Technical Market Report for January 8, 2011

By: Mike Burk | Sat, Jan 8, 2011
Print Email

The good news is:
• All of the major averages hit multi year highs last week.


The negatives

The market has gained about 10% in the past 6 weeks and is overbought.

The secondaries have been underperforming the blue chips and new highs have not been expanding.

The chart below covers the past 6 months showing the 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 has been trending lower while the SPX is about 8% above its late November low.

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

OTC NH was slightly down last week while the index hit a multi year high on Thursday.


The positives

New lows remained in single digits last week.

The chart below covers the past 6 months showing the OTC in blue and 40% trend (4 day EMA) of the ratio of NASDAQ new highs to new highs + new lows (OTC HL Ratio) in red. There are dashed horizontal lines drawn at 10% levels for the indicator. The line is solid at the neutral 50% level.

The value of the indicator on Friday was 95%. There are trading systems that impose a no sell filter when variations of this indicator are above 80%.

The next chart is similar to the one above except is shows the SPX in red and NY HL Ratio, in black, has been calculated from NYSE data.

NY HL Ratio closed on Friday at 95%.


Seasonality

Next week includes the 5 trading days prior to the 2nd Friday of January during the 3rd year of the Presidential Cycle. It is also the week prior to the Martin Luther King holiday.

The tables below show the return on a percentage basis for the 5 trading days prior to the 2nd Friday of January during the 3rd 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 3rd 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.

Returns during the 3rd year of the Presidential Cycle have been extraordinarily positive. Returns prior to the Martin Luther King holiday have been similarly positive.

Report for the week before the 2nd Friday of January.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday to 2nd Friday.

OTC Presidential Year 3
Year Mon Tue Wed Thur Fri Totals
1963-3 -0.42% -0.03% -0.03% 0.42% -0.93% -1.00%
 
1967-3 0.76% 0.50% -0.24% 1.72% 0.61% 3.35%
1971-3 0.59% 0.36% 1.40% 0.13% 1.07% 3.55%
1975-3 0.83% 0.24% -0.63% 1.41% 2.12% 3.98%
1979-3 -0.11% 0.61% -0.31% 0.39% 0.80% 1.38%
1983-3 3.10% -2.09% 0.86% 0.23% 0.88% 2.98%
1987-3 2.24% 1.34% 1.77% 1.36% 0.82% 7.53%
Avg 1.33% 0.09% 0.62% 0.71% 1.14% 3.88%
 
1991-3 -1.91% -0.34% -0.43% 1.25% -0.03% -1.46%
1995-3 0.32% 0.59% -0.10% -0.01% 0.86% 1.66%
1999-3 1.72% -2.68% -0.17% -1.73% 3.14% 0.28%
2003-3 2.47% 0.72% -2.13% 2.67% 0.64% 4.37%
2007-3 0.16% 0.23% 0.63% 1.04% 0.72% 2.79%
Avg 0.55% -0.30% -0.44% 0.64% 1.07% 1.53%
 
OTC summary for Presidential Year 3 1963 - 2007
Avg 0.81% -0.05% 0.05% 0.74% 0.89% 2.45%
Win% 75% 67% 33% 83% 83% 83%
 
OTC summary for all years 1963 - 2010
Avg 0.39% -0.12% -0.07% 0.49% 0.19% 0.89%
Win% 67% 52% 48% 75% 69% 63%
 
SPX Presidential Year 3
Year Mon Tue Wed Thur Fri Totals
1955-3 1.30% -0.31% -0.28% -0.42% -0.42% -0.13%
1959-3 0.40% -0.13% -1.26% 0.93% 0.67% 0.61%
1963-3 -0.02% 0.97% -0.23% 0.19% 0.22% 1.12%
1967-3 0.77% 0.00% 0.80% 0.53% 0.74% 2.83%
 
1971-3 -0.23% 0.80% -0.17% 0.26% 0.25% 0.91%
1975-3 0.51% -0.07% -1.38% 1.61% 2.02% 2.70%
1979-3 -0.33% 0.54% -0.56% 0.33% 0.84% 0.81%
1983-3 1.10% -0.68% 0.62% -0.65% 0.63% 1.02%
1987-3 2.33% 0.23% 1.01% 0.76% 0.56% 4.90%
Avg 0.68% 0.16% -0.10% 0.46% 0.86% 2.07%
 
1991-3 -1.73% -0.17% -1.08% 0.98% 0.22% -1.79%
1995-3 0.03% 0.18% 0.00% -0.01% 0.94% 1.15%
1999-3 -0.88% -1.93% -0.41% -1.80% 2.57% -2.45%
2003-3 2.25% -0.65% -1.41% 1.94% 0.00% 2.12%
2007-3 0.22% -0.05% 0.19% 0.63% 0.49% 1.48%
Avg -0.02% -0.52% -0.54% 0.35% 0.84% 0.10%
 
SPX summary for Presidential Year 3 1955 - 2007
Avg 0.41% -0.10% -0.30% 0.38% 0.69% 1.09%
Win% 64% 38% 29% 71% 86% 79%
 
SPX summary for all years 1953 - 2010
Avg 0.13% -0.21% -0.27% 0.25% 0.04% -0.05%
Win% 59% 39% 41% 72% 53% 50%


Conclusion

The market is overbought and due for a correction, but seasonality is likely to dominate again next week.

I expect the major averages to be higher on Friday January 14 than they were on Friday January 7.

This report is free to anyone who wants it, so please tell your friends. They can sign up at: http://alphaim.net/signup.html. If it is not for you, reply with REMOVE in the subject line.

Gordon Harms produces a Power Point for our local timing group meetings. You can get a copy of it at: http://www.stockmarket-ta.com/

In his latest newsletter Jerry Minton looks at the idea that continuous exposure to stocks is the way to get the "average" long-term return of the market. If you are retired or about to retire, you will want to read "Unnecessary Risks" at www.alphaim.net and sign-up for Jerry's free bi-weekly newsletter.

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.

Copyright © 2003-2017 Mike Burk

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com