Technical Market Report for October 23, 2010

By: Mike Burk | Sat, Oct 23, 2010
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The good news is:
• Most of the major indices are within 3% of their recovery highs.


The negatives

In a rising market you expect new highs to expand and they have been, however, not at the rate you would expect.

The chart below covers the past year showing the S&P 500 (SPX) in red and a 10% trend (19 day EMA) of NYSE new highs (NY NH) in green. Dashed vertical lines have been drawn on the 1st trading day of each month.

The trajectory of NY NH has been sluggish relative to that of the SPX since the late August lows.

S&P500 and NYSE New Highs

Advance decline lines (ADL) are a running total of declining issues subtracted from advancing issues.

The chart below covers the past year showing the NASDAQ composite (OTC) in blue and an ADL calculated from NASDAQ issues traded (OTC ADL) in green.

Like the chart above the trajectory of the OTC ADL has not kept up with the index since the late August low.

NASDAQ and NASDAQ Advance/Decline

The next chart covers the past 6 months showing the OTC in blue and an indicator calculated by subtracting momentum of NASDAQ new lows from momentum of NASDAQ new highs (OTC HL MoM Diff) in orange. A dashed horizontal line has been drawn at the neutral level for the indicator.

The indicator dropped below the neutral level on Friday for the 1st time since late August.

NASDAQ and HL


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%. On Friday the indicator dropped below 80% to 78.9%, still very strong.

NASDAQ and HL Ratio

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 is holding above 90%, very strong.

S&P500 and NYSE HL Ratio

The next chart is similar to the one above except is covers the past 3 years to give you a historical perspective on that indicator.

S&P500


Seasonality

Next week includes the last 5 trading days of October during the 2nd year of the Presidential Cycle.

The tables below show the return on a percentage basis for the last 5 trading days of October 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.

Average returns during the 2nd year of the Presidential Cycle for the SPX have been slightly negative do to losses in the 1930's, however average returns by all other measures have been positive.

Last 5 days of October.
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
  Day5 Day4 Day3 Day2 Day1 Totals
1966-2 0.27% 2 0.45% 3 0.82% 4 1.33% 5 0.40% 1 3.26%
 
1970-2 0.48% 1 -0.76% 2 -1.04% 3 -0.55% 4 0.22% 5 -1.65%
1974-2 0.45% 5 -0.60% 1 1.87% 2 1.90% 3 0.54% 4 4.15%
1978-2 0.02% 3 -2.61% 4 -2.33% 5 -2.47% 1 -1.14% 2 -8.53%
1982-2 -1.40% 1 -0.51% 2 1.09% 3 -0.16% 4 0.36% 5 -0.62%
1986-2 -0.02% 1 0.17% 2 0.35% 3 0.73% 4 -0.08% 5 1.15%
Avg -0.10% -0.86% -0.01% -0.11% -0.02% -1.10%
 
1990-2 -0.36% 4 -1.58% 5 -1.06% 1 -0.29% 2 0.00% 3 -3.30%
1994-2 -0.39% 2 0.66% 3 0.55% 4 1.13% 5 0.17% 1 2.13%
1998-2 1.84% 1 -0.43% 2 1.09% 3 1.20% 4 0.81% 5 4.51%
2002-2 2.50% 5 -1.15% 1 -1.16% 2 2.01% 3 0.23% 4 2.43%
2006-2 0.50% 3 0.96% 4 -1.20% 5 0.56% 1 0.12% 2 0.94%
Avg 0.82% -0.31% -0.36% 0.92% 0.27% 1.34%
 
OTC summary for Presidential Year 2 1966 - 2006
Averages 0.35% -0.49% -0.09% 0.49% 0.15% 0.41%
% Winners 64% 36% 55% 64% 82% 64%
MDD 10/31/1978 8.29% -- 10/30/1990 3.27% -- 10/29/1970 2.33%
 
