Technical market Report for August 28, 2010

By: Mike Burk | Sat, Aug 28, 2010
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The good news is:
• The secondaries significantly outperformed the blue chips last week.


The negatives

In early 2009 NYSE upside volume hit an all time high. Last week it hit an 8 year low.

The chart below covers the past 8 years showing the S&P 500 (SPX) in red and a 5% trend (39 day EMA) of NYSE up side volume (NY UV) in green. Dashed vertical lines have been drawn on the 1st trading day of each year.

I think of volume as a measure of interest and there does not appear to be much right now.

The next chart offers a close up of the last 6 months. The low was hit on Thursday and there was a nice little pop on Friday. Friday's upside volume on the NYSE was the highest since July 22. Dashed vertical lines have been drawn on the 1st trading day of each month.


The positives

There were 171 new lows on the NYSE on Tuesday, the most since the flash crash May 6 and 255 new lows on the NASDAQ, the most since July 1. Both numbers had diminished sharply by the end of the week.

The chart below is a up date of one I show often covering the past 6 months showing the NASDAQ composite (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.

OTC HL Ratio turned up from an extremely low point late last week. The last time that happened was early July and we had a 10% rally.

The next chart is similar to the one above except is shows the SPX in red and NY HL Ratio has been calculated from NYSE data. NY HL Ratio has a more positive bias, but the pattern is similar, it also turned upward late last week.

The secondaries lead both up and down.

The chart below is from FastTrack (fasttrack.net). It covers the past 6 months showing the SPX in green and the Russell 2000 (R2K) in red. Accutrack, a relative strength indicator is shown as a histogram in yellow.

Accutrack began moving sharply upward last week indicating increased strength in the secondaries relative to the blue chips.


Seasonality

Next week includes the last 2 trading days of August and the first 3 trading days of September during the 2nd year of the Presidential Cycle.

The tables below show the return on a percentage basis for the last 2 trading days of August and the 1st 3 trading days of September during the 2nd year of the Presidential Cycle. OTC data covers the period from 1963 - 2009 and SPX data from 1928 - 2009. There are summaries for both the 2nd year of the Presidential Cycle and all years combined.

Over all years next week has been modestly positive, however, during the 2nd year of the Presidential Cycle it has been quite negative. During the 2nd year of the Presidential Cycle, the OTC has not been up for the week since 1982 and the SPX has not been up for the week since 1986.

Last 2 days of August and first 3 days of September.
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
  Day2 Day1 Day1 Day2 Day3 Totals
1966-2 -2.71% 2 0.73% 3 1.44% 4 -0.23% 5 -0.12% 2 -0.89%
 
1970-2 1.15% 5 0.64% 1 0.00% 2 -0.80% 3 0.05% 4 1.03%
1974-2 -1.70% 4 1.63% 5 -2.39% 2 -3.17% 3 2.15% 4 -3.47%
1978-2 0.09% 3 0.19% 4 0.25% 5 0.82% 2 0.23% 3 1.59%
1982-2 -0.70% 1 0.77% 2 -0.23% 3 1.24% 4 1.42% 5 2.50%
1986-2 0.19% 4 0.12% 5 -0.71% 2 -0.33% 3 0.57% 4 -0.17%
Avg -0.19% 0.67% -0.62% -0.45% 0.89% 0.30%
 
1990-2 -0.81% 4 0.67% 5 0.12% 2 0.20% 3 -0.96% 4 -0.78%
1994-2 0.43% 2 -0.11% 3 -0.87% 4 0.04% 5 0.03% 2 -0.49%
1998-2 -2.77% 5 -8.57% 1 5.06% 2 1.12% 3 -1.31% 4 -6.46%
2002-2 1.63% 4 -1.57% 5 -3.88% 2 2.25% 3 -3.20% 4 -4.76%
2006-2 0.62% 3 -0.09% 4 0.43% 5 0.57% 2 -1.72% 3 -0.19%
Avg -0.18% -1.93% 0.17% 0.84% -1.43% -2.54%
 
OTC summary for Presidential Year 2 1966 - 2006
Averages -0.42% -0.51% -0.07% 0.16% -0.26% -1.10%
% Winners 55% 64% 45% 64% 55% 27%
MDD 8/31/1998 11.10% -- 9/5/2002 6.35% -- 9/4/1974 5.57%
 
OTC summary for all years 1963 - 2009
Averages -0.12% 0.13% 0.03% 0.09% -0.08% 0.04%
% Winners 64% 74% 59% 64% 60% 57%
MDD 8/31/1998 11.10% -- 9/6/2001 7.46% -- 9/5/2002 6.35%
 
SPX Presidential Year 2
  Day2 Day1 Day1 Day2 Day3 Totals
1930-2 -0.05% 4 1.14% 5 0.05% 2 -0.98% 3 -0.71% 4 -0.56%
1934-2 -1.08% 4 -0.11% 5 -0.22% 6 -0.77% 2 1.66% 3 -0.52%
1938-2 1.60% 2 0.17% 3 -1.16% 4 2.85% 5 0.73% 6 4.20%
1942-2 0.12% 6 0.00% 1 0.00% 2 0.12% 3 -0.12% 4 0.12%
1946-2 0.18% 4 -0.66% 5 -6.73% 2 -0.45% 3 3.43% 4 -4.23%
Avg 0.15% 0.11% -1.61% 0.15% 1.00% -0.20%
 
