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November 07, 2009

Technical Market Report
by Mike Burk

The good news is:
• The market is in an upswing that should bring new highs in the Dow Jones Industrial Average next week.

Short Term

Since the late August low the market has been moving in a well defined monthly cyclical pattern that can be seen in any number of breadth oscillators as well as the price charts.

The charts below cover the past 170 trading days (from the March low) showing the S&P 500 (SPX) in red and indicators calculated from NYSE volume data. The first chart is an oscillator calculated by subtracting a 5% trend (39 day EMA) from a 10% trend (19 day EMA) of NYSE down side volume subtracted from up side volume in purple. Dashed vertical lines have been drawn on the 1st trading day of each month.

For the past several months the indicator has been following a pattern of end of month lows and mid month highs and is currently in an up swing.

Notice the highs and lows have been progressively lower.

The next chart shows momentum of the indicator above making it a little easier to interpret at turning points.

Intermediate term

The secondaries lead both up and down and currently they are showing weakness.

The chart below was generated in FastTrack (http://fasttrack.net/) showing the Russell 2000 (R2K) in red, the SPX in green and a relative strength indicator called Accutrack (AT) is plotted as a histogram in yellow on the bottom.

AT has been rising or above the neutral level most of the time since the early March low. It has been falling since late September and is now about as low as it was in early March.

Summation indices (SI) are running totals of Oscillator values. They move up when the oscillator is positive and down when it is negative.

The charts below show SI's calculated from NYSE advancing issues - declining issues in black, NYSE new highs - new lows in blue and NYSE upside - down side volume in green.

For the first time since the March low all of the SI's are moving sharply downward.

The next chart is similar to the one above except it shows the NASDAQ composite (OTC) in blue and indicators calculated from NASDAQ data in colors defined in the legend. The trends are similar.

Seasonality

Next week includes the 5 trading days prior to the 2nd Friday of November 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 2nd Friday of November during the 1st year of the Presidential Cycle. OTC data covers the period from 1963 - 2008 and SPX data from 1953 - 2008. There are summaries for both the 1st 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.

On average the coming week has had a positive bias over all periods. The bias during the 1st year of the Presidential Cycle is stronger than the other periods.

Report for the week before the 2nd Friday of November.
The number following the year is the position in the presidential cycle.
Daily returns from Monday to 2nd Friday.

OTC Presidential Year 1
Year	Mon	Tue	Wed	Thur	Fri	Totals
1965-1	-0.13%	-0.27%	-0.36%	0.09%	-0.04%	-0.70%

1969-1	0.79%	0.38%	-0.21%	0.44%	-0.37%	1.03%
1973-1	-1.66%	-0.77%	0.40%	0.55%	-1.44%	-2.91%
1977-1	0.66%	0.37%	0.50%	1.30%	0.96%	3.78%
1981-1	-0.03%	-0.01%	0.08%	0.47%	-0.41%	0.10%
1985-1	0.04%	0.35%	0.50%	0.25%	0.86%	2.00%
Avg	-0.04%	0.06%	0.25%	0.60%	-0.08%	0.80%

1989-1	-1.09%	0.31%	1.03%	0.00%	0.47%	0.72%
1993-1	0.42%	0.47%	0.87%	0.32%	0.04%	2.12%
1997-1	-0.73%	-0.36%	-2.73%	1.04%	1.66%	-1.13%
2001-1	2.74%	2.31%	0.13%	-0.53%	0.04%	4.70%
2005-1	0.41%	-0.28%	0.17%	0.96%	0.26%	1.52%
Avg	0.35%	0.49%	-0.10%	0.36%	0.49%	1.59%

OTC summary for Presidential Year 1 1965 - 2005
Avg	0.13%	0.23%	0.04%	0.44%	0.18%	1.02%
Win%	55%	55%	73%	91%	64%	73%

OTC summary for all years 1963 - 2008
Avg	-0.07%	0.14%	-0.13%	0.31%	-0.15%	0.09%
Win%	43%	61%	54%	61%	58%	52%

SPX Presidential Year 1
Year	Mon	Tue	Wed	Thur	Fri	Totals
1953-1	0.20%	-1.18%	0.00%	0.37%	0.33%	-0.28%
1957-1	-0.17%	0.00%	0.15%	0.59%	-1.18%	-0.61%
1961-1	0.78%	0.00%	1.23%	-0.14%	0.42%	2.29%
1965-1	-0.15%	-0.33%	-0.11%	0.30%	0.48%	0.20%

1969-1	0.07%	-0.26%	-0.18%	-0.48%	-0.36%	-1.22%
1973-1	-1.45%	-0.53%	0.80%	1.15%	-1.61%	-1.63%
1977-1	0.78%	0.18%	0.56%	1.86%	1.34%	4.72%
1981-1	0.51%	-0.48%	0.18%	0.22%	-1.23%	-0.81%
1985-1	-0.15%	0.59%	0.20%	-0.07%	0.57%	1.14%
Avg	-0.05%	-0.10%	0.31%	0.54%	-0.26%	0.44%

1989-1	-1.48%	0.66%	1.00%	-0.47%	0.75%	0.46%
1993-1	0.14%	0.03%	0.74%	-0.23%	0.59%	1.26%
1997-1	-0.69%	0.29%	-1.93%	1.18%	1.27%	0.13%
2001-1	1.44%	1.45%	-0.27%	0.25%	0.16%	3.02%
2005-1	0.22%	-0.35%	0.17%	0.84%	0.31%	1.19%
Avg	-0.08%	0.42%	-0.06%	0.31%	0.62%	1.21%

SPX summary for Presidential Year 1 1953 - 2005
Avg	0.00%	0.01%	0.19%	0.38%	0.13%	0.71%
Win%	57%	50%	69%	64%	71%	64%

SPX summary for all years 1953 - 2008
Avg	-0.07%	0.09%	-0.02%	0.30%	-0.08%	0.20%
Win%	50%	51%	58%	61%	56%	55%

Money supply (M2)

The money supply chart was provided by Gordon Harms. Money supply growth has increased noticeably in the past month.

Conclusion

The market is in the middle of an upswing that, by recent patterns, should last another week. We should see new highs in the Dow Jones Industrial Average unconfirmed by the breadth indicators and secondaries.

I expect the major indices to be higher on Friday November 13 than they were on Friday November 6.

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.

Gordon Harms produces a power point for our local timing group meetings. You can get a copy of that at: http://www.stockmarket-ta.com/.

Are you curious about the old market adage "Sell in May"? Alpha's latest newsletter titled "Guaranteed to Lose" offers an interesting explanation for this persistent seasonal trend and how it can be exploited. Read about it at: www.alphaim.net.

Thank you,

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.