Technical Market Report

By: Mike Burk | Sat, Jun 2, 2007
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The good news is:
• All of the major indices closed at multi year or all time highs Friday.

Short Term

All of the major indices were up every day last week leaving the market overbought.

Intermediate term

Expanding new highs in a rising market indicate broadening participation.

As a bull market ages the indices are carried to new highs by fewer issues indicated by a contracting new high list. Most of the major indices closed at all time or multi year highs Friday, but their new high lists indicated deteriorating participation.

The chart below covers the past year showing the S&P 500 (SPX) in red and a 10% trend (19 day EMA) of the component issues of the SPX making new highs (NH) in green. New highs have been calculated over the preceding 6 weeks rather than 52 weeks as reported by the exchanges. Dashed vertical lines have been drawn on the 1st trading day of each month.

New highs have fallen off sharply in the past month as the index moved up to an all time high.

To provide a longer term perspective, the chart below is similar to the one above except it covers the past 5 years and has dashed vertical lines drawn on the 1st trading day of each year.

The next chart is similar to the first one except it shows the S&P mid cap index (MID) and NH has been calculated from the component issues of the MID index.

The next chart is similar to the previous one except the index is the Russell 2000 (R2K) and NH has been calculated from the component issues of the R2K index.

All of the indices shown above closed at all time highs on Friday.

As measured by NH there has been progressively deteriorating participation from large cap to small cap. This condition is less than ideal.

Seasonality

Next week is the week prior to the 2nd Friday in June, but it also includes the 2nd through 6th trading days of June during the 3rd year of the Presidential Cycle. Because we are only 1 trading day into the month I think the position relative to the beginning of the month is more significant than the week prior to the 2nd Friday.

The tables show the daily return for the 1st 6 days of June for the NASDAQ composite (OTC) over that period from 1963 – 2003 and of the SPX from 1931 – 2003. There are summaries for both the 3rd year of the Presidential Cycle and all years combined.

Both indices have had positive returns over all periods and the 3rd year of the Presidential Cycle has been the strongest.

Report for the first 6 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 3
  Day1 Day2 Day3 Day4 Day5 Day6 Totals
1963-3 0.03% 1 -0.24% 2 0.54% 3 -0.33% 4 0.39% 5 -0.21% 1 0.18%
1967-3 -1.76% 4 0.22% 5 -1.39% 1 -1.02% 2 1.26% 3 0.94% 4 -1.76%
 
1971-3 0.57% 2 0.63% 3 0.60% 4 0.40% 5 0.09% 1 -0.67% 2 1.63%
1975-3 0.00% 1 0.94% 2 0.24% 3 0.19% 4 0.63% 5 -0.90% 1 1.10%
1979-3 0.26% 5 0.14% 1 0.81% 2 0.45% 3 0.70% 4 0.30% 5 2.67%
1983-3 -0.25% 3 0.81% 4 1.10% 5 0.52% 1 -0.42% 2 -0.53% 3 1.22%
1987-3 -0.37% 1 -0.34% 2 0.56% 3 0.36% 4 0.10% 5 0.38% 1 0.69%
Avg 0.04% 0.44% 0.66% 0.38% 0.22% -0.28% 1.46%
 
1991-3 0.20% 1 0.03% 2 -0.40% 3 -0.45% 4 -0.87% 5 -0.54% 1 -2.04%
1995-3 0.49% 4 0.48% 5 1.13% 1 -0.39% 2 0.25% 3 0.52% 4 2.47%
1999-3 -2.35% 2 0.82% 3 -1.19% 4 2.52% 5 2.44% 1 -1.97% 2 0.28%
2003-3 -0.32% 1 0.81% 2 1.94% 3 0.69% 4 -1.13% 5 -1.44% 1 0.55%
2007-3 0.36% 5 0.00% 0 0.00% 0 0.00% 0 0.00% 0 0.00% 0 0.36%
Avg -0.32% 0.43% 0.29% 0.48% 0.14% -0.69% 0.32%
 
OTC summary for Presidential Year 3 1963-2003
Averages -0.26% 0.36% 0.33% 0.25% 0.29% -0.34% 0.61%
% Winners 50% 75% 67% 58% 67% 33% 83%
MDD 6/6/1967 3.90% -- 6/3/1999 2.72% -- 6/9/2003 2.55%
 
OTC summary for all years 1963 - 2006
Averages 0.28% 0.36% 0.19% 0.07% 0.16% -0.27% 0.77%
% Winners 61% 70% 61% 57% 55% 41% 58%
MDD 6/10/2002 5.26% -- 6/8/1970 4.49% -- 6/6/1967 3.90%
 
