0.48% 3 -0.39% 4 -0.20% 5 -1.54% 1 -1.82%
1970-2 0.15% 2 0.35% 3 0.04% 4 -0.03% 5 -1.32% 1 -0.81%
Avg 0.31% 0.28% 0.28% 0.26% -0.54% 0.58%
 
1974-2 -1.88% 5 -1.77% 1 -0.54% 2 -1.48% 3 -0.71% 4 -6.38%
1978-2 0.65% 3 0.46% 4 0.46% 5 0.68% 1 -0.02% 2 2.24%
1982-2 -0.84% 2 -1.55% 3 -0.01% 4 -0.58% 5 1.76% 1 -1.23%
1986-2 -1.75% 1 -0.62% 2 0.87% 3 -0.20% 4 -0.51% 5 -2.21%
1990-2 -0.33% 4 -0.69% 5 0.60% 1 0.17% 2 -0.18% 3 -0.44%
Avg -0.83% -0.83% 0.28% -0.28% 0.07% -1.60%
 
1994-2 -0.20% 2 -0.17% 3 0.37% 4 0.88% 5 0.60% 1 1.48%
1998-2 -1.49% 2 -0.44% 3 1.57% 4 -1.94% 5 -0.74% 1 -3.04%
2002-2 1.69% 5 5.41% 1 0.42% 2 0.98% 3 -2.96% 4 5.54%
2006-2 -0.04% 3 -0.41% 4 1.22% 5 -0.15% 1 -0.45% 2 0.17%
2010-2 -0.10% 2 -0.69% 3 -0.42% 4 0.01% 5 2.20% 1 1.00%
Avg -0.03% 0.74% 0.63% -0.04% -0.27% 1.03%
 
SPX summary for Presidential Year 2 1930 - 2010
Averages -0.08% 0.17% 0.16% 0.17% -0.05% 0.37%
% Winners 48% 48% 67% 67% 38% 52%
MDD 8/1/1974 6.23% -- 7/30/1930 3.39% -- 8/3/1998 3.04%
 
SPX summary for all years 1928 - 2013
Averages 0.02% 0.09% 0.15% 0.08% 0.11% 0.44%
% Winners 56% 52% 61% 61% 54% 59%
MDD 7/31/1933 6.84% -- 7/28/1936 6.38% -- 8/1/1974 6.23%


Money Supply (M2)

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

SPX and M2 Chart


August

Since 1963, over all years, the OTC in August has been up 59% of the time with an average gain of 0.3%. During the 2nd year of the Presidential Cycle the OTC in August has been up 50% of the time with an average loss of -2.9%, helped considerably by a 19.9% loss in 1998, a 13.0% loss in 1990, a 10.9% loss in 1974 and a 9.9% loss in 1966. On average August has had the highest average losses of any month during the 2nd year of the Presidential Cycle. The best August ever for the OTC was 2000 (+11.7%), the worst 1998 (-19.9%).

The average month has 21 trading days. The chart below has been calculated by averaging the daily percentage change for each of the 1st 11 trading days and each of the last 10. In months when there were more than 21 trading days some of the days in the middle were not counted. In months when there were less than 21 trading days some of the days in the middle of the month were counted twice. Dashed vertical lines have been drawn after the 1st trading day and at 5 trading day intervals after that. The line is solid on the 11th trading day, the dividing point.

In the chart below the blue line shows the average daily performance of the OTC in August over all years since 1963, while the green line shows the average during the 2nd year of the Presidential Cycle over the same period.

OTC in August over all years since 1963

Since 1928 the SPX has been up 59% of the time in August with an average gain of 0.7%. During the 2nd year of the Presidential Cycle the SPX has been up 62% of the time with an average loss of -0.7%. The best August ever for the SPX was 1932 (+37.5%) the worst 1998 (-14.6%).

The chart below is similar to the one above except it shows the average daily performance over all years since 1928 for the SPX in August in red and the average daily performance during the 2nd year of the Presidential Cycle, over the same period, in green.

average daily performance over all years since 1928 for the SPX in August

Since 1979 the Russell 2000 (R2K) has been up 57% of the time in August with an average gain of 0.2%. During the 2nd year of the Presidential Cycle the R2K has been up 50% of the time with an average loss of -2.8%. The best August ever for the R2K, 1984 (+11.5%), the worst 1998 (-19.5%)

The chart below is similar to those above except it shows the average daily performance of the R2K, over all years since 1979, in August in magenta and the average daily performance during the 2nd year of the Presidential Cycle in green.

R2K, over all years since 1979, in August

Since 1885 the Dow Jones Industrial Average (DJIA) has been up 65% of the time in August with an average gain of 1.3%. During the 2nd year of the Presidential Cycle the DJIA has been up 65% of the time in August with an average gain of 0.5%. The best August ever for the DJIA 1932 (+34.8%), the worst 1998 (-15.1%)

The chart below is similar to those above except it shows the average daily performance over all years for the DJIA in August in cyan and the average performance during the 2nd year of the Presidential Cycle in green.

DJIA in August since 1885


Conclusion

I think last week was a feeble end of month relief rally. At cyclical tops the blue chips are the last to top out and I think it is likely last Thursday's high for the SPX will be the high for this cycle. The secondaries also rallied last week, but came nowhere near their all time highs.

I expect the major averages to be lower on Friday August 1 than they were on Friday July 25.

Last week the indices were mixed, 2 up, 2 down so I am calling last weeks negative forecast a tie.

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Good Luck,

YTD W 8/L 11/T 11

 


 

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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