Technical Market Report

By: Mike Burk | Sat, Jun 24, 2006
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The good news is:
• The rate of decline for the major indices has diminished and we are entering a period of modest seasonal strength.

Short term

Momentum indicators can identify a rhythm in the market that is not otherwise apparent. The first chart shows the Russell 2000 (R2K) in red and momentum of the ratio of new highs to new highs + new lows of the component issues of the R2K.

The indicator is rising and will probably peak about the end of next week.

Intermediate term

The first chart covers the past 6 months showing the NASDAQ composite (OTC) in red and a 10% trend (19 day EMA) of NASDAQ new lows on an inverted Y axis in blue. The Y axis for new lows is inverted so that increasing new lows move the indicator downward (up is good).

New lows dropped to a low of 88 on Wednesday then rose to 105 on Friday. You should be careful as long as the number of new lows remains above 70.

The next chart covers the same period as the one above and shows a 5% trend (55 day EMA) of NASDAQ downside volume (DV). Like the chart above, DV is plotted on an inverted Y axis. It is encouraging to see the indicator rising a little faster than the OTC index.

The next chart should help you contain the enthusiasm generated from the previous chart. It shows a 4% trend of total NASDAQ total volume plotted on a conventional Y axis. In the past week total volume has declined sharply which probably accounts for most of the upward move in DV.

Seasonality

Next week is the last 5 trading days of June during the 2nd year of the Presidential Cycle.

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.

There was a bad period from 1966 to 1982 that lowered the averages, but the past 20 years as well as the period prior to 1966 has been modestly positive

Report for the last 5 days of June
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
  Day5 Day4 Day3 Day2 Day1 Totals
1966-2 -0.82% 5 -0.34% 1 -0.49% 2 -1.21% 3 -0.96% 4 -3.81%
1970-2 -2.69% 3 -0.34% 4 -1.10% 5 -1.27% 1 -1.15% 2 -6.56%
1974-2 -0.29% 1 0.60% 2 -1.36% 3 -1.84% 4 -1.13% 5 -4.03%
1978-2 -0.99% 1 -0.30% 2 0.29% 3 0.38% 4 0.27% 5 -0.36%
1982-2 0.15% 4 -0.37% 5 0.35% 1 -0.32% 2 0.45% 3 0.26%
Avg -0.93% -0.15% -0.46% -0.85% -0.51% -2.90%
 
1986-2 0.53% 2 0.83% 3 0.16% 4 0.16% 5 0.49% 1 2.17%
1990-2 -0.80% 1 -0.06% 2 0.33% 3 0.76% 4 0.41% 5 0.65%
1994-2 -1.01% 5 1.28% 1 -0.09% 2 0.28% 3 0.28% 4 0.74%
1998-2 1.79% 3 -0.77% 4 0.33% 5 1.16% 1 0.19% 2 2.71%
2002-2 1.34% 1 -2.49% 2 0.38% 3 2.09% 4 0.27% 5 1.60%
Avg 0.37% -0.24% 0.22% 0.89% 0.33% 1.57%
 
OTC summary for Presidential Year 2 1966 - 2002
Averages -0.28% -0.20% -0.12% 0.02% -0.09% -0.66%
% Winners 40% 30% 60% 60% 70% 60%
MDD 6/30/1970 6.40% -- 6/28/1974 4.27% -- 6/30/1966 3.76%
 
OTC summary for all years 1963 - 2005
Averages -0.11% -0.14% 0.05% 0.14% 0.27% 0.22%
% Winners 47% 42% 53% 63% 67% 63%
MDD 6/30/1970 6.40% -- 6/29/1965 4.79% -- 6/28/1974 4.27%
 
SPX Presidential Year 2
  Day5 Day4 Day3 Day2 Day1 Totals
1930-2 0.77% 3 2.35% 4 -0.95% 5 0.45% 6 2.81% 1 5.45%
1934-2 2.36% 2 -0.30% 3 0.50% 4 -1.70% 5 0.00% 6 0.86%
1938-2 2.15% 6 -1.14% 1 -0.09% 2 4.18% 3 -1.37% 4 3.73%
1942-2 0.12% 4 0.12% 5 0.24% 6 0.36% 1 0.24% 2 1.09%
 
1946-2 0.22% 1 -0.71% 2 -0.17% 3 1.55% 4 0.22% 5 1.11%
1950-2 -5.38% 1 -1.10% 2 1.12% 3 -3.70% 4 1.43% 5 -7.64%
1954-2 0.45% 4 -0.21% 5 0.27% 1 0.51% 2 -0.75% 3 0.28%
1958-2 -0.38% 2 0.25% 3 0.47% 4 0.13% 5 0.76% 1 1.23%
1962-2 -0.44% 1 -0.25% 2 0.54% 3 3.44% 4 0.62% 5 3.92%
Avg -1.11% -0.40% 0.45% 0.39% 0.46% -0.22%
 
1966-2 0.09% 5 -0.58% 1 -0.48% 2 -0.95% 3 -0.14% 4 -2.05%
1970-2 -1.06% 3 0.07% 4 -0.74% 5 -0.79% 1 -0.23% 2 -2.75%
1974-2 0.26% 1 1.47% 2 -1.47% 3 -1.55% 4 -0.36% 5 -1.65%
1978-2 -1.30% 1 0.40% 2 0.44% 3 0.18% 4 -0.04% 5 -0.32%
1982-2 -0.28% 4 -0.63% 5 1.03% 1 -0.05% 2 -0.54% 3 -0.47%
Avg -0.46% 0.15% -0.24% -0.63% -0.26% -1.45%
 
1986-2 0.72% 2 0.77% 3 -0.08% 4 0.35% 5 0.50% 1 2.26%
1990-2 -0.88% 1 -0.07% 2 0.87% 3 0.70% 4 0.11% 5 0.74%
1994-2 -1.52% 5 1.02% 1 -0.28% 2 0.35% 3 -0.75% 4 -1.18%
1998-2 1.20% 3 -0.32% 4 0.35% 5 0.47% 1 -0.41% 2 1.28%
2002-2 0.36% 1 -1.67% 2 -0.27% 3 1.76% 4 0.00% 5 0.18%
Avg -0.02% -0.05% 0.12% 0.72% -0.11% 0.66%
 
SPX summary for Presidential Year 2 1930 - 2002
Averages -0.13% -0.03% 0.07% 0.30% 0.11% 0.32%
% Winners 58% 42% 53% 68% 42% 63%
MDD 6/29/1950 8.88% -- 6/28/1974 3.35% -- 6/30/1970 2.73%
 
SPX summary for all years 1928 - 2005
Averages -0.16% -0.05% -0.08% 0.13% 0.14% -0.02%
% Winners 45% 43% 51% 59% 59% 50%
MDD 6/29/1950 8.88% -- 6/29/1939 5.93% -- 6/30/1931 4.32%

Conclusion

Intermediate term there is little reason to be optimistic, however, the recent modest strength should last another week helped by seasonally positive bias.

I expect the major indices to be higher on Friday June 29 than they were on Friday June 23.

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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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