Technical Market Report

By: Mike Burk | Sun, Dec 11, 2005
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The good news is:
 • The recent weakness appears to be no more than a seasonally timed consolidation following the rapid move up from the October low.

Short term

The chart below shows the NASDAQ composite (OTC) in red along with momentum of 3 oscillators derived from NASDAQ data. It covers the period from mid July through last Friday and vertical dashed lines are drawn on the 1st trading day of each month; the horizontal dashed line represents neutral for the momentum indicators.

Oscillators have min-max limits and, no matter how persistent the trend they will regress to 0. Momentum indicators applied to oscillators smooth and exaggerate the behavior of the oscillators.

The oscillators underlying these indicators are calculated from advancing issues - declining issues (AD), new highs - new lows (HL) and upside volume - downside volume (UD).

The indicators are as low as they have been at any time in the past month, but Friday's positive action was not enough to turn any of them upward.

Intermediate term

The NASDAQ new low indicator (OTC NL) is a 10% trend (19 day EMA) of NASDAQ new lows plotted on an inverted Y axis so increasing new lows move the indicator downward and decreasing new lows move the indicator upward (up is good). While prices moved downward last week there were not enough new lows to break the upward trend of the indicator.

The small caps usually lead both up and down.

The chart below shows Accutrack (AT) (a FastTrack relative strength indicator) in black comparing the Russell 2000 (R2K) and the S&P 500 (SPX) in black along with the OTC in red. The chart covers the period from mid July through last Friday.

During the weakness of the past week the R2K has been outperforming the SPX. I have marked a similar occurrence in mid to late August when AT advanced for a week or so while prices fell. That occurrence was followed by a sharp advance in prices.

Seasonality

Options and futures expiration has been blamed for market volatility beginning in the mid 80's. However, volatility prior to the 3rd Friday of December during the 1st year of the Presidential Cycle was more severe during the 20's 30's and 40's than it has been in the past 20 years that futures and options have been an issue.

In recent years (OTC 1965 on) more of the days have been up, but the averages down indicating the down days go down more than the up days go up.

For the week the OTC since 1965 has been up only 30% of the time while the SPX since 1929 has been up 47% of the time.

Report for the week before options and futures expiration in December.
The number following the year is the position in the presidential cycle.
Daily returns from Monday to witching Friday.

OTC Presidential Year 1
Year Mon Tue Wed Thur Fri Totals
1965-1 0.81% 0.12% 0.27% 0.14% -0.07% 1.27%
1969-1 0.04% 0.14% -0.54% -0.66% 1.28% 0.26%
1973-1 -0.56% 1.60% -0.35% 0.03% -0.83% -0.10%
1977-1 0.31% 0.20% -0.13% -0.07% 0.15% 0.46%
1981-1 -1.50% -0.26% -0.04% 0.31% 0.67% -0.81%
Avg -0.18% 0.36% -0.16% -0.05% 0.24% 0.21%
 
1985-1 0.36% -0.59% -0.24% 0.06% 0.14% -0.27%
1989-1 -0.83% -0.44% 0.16% -0.81% -0.81% -2.74%
1993-1 -0.13% -1.09% 0.20% 0.34% 0.49% -0.19%
1997-1 0.00% 1.07% -0.36% -1.56% 0.10% -0.76%
2001-1 1.76% 0.87% -1.09% -3.25% 1.42% -0.29%
Avg 0.29% -0.03% -0.27% -1.04% 0.27% -0.85%
 
OTC summray for Presidential Year 1 1965 - 2001
Avg 0.03% 0.16% -0.21% -0.55% 0.25% -0.32%
Win% 56% 60% 30% 50% 70% 30%
OTC summary for all years 1963 - 2004
Avg 0.07% 0.00% -0.05% -0.03% 0.13% 0.11%
Win% 50% 50% 49% 60% 57% 57%
 
SPX Presidential Year 1
Year Mon Tue Wed Thur Fri Totals
1929-1 -2.87% 1.08% -0.65% -2.66% -3.31% -8.41%
1933-1 0.29% -0.19% -0.97% 0.39% -1.56% -2.05%
1937-1 -3.33% 0.84% 0.74% 1.56% -0.72% -0.92%
1941-1 0.11% -0.23% -1.61% -0.93% 0.00% -2.66%
 
1945-1 -2.31% 0.94% 0.00% -0.64% -0.06% -2.06%
1949-1 0.73% 0.42% 0.18% 0.06% -0.12% 1.27%
1953-1 -0.28% 0.08% 1.01% -0.08% 0.20% 0.93%
1957-1 -1.50% -1.74% -0.10% 1.07% -0.80% -3.08%
1961-1 0.49% 0.35% -0.15% -0.76% 0.04% -0.04%
Avg -0.57% 0.01% 0.23% -0.07% -0.15% -0.60%
 
1965-1 0.03% 0.05% 0.15% 0.11% -0.04% 0.30%
1969-1 -0.30% -0.91% -0.58% 1.58% 0.85% 0.65%
1973-1 -0.58% 2.15% 0.08% -0.28% -1.07% 0.30%
1977-1 -0.02% -0.07% 0.50% -0.51% -0.16% -0.26%
1981-1 -1.72% 0.17% -0.46% 0.57% 0.71% -0.73%
Avg -0.52% 0.28% -0.06% 0.29% 0.06% 0.05%
 
1985-1 0.99% -0.65% -0.40% 0.10% 0.44% 0.48%
1989-1 -0.04% 0.91% 0.29% -0.52% -0.23% 0.42%
1993-1 0.38% -0.57% -0.26% 0.32% 0.66% 0.53%
1997-1 1.05% 0.48% -0.26% -1.06% -0.89% -0.68%
2001-1 1.00% 0.75% 0.58% -0.84% 0.44% 1.94%
Avg 0.68% 0.19% -0.01% -0.40% 0.08% 0.54%
 
SPX summary for Presidential year 1 1929 - 2001
Avg -0.41% 0.20% -0.11% -0.13% -0.31% -0.74%
Win% 47% 63% 44% 47% 39% 47%
 
SPX summary for all years 1928 - 2004
Avg -0.07% 0.08% 0.11% -0.06% 0.19% 0.25%
Win% 54% 48% 51% 45% 58% 58%

Conclusion

Last week the market entered a typical consolidation which should end next week. In recent times Wednesday and Thursday have been the worst days of the upcoming week; look for the consolidation to end then.

I expect the major indices to be lower on Friday December 16 than they were on Friday December 9.

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Gordon Harms produces a Power Point for the monthly meetings of our local timing group. You can get it with the following link: http://www.stockmarket-ta.com/research/Dec6,2005.PPT


 

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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