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Technical Market Report for January 11, 2014

By: Mike Burk | Saturday, January 11, 2014

The good news is:
• The mid and small cap indices closed at all time highs on Friday


The negatives

Negatives are pretty hard to find.

The new high indicators failed to confirm the small cap highs, but they did turn up; setting up a pattern of higher lows.


The positives

Volume picked up and the secondaries outperformed the blue chips.

There have been very few new lows and, as long as that is the case, nothing very bad will happen.

The chart below covers the past 6 months showing the NASDAQ composite (OTC) in blue and a 40% trend (4 day EMA) of NASDAQ new highs divided by new highs + new lows (OTC HL Ratio) in red. Dashed vertical lines have been drawn on the 1st trading day of each month and dashed horizontal lines have been drawn at 10% levels for the indicator, the line is solid at the neutral 50% level.

OTC HL Ratio continued at a very strong 93%.

There are trading systems that impose a No Sell Filter when variations of this indicator are above 80%.

OTC versus OTC HL Ratio Chart

The next chart is similar to the one above except it shows the S&P 500 (SPX) in red and NY HL Ratio, in blue, has been calculated from NYSE data.

NY HL Ratio also held above 90% last week.

SPX versus NYSE HL Ratio Chart

The next chart shows the OTC in blue and a 10% trend (19 day EMA) of NASDAQ new highs in green.

There is a mixed message in this chart, over the past 6 months there is a pattern of declining tops, however, over the past month we have rising bottoms.

OTC versus OTC NH Chart

The next chart is similar to the one above except it shows the SPX in red and NY NH has been calculated from NYSE data.

The patterns here are not as clear other than rising bottoms over the past month.

SPX versus NY NH Chart


Seasonality

Next week includes the 5 trading days prior to the 3rd Friday of January during the 2nd year of the Presidential Cycle.

The tables show the daily percentage return for the 5 trading days prior to 3rd Friday of January during the 2nd year of the Presidential Cycle.

OTC data covers the period from 1963 - 2013 while SPX data runs from 1953 - 2013. There are summaries for both the 2nd 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.

The averages for the coming week have been nearly unchanged, however, there have been noticeable declines during the 2nd year of the Presidential Cycle since 2002.

Report for the week before the 3rd Friday of January.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday through 3rd Friday.

OTC Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1966-2 0.56% 0.31% -0.03% 0.41% 0.41% 1.65%
1970-2 0.01% 0.65% 0.30% -0.27% -0.02% 0.67%
 
1974-2 0.18% 0.73% 1.53% 1.55% -0.66% 3.32%
1978-2 -0.41% 0.62% 0.44% 0.16% 0.05% 0.86%
1982-2 0.00% -0.62% -0.24% 0.37% -0.31% -0.80%
1986-2 0.02% 0.19% 1.05% 0.58% 0.19% 2.02%
1990-2 -0.70% 0.81% -0.34% -0.26% 0.77% 0.27%
Avg -0.23% 0.34% 0.49% 0.48% 0.01% 1.14%
 
1994-2 -0.02% 0.11% -0.47% 0.48% 0.16% 0.25%
1998-2 0.29% 2.26% 0.43% -0.07% 1.02% 3.93%
2002-2 -1.57% 0.51% -2.82% 2.13% -2.79% -4.55%
2006-2 0.00% -0.62% -1.00% 0.97% -2.35% -3.00%
2010-2 0.00% 1.42% -1.26% -1.12% -2.67% -3.62%
Avg -0.43% 0.73% -1.02% 0.48% -1.33% -1.40%
 
OTC summary for Presidential Year 2 1966 - 2010
Avg -0.18% 0.53% -0.20% 0.41% -0.52% 0.08%
Win% 56% 83% 42% 67% 50% 67%
 
OTC summary for all years 1963 - 2013
Avg 0.03% 0.23% 0.03% 0.25% -0.01% 0.52%
Win% 61% 61% 59% 67% 57% 69%
 
SPX Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1954-2 0.00% 0.98% 0.27% 0.16% 0.23% 1.64%
1958-2 0.30% 0.44% 0.79% 0.17% 0.10% 1.80%
1962-2 -0.20% -0.58% -1.09% 0.10% 0.53% -1.23%
1966-2 0.29% 0.19% -0.28% -0.35% 0.12% -0.03%
1970-2 -0.76% 0.10% -0.15% 0.03% -0.83% -1.61%
Avg -0.09% 0.23% -0.09% 0.02% 0.03% 0.11%
 
1974-2 -0.26% 0.87% 1.53% 1.70% -1.79% 2.05%
1978-2 -0.29% 0.50% 0.76% -0.52% -0.22% 0.23%
1982-2 1.64% -1.07% -0.60% 0.42% -0.32% 0.07%
1986-2 0.37% -0.04% 0.78% 0.44% -0.35% 1.20%
1990-2 -0.86% 1.11% -0.98% 0.23% 0.28% -0.21%
Avg 0.12% 0.28% 0.30% 0.45% -0.48% 0.67%
 
1994-2 -0.34% 0.20% 0.01% 0.14% -0.05% -0.04%
1998-2 1.24% 1.38% 0.61% -0.75% 1.13% 3.61%
2002-2 -0.63% 0.68% -1.62% 1.00% -0.99% -1.56%
2006-2 0.00% -0.36% -0.39% 0.56% -1.83% -2.03%
2010-2 0.00% 1.25% -1.06% -1.89% -2.21% -3.92%
Avg 0.09% 0.63% -0.49% -0.19% -0.79% -0.79%
 
SPX summary for Presidential Year 2 1954 - 2010
Avg 0.04% 0.38% -0.10% 0.10% -0.41% 0.00%
Win% 42% 73% 47% 73% 40% 47%
 
SPX summary for all years 1953 - 2013
Avg -0.05% 0.11% -0.05% 0.06% -0.11% -0.04%
Win% 45% 61% 54% 60% 54% 51%


Conclusion

Post holiday volume picked up, new highs picked up and the secondaries outperformed the blue chips. The market appears to be in pretty good shape.

I expect the major averages to be higher on Friday January 17 than they were on Friday January 10.

Last week the Dow Jones Industrial Average was down a little while the other major averages were up a little so I am calling last weeks negative forecast a tie.

This report is free to anyone who wants it, so please tell your friends. They can sign up at: http://www.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://stockmarket-ta.com/

Good Luck,

YTD W 0/L 1/T 1

 

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.

Copyright © 2003-2014 Mike Burk