Technical Market Report for July 17, 2010

By: Mike Burk | Sat, Jul 17, 2010
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The good news is:
• The NASDAQ 100 (NDX) and S&P 100 (OEX) both completed a run of 8 consecutive up days on Thursday.


The negatives

Following runs of 10 consecutive down days the NDX and OEX both had runs of 8 consecutive up days, the first since March for the NDX and the first since last August for the OEX. These are extremes, but the direction has been consistent with the average seasonal pattern which suggests another down week ahead.

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

OTC HL Ratio moved up until Thursday when it crossed above the neutral line, but headed back down on Friday.

NASDAQ Hi/Low Ratio

The next chart covers the past 6 months showing the OTC in blue and a 10% trend (19 day EMA) of NASDAQ new highs (OTC NH) in green.

None of the rallies since the April highs have generated enough new highs to move the indicator significantly upward. The indicator lags a little, but, you can see how it began moving upward a few days after the February low.

NASDAQ New Highs


The positives

Since mid May the volume of declining issues has itself been declining. Unfortunately this may also be seen as a negative as there has been no capitulation.

The chart below, an update of one shown last week, it covers the past 6months showing the S&P 500 (SPX) in red and a 5% trend (39 day EMA) of NYSE downside volume (NY DV) in brown. NY DV has been plotted on an inverted Y axis so increasing NY DV moves the indicator downward (up is good).

NY DV has had a pattern of higher highs and higher lows since mid May.

SPX

There were 218 new lows on the NYSE on May 6, the day of the "Flash Crash". The next highest number (151) was seen at the July 1 low. Last Friday there were only 29 new lows on the NYSE, a benign number considering the SPX was only 4.1% off its July 1 low and falling.

The chart below covers the past 6 months showing the SPX in red and a 10% trend of NYSE new lows (NY NL) in blue. NY NL has been plotted on an inverted Y axis so decreasing new lows move the indicator upward (up is good). If NY NL continues to move upward it will signal the July 1 low was the low for the cycle.

SPX and NY New Highs


Seasonality

Next week includes the 5 trading days prior to the 4th Friday of July during the 2nd year of the Presidential Cycle.

The tables below show the return on a percentage basis for the 5 trading days prior to the 4th Friday of July during the 2nd year of the Presidential Cycle. OTC data covers the period from 1963 - 2009 and SPX data from 1953 - 2009. 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.

By all measures average OTC returns have been modestly negative while SPX returns have been modestly positive.

Report for the week before the 4th Friday of July.
The number following the year is the position in the presidential cycle.
Daily returns from Monday through the 4th Friday.

OTC Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1966-2 0.42% 0.08% -0.10% -0.56% -0.05% -0.20%
 
1970-2 0.01% 0.13% 0.46% 0.38% -0.22% 0.76%
1974-2 0.03% 1.39% 0.26% -1.50% -0.93% -0.75%
1978-2 -0.01% 0.16% 0.56% 0.52% 0.56% 1.79%
1982-2 -0.05% 0.44% 0.42% 0.30% 0.03% 1.13%
1986-2 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Avg -0.01% 0.53% 0.42% -0.07% -0.14% 0.73%
 
1990-2 -2.33% -0.47% 0.65% 0.00% -0.64% -2.79%
1994-2 0.17% -0.46% -0.91% 0.32% 0.23% -0.64%
1998-2 0.12% -1.90% -0.79% 2.02% -2.46% -3.01%
2002-2 -2.77% -4.18% 4.98% -3.89% 1.78% -4.08%
2006-2 2.05% 0.58% -0.17% -0.77% 1.93% 3.63%
Avg -0.55% -1.28% 0.75% -0.46% 0.17% -1.38%
 
OTC summary for Presidential Year 2 1966 - 2006
Avg -0.24% -0.42% 0.53% -0.32% 0.02% -0.42%
Win% 60% 60% 60% 50% 50% 40%
 
OTC summary for all years 1963 - 2009
Avg -0.34% -0.19% 0.18% -0.03% -0.13% -0.50%
Win% 41% 56% 56% 62% 59% 49%
 
SPX Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1954-2 -0.27% -0.47% 0.64% 0.80% 0.13% 0.83%
1958-2 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
1962-2 -0.02% -0.77% 0.18% 0.55% 0.76% 0.69%
1966-2 -0.10% -0.76% -0.95% 0.01% -0.13% -1.93%
 
1970-2 -0.22% 0.15% 0.35% 0.04% -0.03% 0.30%
1974-2 0.32% 1.00% 0.40% -1.19% -1.88% -1.34%
1978-2 -0.03% 0.74% 0.65% 0.46% 0.46% 2.28%
1982-2 -0.31% 0.73% -0.11% 0.04% -0.27% 0.09%
1986-2 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Avg -0.06% 0.66% 0.32% -0.16% -0.43% 0.33%
 
1990-2 -1.74% 0.14% 0.37% -0.33% -0.69% -2.27%
1994-2 0.23% -0.30% -0.50% 0.22% 0.11% -0.23%
1998-2 0.57% -1.49% -0.44% 1.57% -1.94% -1.73%
2002-2 -3.29% -2.70% 5.73% -0.56% 1.69% 0.86%
2006-2 1.66% 0.63% -0.04% -0.41% 1.22% 3.06%
Avg -0.51% -0.74% 1.02% 0.10% 0.08% -0.06%
 
SPX summary for Presidential Year 2 1954 - 2006
Avg -0.27% -0.26% 0.52% 0.10% -0.05% 0.05%
Win% 33% 50% 58% 67% 50% 58%
 
SPX summary for all years 1953 - 2009
Avg -0.18% -0.18% 0.36% 0.10% -0.07% 0.04%
Win% 31% 52% 65% 62% 59% 54%


Money Supply (M2)

The money supply chart was provided by Gordon Harms. Money supply growth has deteriorated.

M2 Money Supply


Conclusion

The market has been swinging from one extreme to another while it has been following the average seasonal pattern quite closely all year. That pattern suggests, at least, the early part of next week will be down.

I expect the major averages to be lower on Friday July 23 than they were on Friday July 16.

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Thank you,

 


 

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.

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