Technical Market Report for February 5, 2011

By: Mike Burk | Sat, Feb 5, 2011
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The good news is:
• Most of the major indices closed at multi year highs on Friday.


The negatives

There is nothing new this week, new highs continue to lag, but, for prices, the trajectory is upward.

The chart below covers the past 6 months showing the NASDAQ composite (OTC) in blue and a 10% trend (19 day EMA) of NASDAQ new highs (OTC NH) in green. Dashed vertical lines have been drawn on the 1st trading day of each month.

OTC NH has been lifeless, not confirming the new high in the OTC, but, not falling either.

The next chart is similar to the one above except it shows the S&P 500 (SPX) in red and NY NH has been calculated from NYSE data. The pattern is similar.


The positives

The secondaries lead both up and down.

The secondaries began underperforming the blue chips in December; that has changed. The Russell 2000 (R2K) was the best performer of the major indices last week, up 3.19%.

The chart below is from FastTrack (FastTrack.net). It covers the past year showing the R2K in red, the SPX in green and a relative strength indicator called Accutrack as a histogram in yellow. Accutrack has been rising since late January indicating the R2K has been gaining strength relative to the SPX.

New lows expand in a bear market and often increase near tops as the indices are making new highs. New lows have remained at benign levels.

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. Dashed horizontal lines drawn at 10% levels for the indicator. The line is solid at the neutral 50% level.

OTC HL Ratio moved around the low to mid 80% level last week, very strong. There are trading systems that impose a "No Sell Filter" when variations of this indicator are above 80%.

The chart below 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 finished the week at the mid 90% level, very strong.


Seasonality

Next week includes the 5 trading days prior to the 2nd Friday in February during the 3rd year of the Presidential Cycle.

The tables below show the return on a percentage basis for 5 trading days prior to the 2nd Friday of February during the 3rd year of the Presidential Cycle. OTC data covers the period from 1963 - 2010 and SPX data from 1953 - 2010. 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.

Average returns for the coming week have been modestly positive and stronger during the 3rd year of the Presidential Cycle than other years.

Report for the week before the 2nd Friday of February.
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 0.21% 0.31% -0.13% 0.95% 0.83% 2.16%
 
1971-3 0.84% -0.08% -0.07% 0.75% 0.59% 2.04%
1975-3 -0.42% 0.01% 1.07% 1.80% 0.52% 2.99%
1979-3 -1.18% -0.02% -1.21% 0.50% 0.28% -1.63%
1983-3 0.15% -0.37% 0.11% 1.35% 0.73% 1.98%
1987-3 -0.28% -0.56% 0.62% 0.78% 0.81% 1.37%
Avg -0.18% -0.20% 0.10% 1.04% 0.59% 1.35%
 
1991-3 1.70% 1.74% 1.63% -0.96% 0.41% 4.52%
1995-3 0.88% 0.02% 0.62% 0.21% 0.64% 2.36%
1999-3 1.32% -3.91% -0.06% 4.16% -3.48% -1.97%
2003-3 1.11% -0.09% -1.27% -0.12% 2.56% 2.18%
2007-3 -0.21% 0.04% 0.77% -0.07% -1.16% -0.64%
Avg 0.96% -0.44% 0.34% 0.64% -0.21% 1.29%
 
OTC summary for Presidential Year 3 1963 - 2007
Avg 0.31% -0.25% 0.17% 0.81% 0.15% 1.20%
Win% 58% 42% 50% 75% 75% 67%
 
OTC summary for all years 1963 - 2010
Avg -0.09% -0.11% 0.08% 0.26% -0.06% 0.08%
Win% 38% 52% 56% 69% 55% 56%
 
SPX Presidential Year 3
Year Mon Tue Wed Thur Fri Totals
1955-3 0.00% -1.35% 0.80% 0.90% 0.19% 0.53%
1959-3 -1.45% 1.38% 0.06% -0.64% 0.78% 0.12%
1963-3 -0.21% -0.09% 0.44% -0.35% 0.00% -0.21%
1967-3 -0.21% -0.26% 0.89% -0.41% 0.15% 0.15%
 
1971-3 0.54% 0.06% -0.12% 0.53% 0.53% 1.54%
1975-3 -0.34% 0.28% 1.71% 1.36% 0.60% 3.61%
1979-3 -1.42% -0.04% -0.91% 0.50% 0.23% -1.64%
1983-3 0.54% -0.84% -0.48% 1.72% 0.09% 1.04%
1987-3 -0.66% -1.12% 0.90% -0.69% 1.48% -0.10%
Avg -0.27% -0.33% 0.22% 0.69% 0.59% 0.89%
 
1991-3 1.54% 0.84% 1.94% -0.43% 0.79% 4.68%
1995-3 0.52% -0.07% 0.08% -0.21% 0.26% 0.59%
1999-3 0.36% -2.23% 0.61% 2.49% -1.91% -0.68%
2003-3 0.76% -0.81% -1.27% -0.16% 2.14% 0.66%
2007-3 -0.10% 0.07% 0.14% -0.12% -0.71% -0.71%
Avg 0.62% -0.44% 0.30% 0.31% 0.12% 0.91%
 
SPX summary for Presidential Year 3 1955 - 2007
Avg -0.01% -0.30% 0.34% 0.32% 0.36% 0.68%
Win% 46% 36% 71% 43% 85% 64%
 
SPX summary for all years 1953 - 2010
Avg -0.25% -0.15% 0.13% 0.01% 0.00% -0.24%
Win% 38% 47% 60% 42% 49% 55%


Money supply (M2)

The money supply chart was provided by Gordon Harms. M2 fell off last week.


Conclusion

The trend is up and the Fed could hardly be more accommodating.

I expect the major averages to be higher on Friday February 11 than they were on Friday February 4.

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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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