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Technical Market Report for April 12, 2014

By: Mike Burk | Saturday, April 12, 2014

The good news is:
• The market is oversold and due for a bounce.


The negatives

Last week the market took a tumble from which it is unlikely to fully recover anytime soon.

New lows increased to uncomfortable levels, new highs disappeared and the secondaries underperformed the blue chips.

The chart below covers the past year showing the NASDAQ composite (OTC) in blue and a 10% trend (19 day EMA) of NASDAQ new highs (OTC NH) in green. Dashed vertical lines have been drawn on the 1st trading day of each month.

OTC NH is at its lowest level in over a year.

OTC NH Chart

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

NY NH has been a little stronger than OTC NH, but, the all time high of less than 2 weeks ago lacked broad support.

NY NH Chart

The next chart is one that I have been showing as a positive. It covers the past 6 months showing the 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 horizontal lines have been drawn at 10% levels for the indicator, the line is solid at the neutral 50% level.

OTC HL Ratio has fallen below the neutral line. Literally this means there have been more new lows than new highs on the NASDAQ.

OTC HL Ratio Chart

The big problem is seasonality. There have been substantial declines during all periods, but the most regularly occurring one runs between mid April and early October during the 2nd year of the Presidential Cycle (this year). This year it appears to have begun a couple weeks early.


The positives

The chart below is similar to the previous one except is shows the SPX, in red, and NY HL Ratio, in blue, has been calculated from NYSE data.

NY HL Ratio fell sharply last week, but remains above the neutral line.

NY HL Ratio Chart

The next several charts are very short term.

They show momentum of breadth indicators and there is an oscillator component to all of them. They are all near their lows of the past 6 months suggesting a short term rally. You need not understand how they are constructed, just how they work.

The chart below shows the SPX in red and the McClellan Oscillator (the difference between a 19 day and 39 day EMA of NYSE advancing issues - declining issues (NY AD MCO) in blue.

SPX and the McClellan Oscillator Chart

This charts show the SPX in red and momentum of an oscillator of NYSE new highs - new lows, in brown.

SPX and Momentum Oscillator of NYSE New Highs Chart

This charts shows momentum of an oscillator of NYSE upside volume - downside volume, in olive drab.

NYSE Upside versus Downside Volume

This chart shows the OTC in blue and a McClellan Oscillator calculated from NASDAQ advance - decline data in black.

OTC and McClellan Oscillator calculated from NASDAQ Advance-decline data chart


Seasonality

Next week includes the 4 trading days prior to Good Friday during the 2nd year of the Presidential Cycle.

The tables below show the daily return for the 4 trading days prior to Good Friday 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.

Average returns for the coming week have been positive on average over all years, but weaker during the 2nd year of the Presidential Cycle.

Report for the 4 days before Good Friday.
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 2
  Day4 Day3 Day2 Day1 Totals
1966-2 0.32% 1 0.43% 2 0.39% 3 0.83%% 4 1.97%
1970-2 -0.56% 1 0.24% 2 0.46% 3 1.66%% 4 1.80%
 
1974-2 -0.86% 1 0.29% 2 -0.34% 3 -0.09%% 4 -1.00%
1978-2 0.40% 1 -0.32% 2 0.13% 3 0.22%% 4 0.43%
1982-2 0.93% 1 0.26% 2 0.69% 3 0.69%% 4 2.58%
1986-2 -0.52% 1 -0.38% 2 0.36% 3 0.73%% 4 0.20%
1990-2 -0.17% 1 0.40% 2 0.38% 3 0.64%% 4 1.25%
Avg -0.04% 0.05% 0.24% 0.44% 0.69%
 
