Technical Market Report

By: Mike Burk | Sun, Mar 16, 2008
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The good news is:
• When this decline is over the market will be setup for an extended rally.

New lows and downside volume offer the best indications of market bottoms. After a bottom has been reached both diminish rapidly.

Short Term

The chart below is an update of one from last week. It covers the past two years showing the NASDAQ composite (OTC) in blue and a 5% trend (39 day EMA) of NASDAQ downside volume (OTC DV) in black. OTC DV has been plotted on an inverted Y axis so decreasing OTC DV moves the indicator upward (up is good). Dashed vertical lines have been drawn on the 1st trading day of each month. The dashed vertical lines have been drawn in red on the 1st trading day of the year.

OTC DV is still lingering near the bottom of the chart indicating a lot of selling pressure.

Intermediate Term

In a rising market new highs accumulate while new lows decline. Recently we have been seeing a lot of new lows and very few new highs.

The chart below covers the past two years showing the OTC in blue and a 6% trend (30 day EMA) of the ratio of NASDAQ new highs to new lows (NH / (NH + NL)) in black.

The indicator is at an extremely low level and falling.

For a historical perspective the following chart shows how the indicator behaved during the 2000 - 2002 bear market.

Currently the indicator is only slightly above its lowest low at the bottom of the 2000 - 2002 bear market.

Seasonality

Next week includes the 5 trading days prior to the 3rd Friday of March during the 4th year of the Presidential Cycle.

The tables show the daily change of the OTC and S&P 500 (SPX) for the 5 trading days prior to the 3rd Friday in March during the 4th year of the Presidential Cycle. OTC data covers the period from 1963 - 2004 and SPX data from 1953 - 2004. There are summaries for both the 4th 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.

Historically returns have been negative over the coming week by all measures.

Report for the week before the 4th Friday of March
The number following the year is the position in the presidential cycle.
Daily returns from Monday through the 4th Friday.

Year Year
OTC Presidential Year 4
Mon Tue Wed Thur Fri Totals
1968-4 1.08% -0.05% -0.36% 0.46% -0.40% 0.73%
1972-4 -0.37% -1.41% 0.50% 0.81% 0.13% -0.34%
1976-4 0.17% 0.75% 0.63% -0.29% 0.24% 1.50%
1980-4 -3.02% -1.55% -0.23% -6.15% 4.16% -6.79%
1984-4 -0.68% 0.43% -0.10% -0.68% -0.32% -1.34%
Avg -0.56% -0.37% 0.09% -1.17% 0.76% -1.25%
 
1988-4 -0.79% 0.31% 0.09% -1.18% -0.81% -2.38%
1992-4 -0.39% -0.51% 0.13% -0.66% -1.74% -3.17%
1996-4 1.35% -0.17% -0.96% -0.18% 0.22% 0.25%
2000-4 -3.92% 2.21% 3.25% 1.56% 0.45% 3.55%
2004-4 -1.58% -0.42% 0.40% 3.02% -0.36% 1.06%
Avg -1.07% 0.28% 0.58% 0.51% -0.45% -0.14%
 
OTC summary for Presidential Year 4 1968 -2004
Avg -0.82% -0.04% 0.34% -0.33% 0.16% -0.69%
Win% 30% 40% 60% 40% 50% 50%
 
OTC summary for all years 1963 - 2007
Avg -0.21% -0.17% 0.15% 0.12% 0.08% -0.03%
Win% 49% 44% 51% 59% 51% 56%
 
SPX Presidential Year 4
Mon Tue Wed Thur Fri Totals
1956-4 0.93% 0.58% -1.31% 1.02% 0.23% 1.44%
1960-4 0.11% 0.40% 0.81% 0.43% 0.00% 1.75%
1964-4 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
 
1968-4 0.55% -0.67% -0.01% -0.73% 0.10% -0.76%
1972-4 -0.31% -0.84% 0.14% 0.85% -0.21% -0.36%
1976-4 0.13% 1.52% 1.15% -0.55% 0.00% 2.25%
1980-4 -2.96% -0.09% -0.51% -0.47% 2.50% -1.53%
1984-4 -0.94% 0.68% -0.13% -1.24% 0.11% -1.51%
Avg -0.70% 0.12% 0.13% -0.43% 0.63% -0.38%
 
1988-4 -0.88% 0.04% 0.03% -2.07% -1.84% -4.72%
1992-4 -0.34% -0.25% -0.33% 0.08% -1.07% -1.91%
1996-4 1.75% -0.15% -0.26% -0.12% 0.22% 1.44%
2000-4 -0.54% 2.56% 0.45% 1.79% 0.01% 4.26%
2004-4 -1.30% -0.13% -0.24% 1.64% -0.10% -0.13%
Avg -0.26% 0.41% -0.07% 0.26% -0.56% -0.21%
 
SPX summary for Presidential Year 4 1956 - 2004
Avg -0.32% 0.30% -0.02% 0.05% -0.01% 0.02%
Win% 42% 50% 42% 50% 60% 42%
 
SPX summary for all years 1953 - 2007
Avg -0.10% -0.01% 0.00% -0.05% -0.08% -0.23%
Win% 40% 48% 44% 42% 50% 38%

M2 Money supply

The Fed has been doing its part to help the market. Money supply growth is at its highest level in years, even above the elevated trend of the past year and a half.

The chart below has been provided by Gordon Harms.

Conclusion

Violent rallies are the hallmark of a bear market, unfortunately the one that began last Wednesday appears to have ended after only 1 day. There is still no evidence of a bottom.

I expect the major indices to be lower on Friday March 21 than they were on Friday March 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 week some of the indices were up a little while others were down so I am calling last weeks negative forecast a tie.

 


 

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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