1950-2 -0.59% 3 -0.05% 4 0.71% 5 0.70% 2 -0.75% 3 0.01%
1954-2 -1.01% 1 -1.71% 2 0.70% 3 0.77% 4 0.76% 5 -0.49%
1958-2 -0.52% 4 0.19% 5 0.52% 2 0.38% 3 -0.17% 4 0.40%
1962-2 0.03% 4 0.75% 5 -0.95% 2 -0.75% 3 0.41% 4 -0.50%
1966-2 1.78% 2 1.63% 3 0.78% 4 -0.36% 5 -0.59% 2 3.24%
Avg -0.06% 0.16% 0.35% 0.15% -0.07% 0.53%
 
1970-2 0.96% 5 -0.42% 1 -0.70% 2 0.01% 3 1.40% 4 1.26%
1974-2 -1.09% 4 3.09% 5 -2.26% 2 -2.60% 3 3.17% 4 0.32%
1978-2 0.11% 3 -0.20% 4 0.38% 5 0.78% 2 0.85% 3 1.91%
1982-2 0.47% 1 1.57% 2 -1.05% 3 1.72% 4 2.00% 5 4.70%
1986-2 -0.18% 4 0.04% 5 -1.74% 2 0.63% 3 1.50% 4 0.24%
Avg 0.05% 0.82% -1.08% 0.11% 1.78% 1.68%
 
1990-2 -1.69% 4 1.21% 5 0.16% 2 0.40% 3 -1.21% 4 -1.13%
1994-2 0.32% 2 -0.12% 3 -0.49% 4 -0.46% 5 0.18% 2 -0.57%
1998-2 -1.48% 5 -6.78% 1 3.83% 2 -0.38% 3 -0.83% 4 -5.63%
2002-2 -0.01% 4 -0.19% 5 -4.15% 2 1.75% 3 -1.60% 4 -4.19%
2006-2 0.00% 3 -0.04% 4 0.55% 5 0.17% 2 -0.99% 3 -0.30%
Avg -0.57% -1.18% -0.02% 0.30% -0.89% -2.37%
 
SPX summary for Presidential Year 2 1930 - 2006
Averages -0.11% -0.03% -0.59% 0.18% 0.46% -0.09%
% Winners 45% 45% 45% 60% 55% 50%
MDD 8/31/1998 8.16% -- 9/4/1946 7.76% -- 9/4/1974 4.80%
 
SPX summary for all years 1928 - 2009
Averages -0.07% 0.12% -0.07% 0.13% 0.22% 0.34%
% Winners 49% 62% 66% 54% 57% 61%
MDD 8/31/1998 8.16% -- 9/4/1946 7.76% -- 9/3/1931 5.32%


Money Supply (M2)

The money supply chart was provided by Gordon Harms. Money supply growth remains comatose.


September

September has the reputation of being the worst month of the year and, by some measures, it is. Since 1963, over all years the OTC in September has been up 62% of the time with an average loss of -0.2%, the only month with a negative average return. During the 2nd year of the Presidential Cycle September has been up 45% time but with an average loss of -1.0%, but that is better than May (-3.0%), June (-1.7%), August (-1.6%), July (-1.3% and April (-1.1%). The worst September, 2001 (-15.4%) the best 2009 (+7.8%)

The average month has 21 trading days. The chart below has been calculated by averaging the daily percentage change of the OTC for each of the 1st 11 trading days and each of the last 10. In months when there were more than 21 trading days some of the days in the middle were not counted. In months when there were less than 21 trading days some of the days in the middle of the month were counted twice. Dashed vertical lines have been drawn after the 1st trading day and at 5 trading day intervals after that. The line is solid on the 11th trading day, the dividing point.

The blue line shows the average of the OTC in September over all years since 1963 while the green line shows the average during the 2nd year of the Presidential Cycle.

Since 1928 the SPX has been up 45% of the time in September with an average loss of -1.1%. During the 2nd year of the Presidential Cycle the SPX has also been up 45% of the time with an average loss of -1.1%. The best ever September for the SPX was 1939 (+15.2%) the worst 1931 (-30%).

The chart below is similar to the one above except it shows the daily performance over all years for the SPX in September in red and the performance during the 2nd year of the Presidential Cycle in cyan.

Since 1979 the Russell 2000 (R2K) has been up 55% of the time in September with an average loss of -0.6%. During the 2nd year of the Presidential Cycle the R2K has only been up 57% of the time with an average loss of -1.4%. The best ever September for the R2K 1997 (+6.0%), the worst 2001 (-13.3%)

The chart below is similar to those above except it shows the daily performance over all years of the R2K in September in green and the performance during the 2nd year of the Presidential Cycle in cyan.

Since 1885 the Dow Jones Industrial Average (DJIA) has been up 45% of the time in September with an average loss of -1.0%. During the 2nd year of the Presidential Cycle the DJIA has only been up 43% of the time with an average loss of -1.8%. The best September ever for the DJIA, there are two, 1916 and 1939, both up 12.8%, the worst 1931 (-31.1%)

The chart below is similar to those above except it shows the daily performance over all years of the DJIA in September in Magenta and the performance during the 2nd year of the Presidential Cycle in cyan.


Conclusion

The market appears to have put in a short term bottom last week. New lows diminished sharply and the secondaries outperformed the blue chips.

I expect the major averages to be higher on Friday September 3 than they were on Friday August 27.

Last week all of the major indices were down except the R2K so I am calling last weeks negative forecast a tie.

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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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