Technical Market Report for September 18, 2010

By: Mike Burk | Sat, Sep 18, 2010
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The good news is:
• NASDAQ new highs expanded to levels not seen since late July.


The negatives

The market is overbought going into a seasonally bad week.

The NASDAQ composite (OTC) and NDX have, as of Friday, been up for 8 consecutive days for the first time since July 2009.

Advance Decline Lines (ADL) are running totals of declining issues subtracted from advancing issues.

The chart below covers the past 6 months showing the OTC in blue and the NASDAQ ADL in red green and black. The colors of the ADL are controlled by a trend identifier that looks for patterns of higher highs and higher lows (green) or lower highs and lower lows (red) and it colors the line black if neither of the directional patterns can be identified. Dashed vertical lines have been drawn on the 1st trading day of each month.

This shows an unusual instance of the OTC ADL going into a negative pattern while the index is going up.

NASDAQ

Friday was an up day, but on the NYSE, downside volume exceeded upside volume.

The chart below covers the past 6 months showing the S&P 500 (SPX) in red and momentum of a 5% trend (39 day EMA) of NYSE down side volume (NY DV 5% MoM 7) in olive drab. NY DV 5% MoM 7 has been plotted on an inverted Y axis so decreasing values move the indicator upward (up is good). NY DV 5% MoM 7 usually does not lead, but it did at the April high and it headed sharply downward of Friday.

S&P500 and NYSE ADL

Upside volume has not accompanied the rally since the 1st of the month.

The chart below covers the past 6 months showing the SPX in red and a 5% trend of NYSE upside volume (NY UV) in green.

Upside volume was missing in the recent rally.

S&P500 and NYSE Upside Volume


The positives

New highs hit levels not seen for a month or two on Friday.

The chart below 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.

OTC NH hit its highest level since last May.

NASDAQ New Highs

The chart below is a up date of one I show often covering the past 6 months showing the SPX in red and a 40% trend (4 day EMA) of NYSE new highs divided by new highs + new lows (NY HL Ratio) in black. Dashed horizontal lines have been drawn at 10% levels of the indicator; the line is solid at the neutral 50% level.

NY HL Ratio has held above 90%, very strong.

S&P500 and NYSE HL Ratio

The chart below is similar to the one above except is shows the OTC in blue and OTC HL Ratio, in red, has been calculated from NASDAQ data.

OTC HL Ratio held at 70% last week, also very strong.

NASDAQ and HL Ratio


Seasonality

Next week includes the 5 trading days prior to the 4th Friday of September 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 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.

Average returns by all measures have been negative.

Report for the week before the 4th Friday of September.
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 0.34% -0.15% 0.13% -1.18% 0.54% -0.31%
 
1970-2 -0.01% -0.71% -0.14% 1.10% 2.26% 2.50%
1974-2 -0.40% -1.36% -0.15% -1.51% -1.30% -4.72%
1978-2 -1.24% -1.17% -1.04% -0.42% 0.15% -3.73%
1982-2 -0.33% 1.03% 0.38% -0.25% 0.24% 1.07%
1986-2 0.89% 0.23% 0.33% -0.85% 0.03% 0.63%
Avg -0.22% -0.40% -0.13% -0.39% 0.28% -0.85%
 
1990-2 -2.79% 0.74% -1.34% -2.53% 0.97% -4.93%
1994-2 -0.15% -1.28% -0.79% -0.04% -0.39% -2.65%
1998-2 1.00% 1.04% 3.68% -2.27% 1.35% 4.80%
2002-2 -2.96% -0.23% 3.39% -0.06% -1.84% -1.69%
2006-2 0.01% -0.60% 1.37% -0.67% -0.84% -0.73%
Avg -0.98% -0.07% 1.26% -1.11% -0.15% -1.04%
 
OTC summary for Presidential Year 2 1966 - 2006
Avg -0.51% -0.22% 0.53% -0.79% 0.11% -0.89%
Win% 36% 36% 55% 09% 64% 36%
 
OTC summary for all years 1963 - 2009
Avg -0.30% -0.01% 0.11% -0.33% -0.21% -0.75%
Win% 40% 53% 59% 38% 47% 42%
 
SPX Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1954-2 -0.44% 0.70% 0.66% 0.56% 0.68% 2.16%
1958-2 -0.40% 0.73% 0.44% -0.42% 0.18% 0.53%
1962-2 -1.84% 0.58% -1.42% -0.68% 0.90% -2.46%
1966-2 -0.50% -0.69% -1.68% 0.30% -0.35% -2.92%
 
1970-2 -0.86% -0.31% 1.43% 1.30% 0.07% 1.64%
1974-2 -1.03% -2.02% -0.66% -1.64% -2.29% -7.63%
1978-2 -0.87% -0.66% -0.78% 0.17% -0.06% -2.20%
1982-2 -0.03% 1.93% -0.71% -0.15% -0.40% 0.65%
1986-2 1.17% 0.31% 0.26% -1.88% 0.17% 0.03%
Avg -0.32% -0.15% -0.09% -0.44% -0.50% -1.50%
 
1990-2 -2.16% 1.20% -1.04% -1.34% 1.69% -1.65%
1994-2 -0.07% -1.59% -0.41% -0.04% -0.35% -2.46%
1998-2 0.37% 0.58% 3.52% -2.19% 0.19% 2.47%
2002-2 -1.38% -1.73% 2.49% 1.82% -3.23% -2.03%
2006-2 0.10% -0.22% 0.52% -0.54% -0.25% -0.38%
Avg -0.63% -0.35% 1.02% -0.46% -0.39% -0.81%
 
SPX summary for Presidential Year 2 1954 - 2006
Avg -0.57% -0.08% 0.19% -0.34% -0.22% -1.02%
Win% 21% 50% 50% 36% 50% 43%
 
SPX summary for all years 1953 - 2009
Avg -0.46% 0.01% 0.00% -0.18% -0.20% -0.83%
Win% 31% 50% 54% 39% 40% 36%


Money Supply (M2)

The money supply chart was provided by Gordon Harms. Money supply growth flattened last week.

M2 Money Supply


Conclusion

The market is overbought going into a week that seasonally has been very weak.

I expect the major averages to be lower on Friday September 24 than they were on Friday September 17.

Last weeks negative forecast was a miss. This report is free to anyone who wants it, so please tell your friends. They can sign up at: http://alphaim.net/signup.html

In his latest newsletter, Jerry Minton looks at the impending arrival of the election cycle "power zone" and what it means for the market. To read the newsletter and sign up for a free subscription go to www.alphaim.net.

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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