Technical Market Report

By: Mike Burk | Sun, Dec 16, 2007
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The good news is:
• Since 1929 the S&P 500 (SPX) has been up 79% of the time in the last 10 trading days of the year and 84% of the time during the 3rd year of the Presidential Cycle.

Short Term

The market is oversold.

As of Friday's close the SPX had given back 40% of its gains off the November 26 low, the Russell 2000 (R2K) had given up 61.8% of its gains, both at or close to Fibonacci numbers. The NASDAQ composite (OTC) is 52% off its December 10 high.

If, as new lows indicate, there was an intermediate term low on November 26, the market should be at or near its low for this move.

Intermediate Term

The secondaries lead both up and down.

The chart below is from FastTrack (http://fasttrack.net/). It covers the past 9 months showing the SPX in green, the R2K in red and a relative strength indicator called Accutrack (AT) as a histogram in yellow. When AT is rising and/or above the neutral line the R2K is outperforming the SPX, a favorable condition. AT has spent most of its time recently below the neutral line. As long as that condition persists the intermediate term outlook for the market is negative.

On the encouraging side for the short term, AT was a little higher on Friday than it was on December 4 then the R2K was near its current level.

Seasonality

Next week is the week prior to the 3rd Friday in December during the 3rd year of the Presidential Cycle.

The tables show the daily change of the OTC and SPX during the week prior to the 3rd Friday of December 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.

Historically next week has been up a little over half of the time with modest gains.

Report for the week before the 3rd Friday of Dec
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 -0.28% -0.40% 0.17% 0.09% -0.37% -0.79%
 
1967-3 -0.33% -0.21% 0.66% 0.59% 0.37% 1.09%
1971-3 0.32% -0.08% 0.35% 0.51% 0.46% 1.56%
1975-3 -0.49% 0.87% 0.81% 0.36% -0.20% 1.35%
1979-3 0.35% -0.56% -0.05% 0.41% -0.07% 0.10%
1983-3 -0.20% -0.36% -0.90% -0.39% 0.24% -1.61%
Avg -0.07% -0.07% 0.18% 0.30% 0.16% 0.50%
 
1987-3 2.25% 1.06% 2.10% 0.08% 2.32% 7.82%
1991-3 0.52% -0.74% 0.03% -0.98% 0.23% -0.95%
1995-3 -0.08% -0.89% 0.42% -1.73% -0.74% -3.03%
1999-3 1.05% -2.36% 1.41% 2.57% 1.02% 3.69%
2003-3 -1.58% 0.31% -0.15% 1.81% -0.26% 0.13%
Avg 0.43% -0.52% 0.76% 0.35% 0.51% 1.53%
 
OTC summary for Presidential Year 3 1963 - 2003
Avg 0.14% -0.30% 0.44% 0.30% 0.27% 0.85%
Win% 45% 27% 73% 73% 55% 64%
 
OTC summary for all years 1963 - 2006
Avg 0.07% -0.01% -0.05% -0.01% 0.12% 0.12%
Win% 52% 50% 49% 59% 57% 57%
 
SPX Presidential Year 3
Year Mon Tue Wed Thur Fri Totals
1955-3 -1.02% 0.07% -0.84% -0.02% 0.16% -1.66%
1959-3 0.27% -0.24% 0.12% -0.19% 0.48% 0.44%
1963-3 0.32% 0.59% -0.15% -0.31% -0.16% 0.30%
 
1967-3 -0.31% -0.12% 0.35% 0.14% -0.46% -0.41%
1971-3 0.29% -0.31% 0.89% 1.22% 0.52% 2.61%
1975-3 0.30% 0.95% 0.25% 0.31% -0.70% 1.11%
1979-3 0.38% -0.94% -0.09% 0.06% -0.62% -1.22%
1983-3 0.32% -0.42% -0.97% -1.02% 0.45% -1.64%
Avg 0.19% -0.17% 0.08% 0.14% -0.16% 0.09%
 
1987-3 2.92% 0.25% 2.17% -2.06% 2.54% 5.83%
1991-3 0.00% -0.45% 0.19% -0.25% 1.18% 0.67%
1995-3 0.33% -0.12% 0.47% -0.77% -0.09% -0.18%
1999-3 -0.13% -0.85% 0.73% 0.38% 0.16% 0.29%
2003-3 -0.57% 0.66% 0.13% 1.18% -0.05% 1.35%
Avg 0.51% -0.10% 0.74% -0.30% 0.75% 1.59%
 
SPX summary for Presidential Year 3 1955 - 2003
Avg 0.24% -0.07% 0.25% -0.10% 0.26% 0.58%
Win% 62% 38% 69% 46% 54% 62%
 
SPX summary for all years 1953 - 2006
Avg 0.09% 0.10% 0.08% 0.00% 0.15% 0.41%
Win% 57% 49% 55% 46% 57% 61%

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 oversold as we approach one of the seasonally strongest times of the year.

I expect the major indices to be higher on Friday December 21 than they were on Friday December 14.

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.

Last weeks positive forecast based on seasonal strength was a miss.

 


 

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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