OTC summary for all years 1963 - 2009
Averages -0.54% 0.21% -0.17% 0.29% 0.52% 0.32%
% Winners 37% 43% 60% 55% 70% 53%
MDD 10/28/1987 11.13% -- 10/31/1978 8.29% -- 10/27/1997 7.01%
 
SPX Presidential Year 2
  Day5 Day4 Day3 Day2 Day1 Totals
1930-2 0.79% 1 0.45% 2 -1.74% 3 -1.20% 4 -2.31% 5 -4.00%
1934-2 -1.46% 5 0.11% 6 -0.57% 1 0.34% 2 0.23% 3 -1.34%
1938-2 -1.27% 3 0.53% 4 -1.43% 5 -0.23% 6 0.46% 1 -1.93%
1942-2 -0.95% 2 -0.85% 3 -0.11% 4 0.65% 5 0.64% 6 -0.62%
1946-2 -0.07% 6 -2.04% 1 -0.90% 2 0.42% 3 3.63% 4 1.04%
Avg -0.59% -0.36% -0.95% 0.00% 0.53% -1.37%
 
1950-2 -2.19% 4 0.82% 5 0.10% 6 -0.91% 1 -0.41% 2 -2.59%
1954-2 -0.53% 1 -0.06% 2 0.25% 3 -0.44% 4 -0.63% 5 -1.41%
1958-2 -0.77% 1 0.38% 2 1.15% 3 0.16% 4 0.12% 5 1.03%
1962-2 -0.94% 4 -0.27% 5 2.16% 1 1.47% 2 -0.04% 3 2.38%
1966-2 0.61% 2 0.86% 3 0.82% 4 0.01% 5 -0.05% 1 2.25%
Avg -0.76% 0.34% 0.90% 0.06% -0.20% 0.33%
 
1970-2 -0.55% 1 -0.23% 2 0.37% 3 -0.08% 4 -0.13% 5 -0.62%
1974-2 -0.14% 5 -0.04% 1 3.91% 2 2.03% 3 -0.55% 4 5.20%
1978-2 -0.18% 3 -1.32% 4 -1.50% 5 0.50% 1 -2.01% 2 -4.51%
1982-2 -4.00% 1 0.87% 2 0.59% 3 -1.25% 4 0.09% 5 -3.69%
1986-2 0.21% 1 0.21% 2 0.70% 3 1.15% 4 0.11% 5 2.38%
Avg -0.93% -0.10% 0.82% 0.47% -0.50% -0.25%
 
1990-2 -0.78% 4 -1.76% 5 -0.93% 1 0.72% 2 -0.02% 3 -2.76%
1994-2 0.15% 2 0.24% 3 0.70% 4 1.70% 5 -0.30% 1 2.49%
1998-2 0.15% 1 -0.65% 2 0.26% 3 1.67% 4 1.18% 5 2.60%
2002-2 1.72% 5 -0.83% 1 -0.91% 2 0.97% 3 -0.55% 4 0.40%
2006-2 0.35% 3 0.50% 4 -0.85% 5 0.04% 1 0.00% 2 0.05%
Avg 0.32% -0.50% -0.34% 1.02% 0.06% 0.55%
 
SPX summary for Presidential Year 2 1930 - 2006
Averages -0.49% -0.16% 0.10% 0.39% -0.03% -0.18%
% Winners 35% 50% 55% 70% 45% 50%
MDD 10/31/1930 5.15% -- 10/31/1978 4.45% -- 10/25/1982 4.00%
 
SPX summary for all years 1928 - 2009
Averages -0.50% 0.13% -0.09% 0.42% 0.25% 0.20%
% Winners 35% 59% 52% 58% 59% 54%
MDD 10/29/1929 21.78% -- 10/26/1987 8.28% -- 10/31/1933 6.96%


Conclusion

There was some degradation in the breadth indicators last week which is not surprising considering we have just seen a spectacular 2 month rally.

I expect the major averages to be lower on Friday October 29 than they were on Friday October 22.

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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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