Technical Market Report

By: Mike Burk | Sun, Sep 25, 2005
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The good news is:
 • The current decline should end soon leaving the market at a good point from which to advance.

NYSE breadth data has not been reliably useful since 1999.

For many years there has been a rule of thumb that there was little to worry about until NYSE new lows exceeded 40 for several days. Many trading systems of the 1990's used a 10% trend of NYSE new highs as a "no sell filter". No selling allowed would come into effect when the 10% trend of NYSE new highs exceeded 100 - 130 depending on how aggressive or conservative the system.

Last week the 10% trend of NYSE new highs finished the week at its low with a value of 142, keeping even the most conservative no sell filters long.

The lowest number of NYSE new lows for the week was 67, reported on Monday. The highest number of NYSE new lows for the week was 165 reported on Thursday and the 10% trend of NYSE new lows is 64. The new low numbers suggest you should be flat or short.

The above is an illustration of the problems using NYSE data.

The build up of new lows suggests we are seeing the end of the cycle that began in late April. The cycle will be complete when new lows begin to diminish rapidly.

The NASDAQ new low indicator (OTC NL) is a 10% trend (19 day EMA) of NASDAQ new lows. OTC NL does a good job of tracing out market cycles and it is the best indicator I know of for identifying market bottoms. The chart below covers this calendar year showing the NASDAQ composite (OTC) in red and OTC NL in blue, dashed vertical lines are drawn on the first trading day of each month. OTC NL is plotted on an inverted Y axis so an increasing number of new lows move the indicator downward. OTC NL turned sharply downward last week. The value of the indicator is 42 so any number of NASDAQ new lows greater than 42 will keep the indicator moving downward. Rallies will sometimes turn the indicator upward for a short time so it is prudent to wait until the indicator has been moving upward for at least 5 consecutive days before taking long positions.

Net Field Trend (NFT) is the percentage of issues with a downward trend subtracted from those with an upward trend. The trend is positive if there have been two consecutive higher highs and two consecutive higher lows in On Balance Volume (OBV). The trend is negative if there have been two consecutive lower highs and two consecutive lower lows in OBV. OBV is a running total of volume with volume added to the total on up days and subtracted from the total on down days. NFT usually leads prices both up and down.

The chart below shows the S&P 500 (SPX) in red and NFT calculated from the component issues of the SPX in blue, the dashed line in the middle of the chart is neutral or 0 for NFT. NFT hit its low for the period Friday in spite of prices rising for 2 days.

The chart below shows the OTC in red and an indicator calculated by subtracting momentum of new lows from momentum of new highs in purple. The indicator is binary, i.e., it moves to the top of the screen when the market is strong and to the bottom of the screen when the market is weak. It is sitting near the bottom of the screen.

The table below shows daily returns for the last 5 trading days of September during the 1st year of the Presidential cycle. Data for SPX covers the period from 1929 and for OTC from 1965. There are summaries for all years 1963 - 2004 for the OTC and 1928 - 2004 for the S&P500 (SPX).

The 1st year of the Presidential cycle is a little better than the average of all years, but the end of September is not as strong as most other months.

Last 5 days of September.

OTC Presidential Year 1
  Day5 Day4 Day3 Day2 Day1 Totals
1965-1 -0.69% 5 0.09% 1 0.19% 2 0.07% 3 -0.88% 4 -1.21%
1969-1 0.77% 3 -0.17% 4 -0.27% 5 -0.36% 1 -0.39% 2 -0.42%
1973-1 0.21% 1 0.10% 2 0.75% 3 0.59% 4 -0.06% 5 1.58%
1977-1 0.17% 1 0.00% 2 0.22% 3 0.31% 4 0.58% 5 1.28%
1981-1 0.22% 4 -2.92% 5 -0.05% 1 1.99% 2 0.85% 3 0.09%
Avg 0.14% -0.58% 0.17% 0.52% 0.02% 0.26%
 
1985-1 0.61% 1 -0.69% 2 -0.81% 3 -0.57% 4 0.05% 1 -1.41%
1989-1 -0.29% 1 0.24% 2 -0.01% 3 0.72% 4 0.38% 5 1.03%
1993-1 0.32% 5 0.70% 1 0.49% 2 -0.06% 3 -0.05% 4 1.39%
1997-1 -0.59% 3 -0.50% 4 0.20% 5 0.70% 1 -0.48% 2 -0.68%
2001-1 2.00% 1 0.15% 2 -2.50% 3 -0.23% 4 2.61% 5 2.03%
Avg 0.41% -0.02% -0.53% 0.11% 0.50% 0.47%
 
