Technical Market Report

By: Mike Burk | Sat, Apr 12, 2008
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The good news is:
• Last weeks sell off was not accompanied by increased volume of issues moving downward.

Short Term

The chart below covers the past 9 months showing the NASDAQ composite (OTC) in blue and a 5% trend of NASDAQ downside volume (OTC DV) in black. OTC DV has been plotted on an inverted Y axis so increasing OTC DV moves the indicator downward (up is good). Dashed vertical lines have been drawn on the 1st trading day of each month; the line is red on the 1st trading day of the year.

The indicator moved mostly upward during last weeks sell off.

The next chart is similar to the one above except the index is the S&P 500 (SPX) and the indicator is calculated from NYSE downside volume (NY DV).

There was no build up of downside volume during last week's correction of the overbought condition of the week before.

Intermediate Term

Last week's sell off brought an increase in new lows on both the NYSE and NASDAQ. However, the increases were not enough to suggest a change in trend (from up).

The chart below covers the past 9 months showing the OTC in blue and a 10% trend (19 day EMA) of NASDAQ new lows (OTC NL) in red. Like OTC DV, OTC NL has been plotted on an inverted Y axis.

The next chart is similar to the one above except is shows the SPX in red and the indicator has been calculated from NYSE data (NY NL).

The new low indicators continued upward movement during a price decline is a positive.

Seasonality

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

The program generating the report counts Friday's and Good Friday usually comes in early April so the data may not be accurate.

The tables show the daily change of the OTC and SPX for the 5 trading days prior to the 3rd Friday in April during the 4th year of the Presidential Cycle.

OTC data covers the period from 1963 - 2007 and SPX data from 1953 - 2007. Data prior to 1953 has been omitted because the market traded 6 days a week. There are summaries for both the 4th year of the Presidential Cycle and all years combined.

Historically, by most measures, next week has been strong.

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

OTC Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1964-4 0.00% 0.23% 0.26% 0.31% 0.39% 1.19%
 
1968-4 0.13% -0.17% 0.25% 0.95% 1.87% 3.05%
1972-4 -0.10% 0.27% -1.06% 0.14% 0.11% -0.65%
1976-4 0.47% 1.14% 0.18% 0.21% -0.40% 1.60%
1980-4 -1.17% 1.98% 0.89% 1.29% -0.56% 2.43%
1984-4 -0.64% 0.05% -0.07% 0.83% 0.39% 0.57%
Avg -0.26% 0.65% 0.04% 0.68% 0.29% 1.40%
 
1988-4 0.32% 0.47% -0.70% -0.28% 0.23% 0.04%
1992-4 -2.47% -0.37% 0.55% -0.38% -0.55% -3.21%
1996-4 1.30% 1.15% 0.86% 0.63% 0.23% 4.17%
2000-4 -4.43% 6.57% -2.19% 3.96% 2.30% 6.21%
2004-4 1.24% -2.07% 0.86% 1.87% 0.83% 2.72%
Avg -0.81% 1.15% -0.12% 1.16% 0.61% 1.99%
 
OTC summary for Presidential Year 4 1964 - 2004
Avg -0.54% 0.84% -0.01% 0.87% 0.44% 1.65%
Win% 50% 73% 64% 82% 73% 82%
 
OTC summary for all years 1963 - 2007
Avg -0.32% 0.25% 0.21% 0.28% 0.04% 0.46%
Win% 50% 55% 69% 64% 60% 69%
 
SPX Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1956-4 0.02% -0.06% -0.40% -0.36% 0.40% -0.39%
1960-4 0.28% -0.81% -1.23% 0.27% -0.31% -1.79%
1964-4 -0.10% 0.28% 0.13% 0.14% 0.44% 0.87%
 
1968-4 -0.55% 1.22% 0.15% 0.31% 0.30% 1.42%
1972-4 -0.30% 0.24% -0.52% -0.15% -0.14% -0.87%
1976-4 0.76% 1.41% 0.44% -0.33% -0.67% 1.61%
1980-4 -0.75% 3.64% 0.29% 0.65% 0.73% 4.56%
1984-4 -0.77% 0.81% 0.37% 1.04% -0.26% 1.19%
Avg -0.32% 1.46% 0.14% 0.30% -0.01% 1.58%
 
1988-4 -0.22% -0.50% -0.69% 0.11% 1.45% 0.16%
1992-4 -1.42% 0.02% -0.11% 0.44% -0.63% -1.69%
1996-4 0.44% 0.57% -0.22% 0.42% 0.09% 1.30%
2000-4 -0.32% 3.30% -1.09% 0.27% -0.85% 1.30%
2004-4 0.11% -1.56% 0.53% 1.41% 0.06% 0.55%
Avg -0.28% 0.37% -0.32% 0.53% 0.02% 0.32%
 
SPX summary for Presidential Year 4 1956 - 2004
Avg -0.22% 0.66% -0.18% 0.32% 0.05% 0.63%
Win% 38% 69% 46% 77% 54% 69%
 
SPX summary for all years 1952 - 2007
Avg -0.05% 0.26% 0.06% 0.10% -0.12% 0.24%
Win% 49% 51% 59% 60% 45% 67%

Money supply (M2)

The money supply chart below was provided by Gordon Harms. Money supply is continuing to grow at the fastest rate in years.

Conclusion

The high number of new lows we saw at the March lows implies a high likelihood of a retest of those lows in the next month or so. For now, last week's sell off did not turn any important indicators downward.

I expect the major indices to be higher on Friday April 18 than they were on Friday April 11.

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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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