Technical Market Report for October 16, 2010

By: Mike Burk | Sat, Oct 16, 2010
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The good news is:
• All of the major indices hit multi month highs last week.


The negatives

Negatives are hard to find. Some indicators like new highs and volume are not expanding as quickly as you would expect, but nothing troublesome jumps out.


The positives

The chart below is an update of one I have been showing every week, it covers the past 6 months showing the 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.

There are some trading systems that impose a "No Sell Filter" when a variation of this indicator is above 80% as it is now.

NASDAQ

The chart below is similar to the one above except it covers the past 5 years to give you a historical perspective on how this indicator works. Dashed vertical lines have been drawn on the 1st trading day of each year.

NASDAQ HL ratio


Seasonality

Next week includes the 5 trading days prior to the 4th Friday of October 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 October 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 over all years have been negative, however, average returns during the 2nd year of the Presidential Cycle have been positive.

Report for the week before the 4th Friday of October.
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 -0.33% 0.27% 0.45% 0.82% 1.33% 2.53%
 
1970-2 -0.20% -1.41% 0.41% -0.42% -0.48% -2.10%
1974-2 1.71% 0.50% -1.15% -1.26% 0.45% 0.24%
1978-2 -1.52% -0.66% 0.02% -2.61% -2.33% -7.10%
1982-2 1.05% 0.42% 1.55% 1.70% -0.13% 4.59%
1986-2 -0.62% -0.12% 0.23% 0.64% 0.13% 0.27%
Avg 0.08% -0.25% 0.21% -0.39% -0.47% -0.82%
 
1990-2 1.11% -0.01% -0.03% -0.36% -1.58% -0.87%
1994-2 -0.54% -0.39% 0.66% 0.55% 1.13% 1.41%
1998-2 1.71% -0.58% 2.17% 1.66% -0.51% 4.45%
2002-2 1.69% -1.29% 2.12% -1.63% 2.50% 3.39%
2006-2 0.57% -0.46% 0.50% 0.96% -1.20% 0.37%
Avg 0.91% -0.54% 1.08% 0.24% 0.07% 1.75%
 
OTC summary for Presidential Year 2 1966 - 2006
Avg 0.42% -0.34% 0.63% 0.00% -0.06% 0.65%
Win% 55% 27% 82% 55% 45% 73%
 
OTC summary for all years 1963 - 2009
Avg -0.01% -0.45% 0.14% -0.16% -0.15% -0.63%
Win% 47% 38% 57% 47% 51% 47%
 
SPX Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1954-2 0.38% 0.25% 0.81% -0.12% 0.00% 1.32%
1958-2 -0.37% 0.00% -0.39% -0.20% -0.31% -1.27%
1962-2 -1.13% -2.67% 3.22% -0.94% -0.27% -1.81%
1966-2 0.29% 0.61% 0.86% 0.82% 0.01% 2.60%
 
1970-2 -1.34% 0.59% 0.02% -0.33% 0.47% -0.59%
1974-2 1.69% -0.50% -2.87% -1.14% -0.14% -2.97%
1978-2 0.23% -0.70% -0.18% -1.32% -1.50% -3.47%
1982-2 2.37% -0.11% 1.94% -0.12% -0.14% 3.94%
1986-2 -1.20% -0.04% 0.16% 1.28% -0.43% -0.23%
Avg 0.35% -0.15% -0.19% -0.33% -0.35% -0.66%
 
1990-2 0.73% -0.76% 0.08% -0.78% -1.76% -2.49%
1994-2 -0.87% 0.15% 0.24% 0.70% 1.70% 1.91%
1998-2 0.57% 0.14% 0.56% 0.80% -0.72% 1.35%
2002-2 1.73% -1.06% 0.67% -1.52% 1.72% 1.54%
2006-2 0.62% 0.03% 0.35% 0.50% -0.85% 0.64%
Avg 0.55% -0.30% 0.38% -0.06% 0.02% 0.59%
 
SPX summary for Presidential Year 2 1954 - 2006
Avg 0.26% -0.31% 0.39% -0.17% -0.17% 0.03%
Win% 64% 46% 79% 36% 31% 50%
 
SPX summary for all years 1953 - 2009
Avg -0.19% -0.07% 0.18% -0.26% -0.07% -0.40%
Win% 54% 45% 59% 35% 45% 44%


Money supply (M2)

The money supply chart was provided by Gordon Harms. M2 growth has been increasing.

M2 Money Supply


Conclusion

Looking over broad market and sector charts, everything but the financials are heading sharply upward.

I expect the major averages to be higher on Friday October 22 than they were on Friday October 15.

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In his latest newsletter, Jerry Minton looks at a 20-day investment that has averaged 11.1% a year for the past 30 years. Even better, the 20 days in question have been down just twice, for a 95% win rate. To read about it and to sign up for the free newsletter, 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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