Technical Market Report

By: Mike Burk | Sat, Nov 3, 2007
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The good news is:
• The NYSE composite hit an all time high, NASDAQ 100 (NDX) and the NASDAQ composite (OTC) hit a multi year highs last week.

Short Term

The Hindenburg Omen, a signal developed by Jim Miekka, has received a lot of publicity lately. The signal has had some false positives, but it has also preceded every major decline. The parameters are:

NYSE new highs and new lows must both exceed 2.8% of NYSE issues traded (currently 93).

The NYSE composite must be above its level of 50 trading days earlier.

The McClellan Oscillator must be negative.

When the above conditions have been met the signal is in effect for 30 days.

On Friday all of the conditions were met. Even 10% trends (19 day EMA's) of NYSE new highs and new lows exceeded 93 (NYSE NH 148 and NYSE NL 102). The NYSE composite is 2 days off its all time high.

Intermediate Term

In an advancing market you expect new highs to increase and new lows to decrease. Recently we have been seeing the opposite.

The chart below covers the past year showing the OTC in blue and a 10% trend of NASDAQ new highs (OTC NH) in green. There have been dashed vertical lines drawn on the 1st trading day of each month.

Since late February every new high on the OTC has been accompanied by a progressively lower high in OTC NH.

The next chart is similar to the one above except the indicator is calculated from NASDAQ new lows (OTC NL) and the indicator has been plotted on an inverted Y axis so increasing new lows moves the indicator downward (up is good).

Since the mid October low the indicator has been falling sharply.

About 3000 issues are traded on the NASDAQ the largest, by capitalization, 100 non financial NASDAQ issues are included in the NDX index. The NDX components are mostly technology issues and represent over 80% of the market value of all NASDAQ issues combined.

The chart below covers the past year showing the NDX in red and the percentage of the component issues of the NDX that are above their 50 day EMA's in olive drab. The index made a series of new multi year highs in the past month with the help of progressively fewer of its component issues. These patterns have occurred before and often persist for several months before a sharp sell off.

Seasonality

Next week is the week prior to the 2nd Friday of November during the 3rd year of the Presidential Cycle.

The tables show the daily change of the OTC and S&P 500 (SPX) in the week prior to the 2nd Friday of November during the 3rd year of the Presidential Cycle. OTC data covers the period from 1963 - 2003 and SPX data from 1953 - 2003. Prior to 1953 the market traded 6 days a week so that data has been ignored. There are summaries for both the 3rd year of the Presidential Cycle and all years combined.

Average gains for the week have all been modestly positive.

During the 3rd year of the Presidential Cycle the OTC has been up only 36% of the time. The SPX by all measures as well as the OTC over all years have been up slightly over half of the time.

Report for the week before the 2nd Friday of November
The number following the year is the position in the presidential cycle.
Daily returns from Monday to 2nd Friday.

OTC Presidential Year 3
Year Mon Tue Wed Thur Fri Totals
1963-3 0.06% 0.00% -0.93% -0.20% 0.11% -0.96%
 
1967-3 -0.42% 0.00% -0.48% -0.62% 0.08% -1.45%
1971-3 -0.03% 0.28% -0.81% -1.07% 0.16% -1.47%
1975-3 0.32% 0.70% 1.63% -0.06% -0.30% 2.28%
1979-3 -0.56% -0.33% -1.12% 0.47% 0.81% -0.74%
1983-3 -0.75% -0.57% 0.53% 0.77% 1.48% 1.46%
Avg -0.29% 0.02% -0.05% -0.10% 0.45% 0.02%
 
1987-3 -1.83% -1.64% 0.83% 1.95% -0.32% -1.00%
1991-3 -0.63% 0.25% 0.12% 1.08% 0.51% 1.32%
1995-3 -0.34% -1.71% 0.38% 1.69% -0.16% -0.14%
1999-3 1.34% -0.61% 0.99% 1.32% 0.74% 3.78%
2003-3 -1.48% -0.56% 2.19% -0.29% -1.89% -2.02%
Avg -0.59% -0.85% 0.90% 1.15% -0.22% 0.39%
 
OTC summary for Presidential Year 3 1963 - 2003
Avg -0.39% -0.47% 0.30% 0.46% 0.11% 0.10%
Win% 27% 33% 64% 55% 64% 36%
 
OTC summary for all years 1963 - 2006
Avg -0.01% 0.17% 0.04% 0.22% 0.02% 0.42%
Win% 45% 62% 57% 61% 60% 55%
 
SPX Presidential Year 3
Year Mon Tue Wed Thur Fri Totals
1955-3 0.43% 0.00% 1.04% 0.25% 1.16% 2.88%
1959-3 -0.17% -0.03% 0.02% -0.56% -0.56% -1.31%
1963-3 -0.51% 0.00% -0.87% 0.34% 0.41% -0.63%
 
1967-3 -0.33% 0.00% -0.37% 0.49% 0.68% 0.47%
1971-3 -0.07% 0.07% -1.11% -1.38% 0.00% -2.49%
1975-3 0.01% 0.59% 1.47% -0.16% -0.08% 1.83%
1979-3 -0.67% -0.61% -1.31% 0.43% 1.21% -0.96%
1983-3 -0.33% -0.09% 1.37% 0.27% 1.14% 2.36%
Avg -0.28% -0.01% 0.01% -0.07% 0.74% 0.24%
 
1987-3 -2.89% -1.71% 1.21% 2.74% -1.16% -1.81%
1991-3 -0.27% -0.40% 0.32% 0.96% -0.21% 0.41%
1995-3 -0.36% -0.36% 0.92% 0.26% -0.09% 0.37%
1999-3 0.49% -0.85% 0.60% 0.58% 1.06% 1.88%
2003-3 -0.58% -0.05% 1.15% -0.01% -0.76% -0.26%
Avg -0.72% -0.68% 0.84% 0.91% -0.23% 0.12%
 
SPX summary for Presidential Year 3 1955 - 2003
Avg -0.40% -0.35% 0.34% 0.32% 0.23% 0.21%
Win% 23% 20% 69% 69% 50% 54%
 
SPX summary for all years 1953 - 2006
Avg -0.04% 0.12% 0.13% 0.18% 0.02% 0.39%
Win% 52% 51% 60% 61% 58% 57%

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

Most of the indicators deteriorated last week and seasonality is not an asset for the coming week.

I expect the major indices to be lower on Friday November 9 than they were on Friday November 2.

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 meetings. You can get a copy of that at: http://www.stockmarket-ta.com/.

Last week the OTC and NDX were up slightly but the other major indices were down so I am calling last weeks positive forecast a loss.

 


 

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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