Technical Market Report for November 27, 2010

By: Mike Burk | Sat, Nov 27, 2010
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The good news is:
• The small and mid cap indices hit multi month highs last Wednesday.


The negatives

When the market is surging new highs expand even while the indices are falling. That is not happening now.

The chart below is an update of one I have been showing covering the past 9 months 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.

NY NH continued to fall last week. The value of the indicator is 132 so any rally that generates less than 132 NYSE new highs should be regarded with suspicion.

The next chart is similar to the one above except is shows the NASDAQ composite (OTC) in blue and OTC NH has been calculated from NASDAQ new highs.

OTC NH was a little stronger NY NH; it flattened out last week at a value of 118 so more than 118 NASDAQ new highs will be required to turn OTC NH upward.

New lows have not reached threatening levels, but they are going in the wrong direction.

The chart below covers the past 9 months showing the OTC in blue and a 10% trend of NASDAQ new lows (OTC NL) in black. OTC NL has been plotted on an inverted Y axis so decreasing new lows move the indicator upward (up is good).

OTC NL has been trending downward for the past month.

There is a long standing rule of thumb that there is little to worry about until NASDAQ new lows exceed 70 for several days and so far that has not happened. There was a high of 62 new lows last Tuesday and the value of the indicator as of Friday was 42.

The chart below is similar to the one above except it shows the SPX in red and NY NL has been calculated from NYSE data.

This chart is in indicating strength; NY NL continued to move upward while the blue chips had a bad week.


The positives

The chart below is an update of one I have been showing every week, it covers the past 9 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.

The indicator recovered nicely last week.

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 recovered to 80% on Friday.

The secondaries lead both up and down and last week the blue chips were down while the secondaries were up.

The chart below covers the past month showing some of the major indices plotted on log scales so you can see the relative difference in performance. Dashed vertical lines have been drawn on the 1st trading day of each week.


Seasonality

Next week includes the last 2 days of November and the first 3 days of December during the 2nd year of the Presidential Cycle.

The tables below show the return on a percentage basis for the last 2 days of November and the first 3 days of December 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 have been positive by all measures.

Last 2 days of November and first 3 days of December.
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 0.86% 2 -0.24% 3 -0.07% 4 -0.15% 5 0.13% 1 0.53%
 
1970-2 0.25% 5 1.34% 1 1.54% 2 0.24% 3 1.21% 4 4.59%
1974-2 0.24% 3 0.24% 5 -2.05% 1 -1.88% 2 -0.15% 3 -3.60%
1978-2 -1.31% 3 0.53% 4 1.31% 5 0.33% 1 0.94% 2 1.80%
1982-2 -0.11% 1 1.72% 2 1.41% 3 0.25% 4 0.41% 5 3.68%
1986-2 0.34% 3 0.40% 5 -0.47% 1 0.79% 2 0.65% 3 1.70%
Avg -0.12% 0.84% 0.35% -0.05% 0.61% 1.63%
 
1990-2 0.19% 4 0.93% 5 0.63% 1 0.77% 2 1.86% 3 4.38%
1994-2 0.77% 2 -0.15% 3 -1.35% 4 0.65% 5 0.09% 1 0.01%
1998-2 1.65% 5 -3.31% 1 2.78% 2 -0.43% 3 -2.04% 4 -1.35%
2002-2 3.01% 3 -0.62% 5 0.41% 1 -2.41% 2 -1.28% 3 -0.89%
2006-2 0.81% 3 -0.02% 4 -0.76% 5 1.46% 1 0.16% 2 1.65%
Avg 1.29% -0.63% 0.34% 0.01% -0.24% 0.76%
 
OTC summary for Presidential Year 2 1966 - 2006
Averages 0.61% 0.07% 0.31% -0.03% 0.18% 1.14%
% Winners 82% 55% 55% 64% 73% 73%
MDD 12/4/1974 4.03% -- 12/4/2002 3.87% -- 11/30/1998 3.31%
 
OTC summary for all years 1963 - 2009
Averages 0.40% -0.08% 0.17% 0.19% 0.47% 1.14%
% Winners 70% 66% 64% 64% 68% 72%
MDD 12/1/2008 8.95% -- 12/3/1987 5.99% -- 12/5/1973 5.49%
 
SPX Presidential Year 2
  Day2 Day1 Day1 Day2 Day3 Totals
1930-2 -1.38% 5 1.16% 6 1.39% 1 0.95% 2 -1.71% 3 0.41%
1934-2 1.17% 3 0.00% 5 -0.10% 6 -1.26% 1 0.74% 2 0.55%
1938-2 0.49% 2 2.41% 3 -0.94% 4 -1.03% 5 -0.08% 6 0.84%
1942-2 0.00% 6 -0.54% 1 -0.11% 2 0.32% 3 0.32% 4 0.00%
1946-2 0.89% 5 -0.07% 6 -1.57% 1 0.35% 2 1.59% 3 1.19%
Avg 0.23% 0.59% -0.27% -0.13% 0.17% 0.60%
 
