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August 22, 2009 Technical Market Report |
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The good news is: Short Term I misinterpreted July's blast off as a blow off and we are looking at similar conditions now. The chart below covers the past 6 months 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. There were 115 NASADAQ new highs at the July 31 index high and OTC NH was at a multi month high with a value of 60. Last Friday with the index at a new multi month high there were 66 new highs and the value of the indicator had dropped to 44, a non confirmation either way you look at it. Following a similar pattern in early July the index continued upward for a near record of 12 consecutive days. Usually I would look at the current pattern and expect a correction, however, in this market, lightning could strike twice.
Intermediate term Advance decline lines (ADL) are calculated by adding advancing issues and subtracting declining issues from a running total. ADL's constructed from stocks only have a negative bias while ADL's constructed from fixed income issues have an extremely positive bias (they accumulate value daily until they go ex dividend). The ADL calculated from NYSE data has, over the past 20 years, gone from having a modestly negative bias to an extremely positive bias as the number of fixed income issues has increased on the NYSE. The ADL calculated from NASDAQ data has maintained an extremely negative bias. The first chart covers the past 6 months showing the OTC in blue and the ADL calculated from NASDAQ data (OTC ADL) in green. The OTC ADL hit a multi month high Friday. You will see the significance of this in the next 2 charts.
The next chart is similar to the one above except it covers the past 2 years. The negative bias of the OTC ADL is apparent.
The next chart is similar to those above except it covers the past 20 years with dashed vertical lines drawn on the 1st trading day of each year.
We have an indicator with a strong negative bias is confirming a positive trend. Seasonality Next week includes the 5 trading days prior to the 4th Friday of August during the 1st year of the Presidential Cycle. The tables show the daily return on a percentage basis for the 5 trading days prior to the 4th Friday of August during the 1st year of the Presidential Cycle. OTC data covers the period from 1963 - 2008 and S&P 500 (SPX) data from 1953 - 2008. Prior to 1953 the market traded 6 days a week so that data has been ignored. There are summaries for both the 1st year of the Presidential Cycle and all years combined. The SPX had a couple of rough years in the 1950's pulling its average returns down. Aside from that returns over all periods have been modestly positive. Report for the week before the 4th Friday of August. |
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| OTC Presidential Year 1 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1965-1 | 0.38% | 0.00% | 0.02% | 0.36% | 0.20% | 0.95% |
| 1969-1 | 0.94% | 1.49% | 0.25% | 0.24% | 0.50% | 3.42% |
| 1973-1 | -1.00% | -0.54% | -0.76% | 1.17% | -0.13% | -1.25% |
| 1977-1 | 0.20% | -0.11% | -0.19% | -0.61% | -0.25% | -0.95% |
| 1981-1 | -2.00% | -1.48% | 0.02% | -0.50% | 0.37% | -3.60% |
| 1985-1 | -0.28% | 0.25% | 0.44% | -0.27% | -0.06% | 0.08% |
| Avg | -0.43% | -0.08% | -0.05% | 0.01% | 0.09% | -0.46% |
| 1989-1 | -0.79% | 0.01% | 0.77% | 0.87% | 0.19% | 1.04% |
| 1993-1 | -0.01% | 0.59% | -0.20% | -0.31% | 0.37% | 0.43% |
| 1997-1 | 0.48% | 1.99% | 1.75% | -1.34% | -0.50% | 2.37% |
| 2001-1 | 0.77% | -2.00% | 1.57% | -0.92% | 2.00% | 1.42% |
| 2005-1 | 0.27% | -0.19% | -0.39% | 0.26% | -0.64% | -0.69% |
| Avg | 0.14% | 0.08% | 0.70% | -0.29% | 0.28% | 0.91% |
| OTC summary for Presidential Year 1 1965 - 2005 | ||||||
| Avg | -0.09% | 0.00% | 0.30% | -0.10% | 0.19% | 0.29% |
| Win% | 55% | 50% | 64% | 45% | 55% | 64% |
| OTC summary for all years 1963 - 2008 | ||||||
| Avg | -0.10% | -0.02% | 0.31% | -0.02% | 0.11% | 0.27% |
| Win% | 41% | 55% | 66% | 52% | 59% | 59% |
| SPX Presidential Year 1 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1953-1 | -1.07% | -0.66% | -0.29% | -0.29% | -0.21% | -2.53% |
| 1957-1 | -2.00% | 0.85% | 0.44% | -0.73% | -1.44% | -2.88% |
| 1961-1 | 0.21% | 0.01% | -0.67% | -0.57% | 0.12% | -0.91% |
| 1965-1 | -0.15% | 0.17% | 0.12% | 0.38% | 0.07% | 0.59% |
| 1969-1 | 0.61% | 0.53% | 0.00% | 0.29% | 0.60% | 2.03% |
| 1973-1 | -0.68% | -0.71% | -0.36% | 1.37% | -0.28% | -0.66% |
| 1977-1 | 0.29% | -0.17% | -0.40% | -1.11% | -0.09% | -1.49% |
| 1981-1 | -2.00% | -0.29% | -0.14% | -1.16% | 0.46% | -3.13% |
| 1985-1 | 0.15% | 0.91% | 0.57% | -0.95% | -0.10% | 0.58% |
| Avg | -0.33% | 0.05% | -0.08% | -0.31% | 0.12% | -0.53% |
| 1989-1 | -1.55% | 0.15% | 1.03% | 1.98% | -0.28% | 1.33% |
| 1993-1 | -0.20% | 1.00% | 0.08% | 0.20% | -0.11% | 0.96% |
| 1997-1 | 1.30% | 1.48% | 1.44% | -1.52% | -0.16% | 2.53% |
| 2001-1 | 0.81% | -1.21% | 0.70% | -0.28% | 1.97% | 1.99% |
| 2005-1 | 0.17% | -0.34% | -0.66% | 0.23% | -0.60% | -1.20% |
| Avg | 0.10% | 0.22% | 0.52% | 0.12% | 0.16% | 1.12% |
| SPX summary for Presidential Year 1 1953 - 2005 | ||||||
| Avg | -0.30% | 0.12% | 0.14% | -0.15% | -0.01% | -0.20% |
| Win% | 50% | 57% | 54% | 43% | 36% | 50% |
| SPX summary for all years 1953 - 2008 | ||||||
| Avg | -0.15% | 0.01% | 0.18% | -0.12% | -0.02% | -0.10% |
| Win% | 43% | 55% | 57% | 46% | 48% | 59% |
Money supply (M2)
The money supply chart was provided by Gordon Harms. Money supply growth continued to fall last week.
Conclusion
Strong ADL's and a lack of new lows suggest more highs to come.
I expect the major indices to be higher on Friday August 28 than they were on Friday August 21.
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 week's negative forecast was a miss.
Thank you,
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 © 2003-2009 Mike Burk
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