SPX Presidential Year 3
  Day1 Day2 Day3 Day4 Day5 Day6 Totals
1931-3 -4.76% 1 -1.61% 2 7.54% 3 3.28% 4 -1.11% 5 -2.54% 6 0.80%
1935-3 -0.73% 6 1.68% 1 2.59% 2 -0.10% 3 -0.71% 4 0.61% 5 3.34%
1939-3 -1.55% 4 0.53% 5 0.35% 6 -0.09% 1 1.30% 2 0.09% 3 0.62%
1943-3 0.58% 2 0.08% 3 0.41% 4 -0.49% 5 0.82% 6 -1.06% 1 0.34%
1947-3 -1.04% 1 1.40% 2 -0.69% 3 -0.07% 4 0.76% 5 -0.55% 1 -0.19%
Avg -1.50% 0.42% 2.04% 0.51% 0.22% -0.69% 0.98%
 
1951-3 -0.19% 5 -1.12% 1 0.42% 2 0.70% 3 0.37% 4 -0.32% 5 -0.13%
1955-3 0.13% 3 0.34% 4 0.74% 5 0.83% 1 0.70% 2 0.67% 3 3.41%
1959-3 -0.09% 1 -0.68% 2 0.03% 3 -1.06% 4 -0.21% 5 -1.30% 1 -3.31%
1963-3 -0.16% 1 0.01% 2 -0.24% 3 0.07% 4 -0.24% 5 -0.67% 1 -1.22%
1967-3 1.29% 4 -0.49% 5 -1.51% 1 2.04% 2 0.75% 3 0.54% 4 2.62%
Avg 0.20% -0.39% -0.11% 0.52% 0.27% -0.22% 0.27%
 
1971-3 0.57% 2 0.76% 3 0.05% 4 0.29% 5 -0.16% 1 -0.81% 2 0.70%
1975-3 1.57% 1 0.33% 2 -0.31% 3 0.10% 4 -0.23% 5 -1.37% 1 0.09%
1979-3 0.09% 5 0.15% 1 1.31% 2 0.68% 3 0.48% 4 -0.29% 5 2.42%
1983-3 0.10% 3 0.88% 4 0.27% 5 0.25% 1 -1.25% 2 -0.87% 3 -0.62%
1987-3 -0.09% 1 -0.47% 2 1.74% 3 0.55% 4 -0.56% 5 1.11% 1 2.28%
Avg 0.45% 0.33% 0.61% 0.37% -0.34% -0.45% 0.97%
 
1991-3 -0.45% 1 -0.08% 2 -0.68% 3 -0.38% 4 -1.09% 5 -0.23% 1 -2.92%
1995-3 0.02% 4 -0.18% 5 0.58% 1 -0.01% 2 -0.45% 3 -0.15% 4 -0.19%
1999-3 -0.58% 2 0.04% 3 0.36% 4 2.18% 5 0.50% 1 -1.28% 2 1.23%
2003-3 0.35% 1 0.47% 2 1.51% 3 0.40% 4 -0.24% 5 -1.20% 1 1.29%
2007-3 0.37% 5 0.00% 0 0.00% 0 0.00% 0 0.00% 0 0.00% 0 0.37%
Avg -0.06% 0.05% 0.35% 0.44% -0.26% -0.57% -0.04%
 
SPX summary for Presidential Year 3 1931-2003
Averages -0.23% 0.10% 0.72% 0.46% -0.03% -0.48% 0.55%
% Winners 50% 60% 70% 60% 40% 25% 65%
MDD 6/2/1931 6.30% -- 6/8/1959 3.27% -- 6/10/1991 2.89%
 
SPX summary for all years 1928 - 2006
Averages 0.02% 0.20% 0.25% 0.22% 0.05% -0.20% 0.52%
% Winners 51% 62% 54% 53% 52% 46% 55%
MDD 6/7/1932 7.09% -- 6/2/1931 6.30% -- 6/7/1930 5.96%

Mutual Fund

Compliance issues demand that I not mention the mutual fund that I manage by name or symbol in this letter.

To see a current chart of the fund go to: http://finance.yahoo.com/q/bc?s=APHAX&t=6m&l=on&z=m&q=l&c=

For information about the fund go to: http://www.thealphafunds.com/index.htm. The fund now has service class shares available.

June

Since 1963 the OTC has been up 55% of the time in June with an average gain of 0.5%. During the 3rd year of the Presidential Cycle the OTC has been up 82% of the time with an average gain of 3.1%.

The average month has 21 trading days. The chart below shows the average daily return of the first 11 and the last 10 trading days in June. When there have been less than 21 trading days some of the days in the middle of the month have been counted twice and when there have been more than 21 trading days some of the days in the middle of the month have not been counted. A dashed vertical line has been drawn after the 1st trading day and at 5 trading day intervals after that. A solid vertical line has been drawn on the 11th trading, the dividing point.

The average return for the OTC over all years has been drawn in red and the average return for the 3rd year of the Presidential Cycle has been drawn in green.

Since 1928 the SPX has been up 55% of the time in June with an average gain of 1.0%. During the 3rd year of the Presidential Cycle the SPX has been up 68% of the time with an average gain of 2.8%.

The chart below is similar to the one above except the index is the SPX and over all years it is shown in blue.

Conclusion

The first week of June during the 3rd year of the Presidential Cycle is the strongest part of a strong month.

I expect the major indices to be higher on Friday June 8 than they were on Friday June 1.

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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.

Copyright © 2003-2016 Mike Burk

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