Technical Market Report

By: Mike Burk | Sat, Sep 9, 2006
Print Email

The good news is:
• New lows remained at low levels during last weeks decline suggesting the lows of last June and July are likely to remain the lows for the year.

Short term

Total volume typically rises during up markets and falls during down markets. It also usually declines during the summer.

The chart below shows the NASDAQ composite (OTC) in magenta and a 5% trend (39 day EMA) of NASDAQ total volume in green. The chart covers the past 5 years so you can get an idea of how volume varies with changes in prices and seasons. Red dashed vertical lines have been drawn on the 1st trading day of each year.

During the past month there has been a sharp decline in total volume as the market has been rallying.

The chart below is similar to the one above except it covers the past 6 months so you can see how sharply volume as fallen in the past month.

Grey dashed vertical lines have been drawn on the 1st trading day of each month.

The next chart covers 6 months during 2002 (also a 2nd year in the Presidential Cycle). The August rally on declining volume was followed by a continuing decline in prices.

The last chart covers the period from January to October 2004 and shows rallies in both June and August on declining volume. The June rally failed, but the August rally on declining volume was off a low that has not been breached.

It would be comforting to see volume pickup on the next leg up.

Intermediate term

Peaks in new lows occur near cyclical bottoms.

The chart below covers the past 4 years showing the OTC in magenta and a 10% trend (19 day EMA) of NASDAQ new lows (OTC NL) in blue. OTC NL is plotted on an inverted Y axis to make the chart easier to read, increasing new lows move the indicator downward (up is good).

The next chart is similar to the previous one except it shows only the past year.

The sharp decline last Wednesday and Thursday did not generate enough new lows to turn the indicator downward. The current level and direction of OTC NL suggest it is unlikely the July lows will be revisited anytime soon and, if they are, the low would be unconfirmed by OTC NL (OTC NL would be higher than it was during the July lows) indicating a buying opportunity.

Seasonality

Next Friday is one of four annual "triple witching" Fridays that occur then stock options, index options and futures expire on the same day.

Options and futures were not an issue prior to the mid 1980's.

The tables below show daily returns for the 5 days prior to the September triple witching Friday. OTC data covers the period from 1966 - 2002 and S&P 500 (SPX) data from 1954 - 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 beginning with 1963 for the OTC and 1953 for the SPX. The period prior to 1954 has been excluded because the market traded 6 days a week.

The coming week during 2nd year of the Presidential Cycle has been up nearly 70% of the time while the averages for all years has been about 10% less. All of the average returns have been positive.

Report for the week before witching Friday during September
The number following the year is the position in the presidential cycle.

OTC Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1966-2 -0.08% 1.31% 0.15% 0.91% 0.63% 2.93%
 
1970-2 0.09% -0.13% -1.14% 0.20% 1.15% 0.18%
1974-2 1.02% 0.84% 0.69% 2.41% 0.64% 5.60%
1978-2 0.43% 0.21% 0.01% -0.65% -0.71% -0.72%
1982-2 0.24% 0.93% 0.93% 0.26% -0.10% 2.25%
1986-2 -0.27% -0.63% 0.94% 0.49% 0.24% 0.77%
Avg 0.30% 0.24% 0.28% 0.54% 0.24% 1.62%
 
1990-2 -0.08% -0.51% -0.14% -1.95% -0.60% -3.28%
1994-2 -0.49% 0.77% 0.36% 1.31% -0.10% 1.85%
1998-2 1.47% 0.72% 0.73% -2.58% 1.06% 1.40%
2002-2 -1.20% -1.25% -0.62% -2.85% 0.38% -5.54%
Avg -0.08% -0.07% 0.08% -1.52% 0.19% -1.39%
 
OTC summary for Presidential Year 2 1966 - 2005
Avg 0.11% 0.23% 0.19% -0.25% 0.26% 0.54%
Win% 50% 60% 70% 60% 60% 70%
 
OTC summary for all years 1963 - 2005
Avg 0.07% 0.01% 0.01% 0.10% 0.30% 0.50%
Win% 44% 49% 55% 63% 70% 58%
 
SPX Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1954-2 0.91% 0.51% 0.03% 0.54% 0.79% 2.79%
1958-2 0.89% 0.80% -0.04% -0.51% 0.65% 1.79%
1962-2 0.32% -0.08% -0.14% -0.70% -1.45% -2.05%
1966-2 2.12% 0.53% 1.03% 1.20% -0.11% 4.77%
 
1970-2 -0.55% -0.87% 0.53% 0.61% 0.40% 0.13%
1974-2 1.63% 1.69% 0.50% 3.50% 0.07% 7.39%
1978-2 0.18% 0.01% -0.61% -1.17% -0.93% -2.52%
1982-2 1.05% 0.70% 0.97% -0.42% -0.99% 1.32%
1986-2 0.55% -0.09% -0.02% 0.27% -0.04% 0.67%
Avg 0.57% 0.29% 0.28% 0.56% -0.30% 1.40%
 
1990-2 0.30% 0.26% -0.63% -1.62% -0.05% -1.74%
1994-2 -0.42% 0.28% 0.27% 1.28% -0.76% 0.65%
1998-2 2.04% 0.78% 0.75% -2.54% 0.12% 1.14%
2002-2 0.14% -1.97% -0.46% -3.01% 0.25% -5.05%
Avg 0.52% -0.16% -0.02% -1.47% -0.11% -1.25%
 
SPX summary for Presidential Year 2 1954 - 2002
Avg 0.70% 0.20% 0.17% -0.20% -0.16% 0.72%
Win% 85% 69% 54% 46% 46% 69%
 
SPX summary for all years 1953 - 2005
Avg 0.14% 0.00% 0.08% 0.09% 0.11% 0.42%
Win% 51% 51% 60% 60% 57% 58%

Conclusion

The decline last week did not turn any of the intermediate indicators downward and next week is seasonally strong.

I expect the major indices to be higher on Friday September 15 than they were on Friday September 8.

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.

My positive forecast last week based on seasonal strength was a miss.

You may reproduce these letters provided you include a citation along with a link to the subscription page: http://alphaim.net/signup.html.

 


 

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