OTC summary for Presidential year 1 1965 - 2001
Averages 0.27% -0.30% -0.18% 0.32% 0.26% 0.37%
% Winners 70% 50% 50% 60% 50% 60%
MDD 9/28/1981 2.97% -- 9/27/2001 2.73% -- 9/26/1985 2.06%
 
OTC summary for all years 1963 - 2004
Averages -0.20% -0.06% -0.22% -0.01% -0.12% -0.60%
% Winners 55% 51% 45% 46% 50% 45%
MDD 9/30/1974 6.69% -- 9/30/2003 6.04% -- 9/27/1990 5.81%
 
SPX Presidential Year 1
  Day5 Day4 Day3 Day2 Day1 Totals
1929-1 0.16% 3 0.91% 4 -2.76% 5 0.56% 6 -0.92% 1 -2.05%
1933-1 -0.89% 2 -4.17% 3 1.45% 4 -0.72% 5 1.13% 6 -3.19%
1937-1 -0.83% 6 4.13% 1 0.66% 2 0.51% 3 -0.22% 4 4.24%
1941-1 -1.27% 4 -0.30% 5 0.40% 6 0.00% 1 0.69% 2 -0.48%
 
1945-1 0.13% 2 -0.06% 3 -0.38% 4 1.20% 5 0.69% 6 1.57%
1949-1 -0.26% 1 -0.77% 2 0.78% 3 0.58% 4 -0.26% 5 0.07%
1953-1 0.04% 4 0.26% 5 0.64% 1 0.17% 2 -0.60% 3 0.52%
1957-1 0.68% 2 -1.21% 3 0.26% 4 -0.05% 5 -0.31% 1 -0.62%
1961-1 -1.42% 1 0.02% 2 1.05% 3 0.17% 4 0.23% 5 0.03%
Avg -0.17% -0.35% 0.47% 0.41% -0.05% 0.31%
 
1965-1 0.18% 5 0.70% 1 -0.24% 2 -0.45% 3 -0.07% 4 0.12%
1969-1 -0.14% 3 -0.76% 4 -0.64% 5 -0.80% 1 -0.31% 2 -2.65%
1973-1 0.15% 1 0.64% 2 0.72% 3 0.23% 4 -0.60% 5 1.15%
1977-1 0.36% 1 -0.15% 2 0.07% 3 0.57% 4 0.71% 5 1.56%
1981-1 -0.55% 4 -1.95% 5 2.45% 1 0.35% 2 0.21% 3 0.51%
Avg 0.00% -0.30% 0.47% -0.02% -0.01% 0.14%
 
1985-1 1.24% 1 -0.91% 2 -1.07% 3 0.35% 4 0.44% 1 0.04%
1989-1 -0.81% 1 0.03% 2 0.22% 3 1.01% 4 0.16% 5 0.61%
1993-1 -0.02% 5 0.91% 1 -0.06% 2 -0.31% 3 -0.26% 4 0.26%
1997-1 -0.78% 3 -0.70% 4 0.78% 5 0.86% 1 -0.64% 2 -0.47%
2001-1 3.90% 1 0.88% 2 -0.52% 3 1.15% 4 2.19% 5 7.60%
Avg 0.70% 0.04% -0.13% 0.61% 0.38% 1.61%
 
SPX summary for all Presidential year 1 1929 - 2001
Averages -0.01% -0.13% 0.20% 0.28% 0.12% 0.46%
% Winners 47% 47% 63% 68% 47% 68%
MDD 9/27/1933 5.02% -- 9/30/1929 3.12% -- 9/30/1969 2.62%
 
SPX summary for all years 1928 - 2004
Averages -0.13% -0.13% 0.08% -0.16% -0.05% -0.38%
% Winners 48% 46% 55% 52% 47% 52%
MDD 9/30/1931 11.08% -- 9/30/1974 8.47% -- 9/30/1930 7.56%

A cycle ending decline appears to have begun and it will not be over until new lows begin diminishing rapidly.

I expect the major indices to be lower on Friday September 30 than they were on Friday September 23.

This report is free to anyone who wants it, so please tell your friends. If it is not for you, reply with REMOVE in the subject line.


 

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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