Technical Market Report

By: Mike Burk | Sat, Jun 17, 2006
Print Email

The good news is:
• This decline, when it ends, will offer a great buying opportunity.

Short term

The run up to the April high in the NASDAQ composite (OTC) was accompanied by an increase in both upside and downside volume. This relatively unusual phenomenon last occurred in the spring of 2000. The end of the decline was marked by pattern of decreasing downside volume.

The two charts below show the OTC in red along with a 4% trend (55 day EMA) of volume of NASDAQ advancing issues (UV) in green and a 4% trend of volume of NASDAQ declining issues (DV) in blue. DV is plotted on an inverted Y axis so increasing DV moves the indicator downward (up is good). There are grey dashed vertical lines drawn on the 1st trading day of each month and a red dashed vertical line drawn on the 1st trading day of the year.

In the rally of Wednesday and Thursday of last week UV increased and DV decreased, but, as of Friday, not enough to break their downward trends.

The chart below shows the same indicators at approximately the same period in 2000. The short term low in prices came when the pattern of increasing DV had been broken.

Intermediate term

The intermediate term depends on your longer term perspective.

The charts below show the Russell 2000 (R2K) in red and the percentage of the component issues of the R2K that are above their 50 day EMA's in green. Horizontal lines are drawn at 25%, 50% and 75% levels.

The 1st chart covers the past 6 months. The indicator hit a low of 14% on Wednesday, a very oversold condition.

The next chart shows the same index and indicator from April to October 1998. Both the indicator and prices hit a short term low in mid June then rallied into mid July before resuming their decline into the October low.

The next chart shows the same index and indicator from April to October 2002. Both the indicator and prices hit a short term low in mid June and rallied 3.2% in two days before resuming the decline. The rally of last Wednesday and Thursday was 3.6%.

1998 and 2002 were selected because they are the previous two examples of the 2nd year of the Presidential Cycle which we are in now.

You can get more information about the Presidential Cycle at: http://alphaim.net/newsletter.html - select Alpha Research Reports.

Whether you expect the current year to more closely resemble 1998 or 2002 depends on your longer term perspective. I think a longer term bear market began in 2000. 1998 was near the end of the last bull market and 2002 was near the beginning of the current bear market so I expect the pattern that plays out over the next several months will be closer to that of 2002 than 1998.

Seasonality

Next week is the week following futures and options expiration as well as the week prior to the 4th Friday of June during the 2nd year of the Presidential Cycle. The data may be less relevant because this is a relatively unusual June with 5 Friday's.

The tables below show daily returns for the OTC from 1966 - 2002 and S&P 500 (SPX) from 1930 - 2002 during the 2nd year of the Presidential Cycle. There are summaries for both the 2nd year of the Presidential Cycle and all years combined.

The week has little to recommend it. Except for the SPX over all years the averages are all negative. The percentage of up weeks has been slightly positive for the SPX and slightly negative for the OTC.

Report for the week prior to the 4th Friday in June
The number following the year is the position in the presidential cycle.
Daily returns from Monday to Friday after witching.

OTC Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1966-2 -0.03% 0.22% 0.30% 0.27% -0.82% -0.06%
 
1970-2 0.87% -0.03% -2.69% -0.34% -1.10% -3.29%
1974-2 -0.29% 0.60% -1.36% -1.84% -1.13% -4.03%
1978-2 -0.62% -0.72% -1.15% 0.04% 0.05% -2.40%
1982-2 -0.30% 0.63% 1.07% 0.15% -0.37% 1.18%
1986-2 -0.01% 0.53% 0.83% 0.16% 0.16% 1.67%
Avg -0.07% 0.20% -0.66% -0.36% -0.48% -1.37%
 
1990-2 -1.45% -0.06% 0.06% 0.10% -0.42% -1.76%
1994-2 -1.44% -1.40% 0.56% -1.67% -1.01% -4.96%
1998-2 1.38% 2.14% 1.79% -0.77% 0.33% 4.88%
2002-2 1.34% -2.49% 0.38% 2.09% 0.27% 1.60%
Avg -0.04% -0.45% 0.70% -0.06% -0.21% -0.06%
 
OTC summary for Presidential Year 2 1966 - 2002
Avg -0.05% -0.06% -0.02% -0.18% -0.40% -0.72%
Win% 30% 50% 70% 60% 40% 40%
 
OTC summary for all years 1963 - 2005
Avg -0.07% 0.06% 0.07% -0.05% -0.10% -0.10%
Win% 42% 65% 52% 60% 53% 49%
 
SPX Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1930-2 2.14% -3.48% 0.77% 2.35% 0.00% 1.78%
1934-2 0.00% -1.74% -1.08% -0.99% 0.00% -3.81%
1938-2 5.38% 2.65% 2.58% 2.80% 0.00% 13.40%
1942-2 -1.43% 0.00% -0.48% 0.12% 0.00% -1.80%
1946-2 0.22% -0.71% -0.17% 1.55% 0.22% 1.11%
Avg 1.57% -0.82% 0.33% 1.17% 0.22% 2.14%
 
1950-2 -0.26% -0.48% 0.90% 0.84% -0.10% 0.90%
1954-2 0.07% 0.07% 0.17% 0.45% -0.21% 0.55%
1958-2 -0.36% -0.38% 0.25% 0.47% 0.13% 0.11%
1962-2 -0.27% -0.36% -1.37% -2.17% -1.70% -5.87%
1966-2 -0.03% 0.27% 0.16% -0.40% 0.09% 0.08%
Avg -0.17% -0.18% 0.02% -0.16% -0.36% -0.84%
 
1970-2 -0.53% -2.45% -1.06% 0.07% -0.74% -4.72%
1974-2 0.26% 1.47% -1.47% -1.55% -0.36% -1.65%
1978-2 0.07% -1.01% -0.52% 0.24% -0.41% -1.62%
1982-2 -0.07% 1.03% 1.70% -0.28% -0.63% 1.74%
1986-2 -0.94% 0.72% 0.77% -0.08% 0.35% 0.82%
Avg -0.24% -0.05% -0.12% -0.32% -0.36% -1.08%
 
1990-2 -1.66% 0.45% 0.18% 0.38% -1.40% -2.06%
1994-2 -0.65% -0.91% 0.39% -0.76% -1.52% -3.45%
1998-2 0.24% 1.48% 1.20% -0.32% 0.35% 2.94%
2002-2 0.36% -1.67% -0.27% 1.76% 0.00% 0.18%
Avg -0.43% -0.16% 0.37% 0.26% -0.86% -0.60%
 
SPX summary for Presidential Year 2 1930 - 2002
Avg 0.14% -0.28% 0.14% 0.24% -0.42% -0.07%
Win% 44% 44% 58% 58% 36% 58%
 
SPX summary for all years 1928 - 2005
Avg 0.16% -0.09% 0.19% 0.04% -0.13% 0.20%
Win% 45% 51% 56% 55% 46% 58%

Conclusion

The rally of last Wednesday and Thursday gave a little relief to the extremely over sold condition, but there is still no evidence of a bottom.

I expect the major indices to be lower on Friday June 23 than they were on Friday June 16.

This report is free to anyone who wants it, so please tell your friends. They can sign up at: http://alphaim.net/signup.html. If it is not for you, reply with REMOVE in the subject line.

Last week the Dow Jones Industrial Average was up a little over 1% while most of the other indices were down so I am calling last week's negative forecast a tie.

 


 

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 © 2003-2016 Mike Burk

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com