Technical Market Report

By: Mike Burk | Sat, Aug 11, 2007
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The good news is:
• Central banks world wide sped up their presses last week pushing market volume to all time highs, during the off season.

Short Term

The first chart covers the past 6 months showing the NASDAQ composite (OTC) in red and a 50% trend (3 day EMA) of the ratio of NASDAQ advancing volume to declining volume (OTC UD Ratio) in blue. Dashed vertical lines have been drawn on the 1st trading day of each month.

The indicator hit a low in late July and a higher low in early August when prices hit their low (non confirmation) suggesting the low for this decline has been seen.

Intermediate term

Last week NASDAQ advancing volume (OTC UV) came close to its all time high set in early 2001 while NASDAQ declining volume (OTC DV) hit an all time high.

The first chart covers the past year showing the OTC in red and a 5% trend (39 day EMA) of OTC UV in green. OTC UV came near its all time high (set in early 2001) last Wednesday.

The next chart is similar to the one above, but, it covers the past 8 years with dashed vertical lines drawn on the 1st trading day of each year. The high for OTC UV was set in early 2001 during a bear market rally. You cannot see the current level, but, it is near the top of the chart.

The next chart gives you a closer look at the 2001 period. Dashed vertical lines have been drawn on the 1st trading day of each month and the lines are red on the 1st trading day of the year.

Volume usually picks up after the 1st of the year, but this example was extreme. You can see the pickup in OTC UV during January of the previous year was nothing compared to the level reached during the bear market rally in January 2001.

The market would be blasting off if it were not for all the sellers.

Volume of issues moving downward is also hitting records.

The next charts show the OTC in red and a 5% trend of NASDAQ downside volume (OTC DV) in brown. OTC DV has been plotted on an inverted Y axis so increasing OTC DV moves the indicator downward (up is good).

The first chart covers the past year with dashed vertical lines drawn on the 1st trading day of each month. OTC DV hit an all time high on Friday.

The next chart is similar to the one above but it covers the past 8 years with dashed vertical lines drawn on the 1st trading day of each year.

You cannot see it clearly, but, the current level of the indicator defines the bottom of the chart. Previous highs in the indicator were seen last summer, late 2000 and early 2001.

The next chart offers a closer look at the 2001 period. It covers a year and a half from late 1999 to mid 2001, dashed vertical red lines have been drawn on the 1st trading day of the year. Assuming the sellers blink, there should be an up turn in OTC DV.

Volatility increases near lows and we are seeing the highest levels of volatility in over a year.

The chart below covers the past year an a half showing the OTC in red and a 10 day average of the absolute value of the percentage change of the OTC (Avg chg) in blue.

Avg chg hit a high for the past several years on Friday.

The next chart is similar to the one above except it covers the 1999 - 2001 period. There were indicator highs in the spring of 2000 and early 2001.

For some perspective the following chart is similar to the two above except it covers the past 8 years. Although high by recent levels, current volatility is minimal compared to the 2000 - 2001 period.

Volatility is relatively high and both upside and downside volume are at or near all time highs. The last time we had similar conditions was in early 2001 and we had a bear market rally that lasted about a month.

Seasonality

Next week includes the week prior to the 3rd. Friday in August during the 3rd year of the Presidential Cycle.

The tables show the daily returns for the week during the 3rd year of the Presidential Cycle. OTC data covers the period from 1963 - 2003 and S&P 500 (SPX) data from 1953 - 2003. There are summaries for both the 3rd year of the Presidential Cycle and all years combined. Prior to 1953 the market traded 6 days a week so that data has been ignored.

During the 3rd year of the Presidential Cycle, in the coming week, both the OTC and SPX have been up about 70% of the time with good average returns. Average returns over all years have been modest

Report for the week before the 3rd Friday of Aug
The number following the year is the position in the presidential cycle.
Daily returns from Monday through 3rd Friday.

OTC Presidential Year 3
Year Mon Tue Wed Thur Fri Totals
1963-3 0.47% 0.06% 0.35% 0.61% 0.17% 1.66%
 
1967-3 -0.29% -0.63% 0.00% -0.24% -0.20% -1.36%
1971-3 2.30% 0.99% -0.50% -0.35% -0.11% 2.33%
1975-3 -0.13% 0.19% -0.64% -0.81% 0.17% -1.22%
1979-3 0.69% 0.16% 0.57% 0.20% 0.27% 1.90%
1983-3 0.73% -0.64% 0.33% -0.35% -0.23% -0.15%
Avg 0.66% 0.01% -0.06% -0.31% -0.02% 0.30%
 
1987-3 0.01% -1.08% 0.27% 1.07% 0.54% 0.81%
1991-3 0.33% 0.86% 0.64% -0.39% -0.62% 0.82%
1995-3 0.83% 0.00% 1.32% 0.33% 0.20% 2.69%
1999-3 0.28% 0.98% -0.51% -1.37% 1.03% 0.42%
2003-3 1.06% 1.53% -0.02% 0.81% 0.10% 3.49%
Avg 0.50% 0.57% 0.34% 0.09% 0.25% 1.64%
 
OTC summary for Presidential Year 3 1963 - 2003
Avg 0.57% 0.24% 0.18% -0.04% 0.12% 1.03%
Win% 82% 70% 60% 45% 64% 73%
 
OTC summary for all years 1963 - 2006
Avg 0.23% 0.00% 0.29% 0.00% -0.13% 0.38%
Win% 66% 51% 64% 53% 55% 55%
 
 
SPX Presidential Year 3
Year Mon Tue Wed Thur Fri Totals
1955-3 -0.09% -0.74% 0.10% -0.14% 0.43% -0.45%
1959-3 -0.20% -0.93% -0.60% 1.49% -0.10% -0.34%
1963-3 0.16% 0.28% 0.40% 0.44% 0.15% 1.43%
 
1967-3 -0.54% 0.14% -0.23% 0.08% 0.16% -0.39%
1971-3 3.21% 1.25% -1.39% -0.45% 0.17% 2.79%
1975-3 0.62% 0.66% -1.32% -0.43% 0.89% 0.41%
1979-3 0.96% 0.09% 0.68% -0.15% 0.19% 1.78%
1983-3 0.96% -0.18% 1.15% -1.05% 0.26% 1.13%
Avg 1.04% 0.39% -0.22% -0.40% 0.34% 1.15%
 
1987-3 0.04% -1.45% 0.18% 1.52% 0.32% 0.59%
1991-3 0.23% 0.41% 0.07% -0.15% -0.96% -0.39%
1995-3 0.83% -0.21% 0.25% -0.17% 0.03% 0.74%
1999-3 0.23% 1.01% -0.84% -0.70% 0.98% 0.68%
2003-3 0.31% 1.00% -0.64% 0.66% 0.02% 1.34%
Avg 0.33% 0.15% -0.20% 0.23% 0.08% 0.59%
 
SPX summary for Presidential Year 3 1955 - 2003
Avg 0.52% 0.10% -0.17% 0.07% 0.20% 0.72%
Win% 77% 62% 54% 38% 85% 69%
 
SPX summary for all years 1953 - 2006
Avg 0.19% 0.03% 0.01% 0.01% 0.02% 0.26%
Win% 67% 52% 57% 48% 61% 54%

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.

Conclusion

The market is beginning a rally which should last about a month.

I expect the major indices to be higher on Friday August 17 than they were on Friday August 10.

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.

Gordon Harms produces a power point for our local timing group meeting. You can get a copy of that at: http://www.stockmarket-ta.com/.

 


 

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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