Technical Market Report

By: Mike Burk | Sat, Mar 29, 2008
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The good news is:
• New lows practically disappeared last week.

Short Term

The number of new lows declined sharply last week. For the week most of the indices went nowhere and Friday ended the week with 3 consecutive down days. New lows hit their high point for the week on Friday, but, even on Friday they were substantially lower than they were on any day of the previous week.

Two weeks ago next Monday there were 477 new lows on the NASDAQ and 759 on the NYSE. Those numbers are large enough to imply a high likelihood of another retest of the recent lows in the next few months.

The chart below is an update of the one shown last week. It covers the past 9 months showing the NASDAQ composite (OTC) in blue and a 10% trend (19 day EMA) of NASDAQ new lows (OTC NL) in red. OTC NL has been plotted on an inverted Y axis so decreasing new lows move the indicator upward (up is good). Dashed vertical lines have been drawn on the 1st trading day of each month. The dashed vertical line has been drawn in red on the 1st trading day of the year.

The indicator rose sharply last week even over the past 3 days when the index was moving sharply downward.

On October 8, 1998 there were 1326 new lows on the NASDAQ. That was the highest number recorded during that decline and also the price low for the decline. Then like now the FED was increasing the money supply as fast as they could. So it is not absolutely necessary to have a retest.

Intermediate Term

Downside volume, like new lows diminishes rapidly following a bottom.

So far, that has not been the case this time.

The chart below covers the past 9 months showing the 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).

Following the August and November lows OTC DV moved sharply upward. So far that has not happened following the recent lows.

There will not be a sustained rally until downside volume diminishes.

Seasonality

Next week includes the last trading day of March and the 1st 4 trading days of April during the 4th year of the Presidential Cycle.

The tables show the daily change of the OTC and S&P 500 (SPX) for the last trading day of March and the 1st 4 trading days of April during the 4th year of the Presidential Cycle. OTC data covers the period from 1963 - 2007 and SPX data from 1928 - 2007. There are summaries for both the 4th year of the Presidential Cycle and all years combined.

Historically the period, by all measures, has had a modestly upward bias.

Last 1 day of March and first 4 days of April.
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 4
  Day1 Day1 Day2 Day3 Day4 Totals
1964-4 -0.27% 2 -0.05% 3 0.72% 4 0.95% 5 0.37% 1 1.72%
 
1968-4 0.26% 5 2.39% 1 0.13% 2 0.98% 3 0.20% 4 3.96%
1972-4 0.48% 4 -0.06% 1 0.56% 2 0.95% 3 0.71% 4 2.63%
1976-4 0.14% 3 -0.20% 4 0.21% 5 0.88% 1 0.13% 2 1.17%
1980-4 1.35% 1 1.63% 2 2.00% 3 0.15% 4 -1.92% 1 3.22%
1984-4 -0.34% 5 -0.39% 1 -0.37% 2 -0.15% 3 -1.11% 4 -2.36%
Avg 0.38% 0.67% 0.51% 0.56% -0.40% 1.72%
 
1988-4 0.77% 4 -0.73% 1 0.41% 2 1.16% 3 0.30% 4 1.91%
1992-4 0.28% 2 -0.28% 3 -1.37% 4 -0.64% 5 1.06% 1 -0.95%
1996-4 0.60% 5 0.47% 1 0.42% 2 0.41% 3 0.21% 4 2.12%
2000-4 2.58% 5 -7.63% 1 -1.77% 2 0.49% 3 2.36% 4 -3.98%
2004-4 -0.32% 3 1.04% 4 2.09% 5 1.07% 1 -0.92% 2 2.96%
Avg 0.78% -1.43% -0.04% 0.50% 0.60% 0.41%
 
OTC summary for Presidential Year 4 1964 - 2004
Averages 0.50% -0.35% 0.28% 0.57% 0.13% 1.13%
% Winners 73% 36% 73% 82% 73% 73%
MDD 4/4/2000 9.27% -- 4/5/1984 2.34% -- 4/3/1992 2.28%
 
OTC summary for all years 1963 - 2007
Averages 0.12% -0.15% 0.12% 0.18% 0.21% 0.47%
% Winners 64% 49% 67% 71% 58% 62%
MDD 4/4/2001 10.95% -- 4/4/2000 9.27% -- 4/5/1973 5.22%
 
SPX Presidential Year 4
  Day1 Day1 Day2 Day3 Day4 Totals
1928-4 -0.78% 6 -1.15% 1 0.58% 2 -0.16% 3 1.26% 4 -0.24%
1932-4 -5.56% 4 -1.78% 5 -1.11% 6 -0.56% 1 -4.67% 2 -13.69%
1936-4 0.74% 2 1.81% 3 0.99% 4 -0.46% 5 0.79% 6 3.87%
1940-4 0.57% 6 -0.33% 1 0.33% 2 1.55% 3 0.64% 4 2.77%
1944-4 -0.08% 5 0.17% 6 -0.66% 1 0.08% 2 0.08% 3 -0.41%
Avg -1.02% -0.26% 0.02% 0.09% -0.38% -1.54%
 
