Technical Market Report for February 12, 2011

By: Mike Burk | Sat, Feb 12, 2011
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The good news is:
• All of the major indices closed at multi year highs on Friday.

In late February 2007 (3rd year of the Presidential Cycle, 4 years ago) all of the major indices hit multi year highs confirmed by everything that matters. From that point the major indices fell, for no apparent reason 5% - 9% in a week. These things happen in strong markets and I do not know how to predict them. What I do know is the market has always recovered from a decline off a confirmed high fairly quickly so they are buying opportunities.

The chart below shows the major indices, defined in the legend, covering the period from mid October 2006 through mid April 2007. The late February drop was sharp and scary, but the market recovered in 2 months.


The negatives

There is nothing new this week, new highs continue to lag, but they did pick up last week

All of the charts below are updates from last week covering the past 6 months. The first chart shows 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 is off its December and January highs, but turned up last week.

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 and last week the Russell 2000 (R2K) was the strongest of the major indices, up 2.75% nearly twice the gain of the SPX.

Last week new highs expanded while new lows 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 remained well above the 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 remained at the mid 90% level last week, very strong.


Seasonality

Next week includes the 5 trading days prior to the 3rd 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 3rd 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.

The market will be closed Monday for a celebration of politicians, Presidents day. 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 3rd Friday of February.
The number following the year is the position in the presidential cycle.
Daily returns from Monday through 3rd Friday.

OTC Presidential Year 3
Year Mon Tue Wed Thur Fri Totals
1963-3 0.13% -0.23% 0.26% 0.68% 0.65% 1.49%
1967-3 0.08% -0.20% 0.60% 0.33% -0.08% 0.73%
 
1971-3 0.00% 0.14% -0.44% -0.31% -0.71% -1.33%
1975-3 0.00% -1.08% 0.55% 0.97% 0.29% 0.73%
1979-3 0.23% 0.68% -0.22% 0.26% 0.51% 1.46%
1983-3 0.79% 0.15% 0.00% -0.03% 0.88% 1.80%
1987-3 0.00% 1.38% -0.26% -0.01% 0.05% 1.16%
Avg 0.51% 0.25% -0.07% 0.18% 0.20% 0.76%
 
1991-3 1.67% -0.03% 0.90% -0.82% 0.99% 2.72%
1995-3 -0.13% 0.15% 0.63% -0.29% -0.80% -0.43%
1999-3 0.00% -0.34% -2.80% 0.52% 1.02% -1.62%
2003-3 0.00% 2.78% -0.91% -0.23% 1.34% 2.97%
2007-3 -0.38% 0.39% 1.16% 0.35% -0.03% 1.48%
Avg 0.39% 0.59% -0.20% -0.09% 0.50% 1.02%
 
OTC summary for Presidential Year 3 1963 - 2007
Avg 0.34% 0.32% -0.04% 0.12% 0.34% 0.93%
Win% 71% 58% 58% 50% 67% 75%
 
OTC summary for all years 1963 - 2010
Avg 0.05% -0.15% 0.06% 0.14% -0.16% -0.07%
Win% 57% 47% 56% 60% 48% 56%
 
SPX Presidential Year 3
Year Mon Tue Wed Thur Fri Totals
1955-3 4.68% -5.14% -0.33% 0.19% 0.14% -0.46%
1959-3 0.15% -0.39% 0.39% 0.95% 0.91% 2.01%
1963-3 -0.62% 0.11% 0.49% 0.30% 0.09% 0.37%
1967-3 0.10% 0.67% 0.11% -0.46% 0.03% 0.46%
 
1971-3 0.00% 0.23% -0.47% -0.65% -0.84% -1.72%
1975-3 0.00% -0.70% 0.63% 0.95% 0.50% 1.37%
1979-3 0.34% 0.74% -0.06% -0.14% -0.06% 0.82%
1983-3 0.87% -0.42% -0.59% 0.01% 0.38% 0.26%
1987-3 0.00% 2.07% -0.02% 0.05% -0.03% 2.07%
Avg 0.61% 0.39% -0.10% 0.04% -0.01% 0.56%
 
1991-3 2.57% -0.84% 0.96% -1.30% 1.33% 2.72%
1995-3 0.04% 0.19% 0.41% 0.14% -0.67% 0.11%
1999-3 0.00% 0.96% -1.44% 1.09% 0.15% 0.76%
2003-3 0.00% 1.95% -0.71% -0.95% 1.32% 1.61%
2007-3 -0.33% 0.76% 0.76% 0.10% -0.09% 1.21%
Avg 0.76% 0.60% 0.00% -0.18% 0.41% 1.28%
 
SPX summary for Presidential Year 3 1955 - 2007
Avg 0.87% 0.01% 0.01% 0.02% 0.23% 0.83%
Win% 78% 64% 50% 64% 64% 86%
 
SPX summary for all years 1953 - 2010
Avg 0.05% -0.05% 0.19% -0.04% -0.02% 0.12%
Win% 45% 54% 59% 48% 47% 57%


Money supply (M2)

The money supply chart was provided by Gordon Harms. M2 moved sharply higher last week.


Conclusion

Everything but volume is going in the right direction.

I expect the major averages to be higher on Friday February 18 than they were on Friday February 11.

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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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