1950-2 -0.97% 3 0.72% 4 0.77% 5 -0.61% 6 -2.76% 1 -2.85%
1954-2 -0.03% 1 -0.87% 2 -0.73% 3 0.56% 4 0.91% 5 -0.16%
1958-2 1.72% 3 1.12% 5 0.40% 1 -0.44% 2 0.13% 3 2.94%
1962-2 0.47% 4 -0.24% 5 -0.51% 1 1.13% 2 0.40% 3 1.24%
1966-2 -0.36% 2 0.04% 3 -0.46% 4 0.06% 5 0.14% 1 -0.58%
Avg 0.17% 0.15% -0.11% 0.14% -0.24% 0.12%
 
1970-2 0.99% 5 1.48% 1 0.31% 2 1.15% 3 0.47% 4 4.40%
1974-2 0.68% 3 0.04% 5 -2.66% 1 -1.38% 2 0.36% 3 -2.96%
1978-2 -1.47% 3 1.01% 4 1.67% 5 -0.14% 1 1.34% 2 2.42%
1982-2 -0.50% 1 3.23% 2 0.13% 3 0.07% 4 -0.09% 5 2.84%
1986-2 0.24% 3 0.18% 5 -0.07% 1 1.99% 2 -0.06% 3 2.28%
Avg -0.01% 1.19% -0.12% 0.34% 0.40% 1.80%
 
1990-2 -0.48% 4 1.83% 5 0.58% 1 0.69% 2 1.09% 3 3.72%
1994-2 0.22% 2 -0.33% 3 -1.05% 4 0.98% 5 0.01% 1 -0.17%
1998-2 0.45% 5 -2.41% 1 1.01% 2 -0.35% 3 -1.80% 4 -3.10%
2002-2 2.80% 3 -0.27% 5 -0.19% 1 -1.47% 2 -0.35% 3 0.52%
2006-2 0.92% 3 0.08% 4 -0.28% 5 0.89% 1 0.40% 2 2.01%
Avg 0.78% -0.22% 0.01% 0.15% -0.13% 0.60%
 
SPX summary for Presidential Year 2 1930 - 2006
Averages 0.29% 0.43% -0.12% 0.12% 0.05% 0.78%
% Winners 60% 60% 40% 60% 65% 70%
MDD 12/3/1974 4.00% -- 12/3/1998 3.54% -- 12/4/1950 3.36%
 
SPX summary for all years 1928 - 2009
Averages 0.03% 0.16% -0.03% 0.14% 0.25% 0.54%
% Winners 54% 57% 51% 57% 63% 70%
MDD 12/1/2008 8.93% -- 12/3/1987 7.74% -- 12/5/1973 5.62%


December

Since 1963, over all years the OTC in December has been up 64% of the time with an average gain of 1.8%. During the 2nd year of the Presidential Cycle December has been up 64% time with an average gain of 0.5%, a 10.1% loss in 2002 brought the average gain down nearly 1%. The worst December ever, 2002 (-10.1%), the best 1999 (+21.3%)

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 December 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 74% of the time in December with an average gain of 1.4%. During the 2nd year of the Presidential Cycle the SPX has been up 75% of the time with an average gain of 1.6% making it the 2nd strongest month during the 2nd year of the Presidential Cycle. The best ever December for the SPX was 2008 (+10.7%) the worst 1931 (-13.4%).

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

Since 1979 the Russell 2000 (R2K) has been up 74% of the time in December with an average gain of 2.9%. During the 2nd year of the Presidential Cycle the R2K has been up 57% of the time with an average gain of 0.6%. The best ever December for the R2K, 2008 (+19.8%), the worst 2002 (-6.2%)

The chart below is similar to those above except it shows the daily performance over all years of the R2K in December 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 69% of the time in December with an average gain of 1.2%. During the 2nd year of the Presidential Cycle the DJIA has been up 67% of the time with an average gain of 1.2%. The best December ever for the DJIA 1903 up 10.7%, the worst 1931 (-14.6%)

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


Conclusion

Last week followed the average seasonal pattern pretty closely, the indicators were mostly flat, but the secondaries were stronger than the blue chips. Next week has a strong positive seasonal bias that lasts through the early part of the following week.

I expect the major averages to be higher on Friday December 3 than they were on Friday November 26.

Last week the secondaries were up while the blue chips were down so I am calling last weeks positive forecast a tie.

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In his latest newsletter, Jerry Minton looks at the forces which will shape investments for the next ten years. You can read about it and sign up for his free newsletter at www.alphaim.net.

 


 

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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