1948-4 1.41% 3 0.27% 4 0.20% 5 0.00% 6 0.20% 1 2.07%
1952-4 0.12% 1 -0.78% 2 -0.25% 3 0.00% 4 -0.41% 5 -1.32%
1956-4 -0.06% 4 0.45% 1 -0.35% 2 0.56% 3 -0.47% 4 0.13%
1960-4 -0.57% 4 0.16% 5 0.20% 1 0.59% 2 1.15% 3 1.53%
1964-4 -0.20% 2 0.33% 3 0.58% 4 0.30% 5 0.10% 1 1.11%
Avg 0.14% 0.09% 0.08% 0.29% 0.11% 0.70%
 
1968-4 0.70% 5 2.53% 1 0.17% 2 0.90% 3 0.40% 4 4.70%
1972-4 0.67% 4 0.26% 1 0.60% 2 0.81% 3 0.39% 4 2.72%
1976-4 0.75% 3 -0.52% 4 0.01% 5 1.23% 1 -0.14% 2 1.33%
1980-4 1.40% 1 0.09% 2 0.49% 3 -0.52% 4 -1.92% 1 -0.46%
1984-4 -0.21% 5 -0.75% 1 -0.20% 2 -0.08% 3 -1.59% 4 -2.83%
Avg 0.66% 0.32% 0.21% 0.47% -0.57% 1.09%
 
1988-4 0.32% 4 -1.08% 1 0.94% 2 2.70% 3 0.25% 4 3.13%
1992-4 0.17% 2 0.13% 3 -0.92% 4 0.26% 5 1.01% 1 0.65%
1996-4 -0.53% 5 1.27% 1 0.24% 2 0.09% 3 0.00% 4 1.07%
2000-4 0.72% 5 0.49% 1 -0.75% 2 -0.49% 3 0.93% 4 0.91%
2004-4 -0.07% 3 0.53% 4 0.85% 5 0.77% 1 -0.21% 2 1.87%
Avg 0.12% 0.27% 0.07% 0.67% 0.40% 1.53%
 
SPX summary for Presidential Year 4 1928 - 2004
Averages -0.02% 0.11% 0.10% 0.38% -0.11% 0.45%
% Winners 55% 65% 65% 60% 60% 70%
MDD 4/5/1932 13.05% -- 4/5/1984 2.81% -- 4/7/1980 2.43%
 
SPX summary for all years 1928 - 2007
Averages -0.17% 0.09% 0.17% 0.11% 0.18% 0.37%
% Winners 42% 61% 58% 55% 62% 63%
MDD 4/5/1932 13.05% -- 4/4/2001 4.92% -- 3/31/1939 4.60%

Money supply (M2)

The money supply chart below was provided by Gordon Harms.

Money supply is growing at the fastest rate in years.

April

Over all years the OTC has been up 69% of the time in April. By that measure April is the best month of the year. The average gain of 1.5% puts it in a 3 way tie for 2nd with November and December and following the average 3.2% gain of January.

The record has not been as good during the 4th year of the Presidential Cycle. During the 4th year of the Presidential Cycle April has been up 55% of the time putting it in 8th place out of the 12 months while the average 1.2% gain puts it in 5th place by that measure.

The average month has 21 trading days.

The charts below show the average daily performance for the index during the month of April over all years in blue (OTC) and red (SPX) and during the 4th year of the Presidential Cycle in green.

The charts are calculated by averaging the daily percentage change for each of the 1st 11 days of the month and each of the last 10 days. When there are more than 21 trading days some days in the middle have been left out and when there have been less than 21 trading days some days in the middle have been counted twice. A dashed vertical line has been drawn after the 1st trading day and at 5 trading day intervals. A solid vertical line has been drawn on the 11th trading day, the dividing point.

Over all years since 1928 the SPX has been up 58% of the time in April. By that measure it is tied with July as the 6th best month of the year. The average gain of 1.1% puts it in a tie for 3rd with July and following January with an average gain of 1.4% and December at 1.3%.

Like the OTC, the record has not been as good during the 4th year of the Presidential Cycle. During the 4th year of the Presidential Cycle the SPX has been up 50% of the time putting it in a tie for last place with July. The average loss of 1.0% puts it at 11th place above May at -1.4%. The average loss was helped considerably by an 18.8% loss in 1932 and a 9.3% loss in 1936.

Conclusion

The rapid decline in new lows suggest that risk is receding.

I expect the major indices to be higher on Friday April 4 than they were on Friday March 28.

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Last week the blue chip indices were down a little while the small cap indices were up a little so I am calling last weeks positive 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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