1994-2 -1.40% 1 -2.23% 2 -1.37% 3 -0.19%% 4 -5.19%
1998-2 -1.42% 1 -1.66% 2 0.46% 3 0.73%% 4 -1.89%
2002-2 -2.10% 1 0.64% 2 0.14% 3 1.02%% 4 -0.30%
2006-2 -0.25% 1 -0.98% 2 0.19% 3 0.49%% 4 -0.55%
2010-2 0.39% 1 0.26% 2 -0.53% 3 0.19%% 4 0.31%
Avg -0.96% -0.79% -0.22% 0.45% -1.52%
 
OTC summary for Presidential Year 2 1966 - 2010
Averages -0.44% -0.25% 0.08% 0.58% -0.03%
% Winners 33% 58% 75% 83% 58%
MDD 3/31/1994 5.10% -- 4/7/1998 3.06% -- 3/25/2002 2.10%
 
OTC summary for all years 1963 - 2013
Averages 0.08% 0.31% 0.22% 0.48% 1.09%
% Winners 49% 61% 67% 78% 63%
 
SPX Presidential Year 2
  Day4 Day3 Day2 Day1 Totals
1954-2 -0.04% 2 -0.40% 3 0.14%% 4 0.36% 5 0.07%
1962-2 -0.44% 1 0.44% 2 0.54% 3 0.47%% 4 1.02%
1966-2 0.91% 1 0.61% 2 0.27% 3 0.22%% 4 2.01%
1970-2 -0.08% 1 1.14% 2 2.03% 3 0.17%% 4 3.26%
 
1974-2 -1.05% 1 0.63% 2 -0.23% 3 -0.30%% 4 -0.95%
1978-2 0.69% 1 -1.13% 2 -0.36% 3 -0.12%% 4 -0.93%
1982-2 -0.34% 1 0.55% 2 0.09% 3 0.66%% 4 0.96%
1986-2 0.85% 1 -0.26% 2 1.10% 3 0.70%% 4 2.40%
1990-2 0.38% 1 0.21% 2 -0.04% 3 0.71%% 4 1.25%
Avg 0.11% 0.00% 0.11% 0.33% 0.54%
 
1994-2 -0.13% 1 -1.63% 2 -1.53% 3 0.05%% 4 -3.24%
1998-2 -0.12% 1 -1.06% 2 -0.71% 3 0.83%% 4 -1.06%
2002-2 -1.47% 1 0.58% 2 0.53% 3 0.25%% 4 -0.10%
2006-2 0.08% 1 -0.77% 2 0.12% 3 0.08%% 4 -0.49%
2010-2 0.57% 1 0.00% 2 -0.33% 3 0.74%% 4 0.99%
Avg -0.21% -0.58% -0.38% 0.39% -0.78%
 
SPX summary for Presidential Year 2 1954 - 2010
Averages -0.01% -0.08% 0.12% 0.34% 0.37%
% Winners 43% 57% 57% 86% 57%
MDD 3/30/1994 3.26% -- 4/8/1998 1.88% -- 3/23/1978 1.61%
 
SPX summary for all years 1953 - 2013
Averages 0.01% 0.19% 0.04% 0.35% 0.59%
% Winners 47% 56% 53% 68% 68%


Money Supply (M2)

The money supply chart was provided by Gordon Harms. Money supply growth took a tumble last week.

SPX versus M2 Money Supply Chart


Conclusion

The market is oversold and likely to rally next week, but the narrowing of leadership, indicated by the diminishing number of new highs and negative seasonality are catching up with it. A rally next week is likely, but new highs are not.

I expect the major averages to be higher on Thursday April 17 than they were on Friday April 11.

Last week’s positive forecast was a miss.

This report is free to anyone who wants it, so please tell your friends. They can sign up at: http://www.stockmarket-ta.com/signup.html. If it is not for you, reply with REMOVE in the subject line.

I no longer have any affiliation with Alpha Investment Management so these reports will be coming from mikeburk@stockmarket-ta.com for the foreseeable future.

These reports are archived at: http://www.safehaven.com/

Good Luck,

YTD W 4/L 5/T 6

 

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