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August 23, 2008

Technical Market Report
by Mike Burk





The good news is:
• Last weeks sell off cleared the overbought condition.

Short Term

A week ago, many indicators hit their highest levels in a long time. This suggests the final high for the advance off the July lows has yet to be reached.

The chart below covers the past year showing the NASDAQ composite (OTC) in blue and an indicator showing momentum of the NASDAQ AD line in black. Dashed vertical lines have been drawn on the 1st trading day of each month.

Counting the time a week ago, the indicator has reached similar levels 4 times in the past year. The OTC peaked about a month after the October and May highs while it continued upward for about 2 months after the April high.

If we are approaching a cycle high, it is probably several weeks off.

Intermediate Term

New lows have fallen substantially since the July index lows, however the subsequent rally has failed to generate many new highs.

The chart below covers the past year showing the S&P 500 (SPX) in red and a 10% trend (19 day EMA) of NYSE new highs (NY NH) in green.

As of last Friday the indicator was at its lowest point since November of 2002.

The next chart shows 2002 -2003 period, the last time NY NH was near current levels. The SPX low was made in October 2002, but little upside progress was made for the next 5 months.

Seasonality

Next week includes the last 5 trading days of August during the 4th year of the Presidential Cycle.

The tables show the daily return on a percentage basis for the last 5 trading days of August 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.

By all measures the market has been up about 60% of the time during the coming week with modest gains. The OTC has averaged modest gains by all measures and the SPX has been slightly positive during the 4th year of the Presidential Cycle, however the SPX has averaged a modest loss for the week over all years combined.

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
  Day5 Day4 Day3 Day2 Day1 Totals
1964-4 -0.05% 2 -0.51% 3 0.12% 4 0.46% 5 0.00% 1 0.03%
 
1968-4 0.06% 5 0.50% 1 0.22% 2 -0.58% 4 0.28% 5 0.48%
1972-4 -0.07% 5 -0.41% 1 -0.25% 2 0.26% 3 0.13% 4 -0.34%
1976-4 0.47% 3 -0.39% 4 -0.07% 5 0.16% 1 0.47% 2 0.64%
1980-4 -0.07% 1 0.45% 2 -0.13% 3 -0.64% 4 0.29% 5 -0.10%
1984-4 -0.58% 1 0.43% 2 0.17% 3 -0.10% 4 0.03% 5 -0.05%
Avg -0.04% 0.11% -0.01% -0.18% 0.24% 0.13%
 
1988-4 -0.53% 4 0.10% 5 0.48% 1 0.07% 2 0.02% 3 0.14%
1992-4 -0.21% 2 0.83% 3 0.80% 4 0.05% 5 -0.08% 1 1.39%
1996-4 -0.34% 1 0.86% 2 0.43% 3 -0.77% 4 -0.31% 5 -0.13%
2000-4 -0.26% 5 0.69% 1 0.28% 2 0.53% 3 2.50% 4 3.74%
2004-4 1.30% 3 -0.42% 4 0.49% 5 -1.37% 1 0.09% 2 0.09%
Avg -0.01% 0.41% 0.50% -0.30% 0.44% 1.05%
 
OTC summary for Presidential Year 4 1964 - 2004
Averages -0.03% 0.19% 0.23% -0.17% 0.31% 0.54%
% Winners 27% 64% 73% 55% 73% 64%
MDD 8/30/2004 1.37% -- 8/30/1996 1.07% -- 8/28/1980 .77%
 
OTC summary for all years 1963 - 2007
Averages 0.24% -0.20% -0.07% -0.16% 0.20% 0.01%
% Winners 58% 51% 58% 62% 77% 62%
MDD 8/31/1998 16.63% -- 8/30/2001 6.53% -- 8/30/1966 6.30%
 
