Technical Market Report for August 2, 2014

By: Mike Burk | Sat, Aug 2, 2014
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The good news is:
• New lows picked up dramatically last week so we should get a clear signal when this period of weakness is over.


The negatives

New lows became an issue last week exceeding 100 on both the NYSE and NASDAQ on Thursday and Friday.

The chart below covers the past 6 months showing the NASDAQ composite (OTC) in blue and a 10% trend (19 day EMA) 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). Dashed vertical lines have been drawn on the 1st trading day of each month.

OTC NL fell sharply last week. As of Friday's close the value of the indicator was 63 so it will take fewer than 63 new lows to turn the indicator upward. You should look for at least 5 consecutive days of the indicator moving sharply upward before assuming the current period of weakness has ended.

OTC NL Chart

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

NY NL also fell sharply last week. The value of NY NL is 46 so it will require fewer than 46 new lows to turn this indicator upward.

NY NL Chart

The next chart covers the past 6 months showing the OTC in blue and a 40% trend (4 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 dropped below the neutral line to its lowest level in a little over 2 months.

OTC HL Ratio Chart

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

NY HL Ratio also dropped below the neutral line to its lowest level in nearly 6 months.

NY HL Ratio Chart


The positives

The market is oversold so a bounce would not be surprising.


Seasonality

Next week includes the 5 trading days prior to the 2nd Friday 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 5 trading days prior to the 2nd Friday of August 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 modestly negative during the 2nd year of the Presidential Cycle and modestly positive over all years.

Report for the week before the 2nd Friday of August.
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 0.70% -0.14% 0.44% 0.09% -0.14% 0.95%
1970-2 -0.87% -1.71% -0.44% -0.98% -1.28% -5.29%
 
1974-2 0.39% 1.23% 1.63% -1.42% 0.04% 1.87%
1978-2 0.39% 0.22% 0.88% -0.05% 0.32% 1.76%
1982-2 -1.35% -0.04% -0.34% -0.58% -0.44% -2.75%
1986-2 -1.08% 0.02% -0.55% 0.09% 0.22% -1.29%
1990-2 -4.17% 0.51% 1.41% 1.29% -1.20% -2.17%
Avg -1.17% 0.39% 0.61% -0.13% -0.21% -0.52%
 
1994-2 0.25% 0.30% 0.77% 0.00% 0.47% 1.79%
1998-2 -0.41% -2.53% 1.83% -1.26% -0.68% -3.05%
2002-2 -3.36% 4.44% 1.70% 2.78% -0.79% 4.77%
2006-2 -0.60% -0.56% -0.03% 0.56% -0.68% -1.31%
2010-2 0.75% -1.24% -3.01% -0.83% -0.77% -5.09%
Avg -0.67% 0.08% 0.25% 0.31% -0.49% -0.58%
 
OTC summary for Presidential Year 2 1966 - 2010
Avg -0.78% 0.04% 0.36% -0.03% -0.41% -0.82%
Win% 42% 50% 58% 45% 33% 42%
 
OTC summary for all years 1963 - 2013
Avg -0.34% 0.18% 0.12% 0.08% 0.02% 0.05%
Win% 43% 55% 60% 64% 47% 57%
 
SPX Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1954-2 -0.86% 0.83% 1.15% -0.42% 0.42% 1.13%
1958-2 0.95% -0.40% -0.61% 0.65% 0.59% 1.18%
1962-2 -0.64% -0.68% 0.26% -0.07% 0.14% -0.98%
1966-2 -0.30% -0.31% -0.46% -0.11% 0.18% -0.99%
1970-2 -1.40% -0.50% -0.53% -0.88% 0.56% -2.74%
Avg -0.45% -0.21% -0.04% -0.16% 0.38% -0.48%
 
1974-2 0.89% 1.55% 2.65% -1.31% -0.87% 2.91%
1978-2 -0.36% 0.44% 0.47% -0.80% 0.29% 0.04%
1982-2 -0.61% -0.23% -0.23% -0.18% 1.40% 0.15%
1986-2 0.46% 0.44% -0.08% 0.08% -0.07% 0.84%
1990-2 -3.02% 0.12% 1.05% 0.47% -1.30% -2.68%
Avg -0.53% 0.46% 0.77% -0.35% -0.11% 0.25%
 
1994-2 0.18% 0.01% 0.52% -0.31% 0.67% 1.06%
1998-2 -0.58% -1.30% 1.42% -0.86% -1.13% -2.45%
2002-2 -3.43% 2.99% 2.00% 3.27% 0.35% 5.19%
2006-2 -0.28% -0.34% -0.44% 0.46% -0.40% -0.99%
2010-2 0.55% -0.59% -2.82% -0.54% -0.40% -3.81%
Avg -0.71% 0.15% 0.14% 0.41% -0.18% -0.20%
 
SPX summary for Presidential Year 2 1954 - 2010
Avg -0.56% 0.14% 0.29% -0.03% 0.03% -0.14%
Win% 33% 47% 53% 33% 60% 53%
 
SPX summary for all years 1953 - 2013
Avg -0.33% 0.22% 0.07% 0.08% 0.05% 0.08%
Win% 39% 61% 53% 51% 52% 56%


Money Supply (M2)

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

S&P500 and M2 Money Supply Chart


Conclusion

The blue chips are catching up with the secondaries to the downside.

New lows are the most important indicator now, when bottom has been made, new lows will diminish rapidly.

I expect the major averages to be lower on Friday August 8 than they were on Friday August 1.

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Good Luck,

YTD W 9/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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