Technical Market Report for September 4, 2010

By: Mike Burk | Sat, Sep 4, 2010
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The good news is:
• New lows all but disappeared last week.


The negatives

Volume represents interest and, although the major indices rallied 5+% during the last 4 days of last week, there was no interest.

The chart below covers the past 6 months showing the NASDAQ composite in blue and a 5% trend (39 day EMA) of NASDAQ total volume (OTC Tot Vol T) in orange. Dashed vertical lines have been drawn on the 1st trading day of each month.

Volume fell to a multi month low last week.

The next chart is similar to the one above except is shows the S&P 500 in red and NY Tot Vol T has been calculated from NYSE volume.

NY Tot Vol T hit an 8 year low last April and has held only slightly above that level.

On Balance Volume (OBV) for an exchange or index is a running total of the daily volume of declining issues subtracted from advancing issues. It is like an Advance Decline Line (ADL) of volume.

The chart below covers the past 6 months showing the SPX in red and the percentage of the previous 4 trading days that NYSE OBV has been up in black.

This chart caught my eye because, since the April high, when NY OBV %UP hit the top of the chart, as it did Friday, the index was near a short term high.


The positives

New lows disappeared last week.

On the NASDQ new lows declined from 143 on Tuesday to 21 on Friday and on the NYSE new lows declined from 97 on Tuesday to 4 on Friday.

The chart below is a up date of one I show often covering the past 6 months showing the 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. Dashed horizontal lines have been drawn at 10% levels of the indicator; the line is solid at the neutral 50% level.

OTC HL Ratio moved above the 50% level Friday.

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.

Levels of these indicators have not mattered much recently, but direction has. As long as they are moving upward the market should be ok.


Seasonality

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

The tables below show the return on a percentage basis for the 4 trading days prior to the 2nd Friday of September 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.

When the 1st of September falls on a Saturday, Sunday or Monday Labor day occurs prior to the 1st Friday.

Average returns by all measures have been negative.

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

OTC Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1966-2 0.00% -0.12% -0.40% -0.99% -0.27% -1.78%
 
1970-2 0.00% 1.45% 1.99% -0.24% -0.26% 2.93%
1974-2 -2.19% -0.67% -0.02% -2.12% -1.82% -6.82%
1978-2 0.00% 0.82% 0.23% 0.23% 0.93% 2.21%
1982-2 0.00% -0.64% 0.50% 0.54% -0.16% 0.24%
1986-2 -1.47% -0.87% -0.74% -3.67% -1.86% -8.61%
Avg -1.83% 0.02% 0.39% -1.05% -0.64% -2.01%
 
1990-2 0.35% -0.59% 0.22% -1.09% -0.47% -1.57%
1994-2 0.00% 0.03% 0.63% 0.66% -0.72% 0.60%
1998-2 0.00% 6.03% -2.19% -2.42% 3.55% 4.97%
2002-2 0.72% 1.19% -0.35% -2.72% 0.92% -0.25%
2006-2 0.00% 0.57% -1.72% -0.58% 0.49% -1.24%
Avg 0.54% 1.45% -0.68% -1.23% 0.75% 0.50%
 
OTC summary for Presidential Year 2 1966 - 2006
Avg -0.65% 0.65% -0.17% -1.13% 0.03% -0.85%
Win% 50% 55% 45% 27% 36% 45%
 
OTC summary for all years 1963 - 2009
Avg -0.39% 0.00% -0.21% 0.07% 0.13% -0.17%
Win% 45% 51% 52% 64% 60% 60%
 
SPX Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1954-2 0.00% 0.52% 0.07% 0.16% 0.36% 1.11%
1958-2 0.33% 0.69% -0.31% 0.68% -0.23% 1.17%
1962-2 0.12% 0.24% 0.43% -0.24% 0.32% 0.87%
1966-2 0.00% -0.59% -0.81% -0.38% 0.32% -1.46%
 
1970-2 0.00% 0.25% -0.30% -0.59% 0.27% -0.37%
1974-2 -2.38% -0.69% -1.00% -2.68% -2.26% -9.01%
1978-2 0.00% 0.78% 0.85% 0.04% 1.30% 2.97%
1982-2 0.00% -1.07% 0.68% -0.19% -0.82% -1.39%
1986-2 -0.93% -0.19% -0.25% -4.81% -1.92% -8.09%
Avg -1.66% -0.18% 0.00% -1.65% -0.69% -3.18%
 
1990-2 -0.55% -0.18% 0.47% -1.21% -0.57% -2.04%
1994-2 0.00% 0.18% -0.18% 0.46% -1.05% -0.59%
1998-2 0.00% 5.10% -1.69% -2.59% 2.95% 3.77%
2002-2 1.01% 0.73% -0.01% -2.48% 0.33% -0.42%
2006-2 0.00% 0.17% -0.99% -0.48% 0.38% -0.92%
Avg 0.23% 1.20% -0.48% -1.26% 0.41% -0.04%
 
SPX summary for Presidential Year 2 1954 - 2006
Avg -0.40% 0.42% -0.22% -1.02% -0.04% -1.03%
Win% 50% 64% 36% 29% 57% 36%
 
SPX summary for all years 1953 - 2009
Avg -0.30% -0.02% -0.12% -0.19% 0.11% -0.34%
Win% 46% 53% 54% 47% 63% 51%


Money Supply (M2)

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


Conclusion

Most of the indicators are following a pattern similar to what they did off the early July low. It will be a week or so before we will know if the pattern has changed.

I expect the major averages to be higher on Friday September 10 than they were on Friday September 3.

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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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