SPX Presidential Year 4
  Day5 Day4 Day3 Day2 Day1 Totals
1928-4 -0.34% 1 0.79% 2 0.19% 3 0.15% 4 1.26% 5 2.04%
1932-4 1.57% 5 2.15% 6 0.12% 1 -1.28% 2 -0.94% 3 1.61%
1936-4 -0.77% 3 2.19% 4 0.19% 5 0.25% 6 0.19% 1 2.05%
1940-4 0.00% 2 1.37% 3 -0.48% 4 1.74% 5 0.57% 6 3.20%
1944-4 -0.23% 5 0.00% 1 0.31% 2 0.23% 3 -0.39% 4 -0.08%
Avg 0.05% 1.30% 0.07% 0.22% 0.14% 1.77%
 
1948-4 -0.19% 3 0.31% 4 0.44% 5 -0.81% 1 -0.06% 2 -0.31%
1952-4 -0.48% 1 -0.16% 2 0.44% 3 0.12% 4 0.24% 5 0.16%
1956-4 -0.60% 1 -0.19% 2 -0.44% 3 -0.89% 4 1.21% 5 -0.91%
1960-4 -0.48% 4 -0.33% 5 -0.28% 1 -1.04% 2 0.21% 3 -1.92%
1964-4 -0.57% 2 -0.15% 3 0.47% 4 0.35% 5 -0.20% 1 -0.09%
Avg -0.47% -0.10% 0.13% -0.45% 0.28% -0.61%
 
1968-4 -0.01% 5 0.25% 1 -0.13% 2 -0.07% 4 0.12% 5 0.16%
1972-4 -0.32% 5 -0.40% 1 0.16% 2 0.14% 3 0.47% 4 0.07%
1976-4 0.75% 3 -0.70% 4 0.16% 5 0.58% 1 0.82% 2 1.62%
1980-4 -0.68% 1 -0.26% 2 -1.06% 3 -1.17% 4 0.25% 5 -2.92%
1984-4 -0.64% 1 0.58% 2 -0.18% 3 -0.30% 4 0.05% 5 -0.49%
Avg -0.18% -0.10% -0.21% -0.16% 0.34% -0.31%
 
1988-4 -0.75% 4 0.19% 5 1.02% 1 0.07% 2 -0.38% 3 0.16%
1992-4 0.22% 2 0.46% 3 0.00% 4 0.32% 5 -0.20% 1 0.80%
1996-4 -0.47% 1 0.38% 2 -0.24% 3 -1.11% 4 -0.82% 5 -2.27%
2000-4 -0.12% 5 0.51% 1 -0.28% 2 -0.48% 3 1.00% 4 0.63%
2004-4 0.80% 3 0.01% 4 0.24% 5 -0.78% 1 0.46% 2 0.74%
Avg -0.06% 0.31% 0.15% -0.40% 0.01% 0.01%
 
SPX summary for Presidential Year 4 1928 - 2004
Averages -0.17% 0.35% 0.03% -0.20% 0.19% 0.21%
% Winners 20% 60% 60% 50% 65% 60%
MDD 8/28/1980 3.13% -- 8/30/1996 2.25% -- 8/31/1932 2.21%
 
SPX summary for all years 1928 - 2007
Averages -0.03% -0.11% -0.07% -0.09% 0.16% -0.15%
% Winners 43% 45% 59% 49% 63% 59%
MDD 8/31/1998 12.39% -- 8/29/1938 6.10% -- 8/29/1966 5.74%

Money supply (M2)

The money supply chart was provided by Gordon Harms. There has been subdued growth in M2 and it has returned to the elevated trend that began two years ago.

Conclusion

The sell off early last week relieved the overbought condition. Even if we are headed for a cycle top, it should be a few weeks off.

I expect the major indices to be higher on Friday August 29 than they were on Friday August 22.

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 weeks positive forecast was a miss.

 

Mike Burk

Mike Burk is an employee and principal of Alpha Investment Management (Alpha) a registered investment advisor. 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 © 2003-2008 Mike Burk

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