Technical Market Report for March 12, 2011

By: Mike Burk | Sat, Mar 12, 2011
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The good news is:
• So far there has been a minimal build up of new lows on the NYSE.


The negatives

New highs continue to be a problem. Last week new highs on the NASDAQ fell from 107 on Monday to 34 on Friday.

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.

The value of the indicator was 106 at Friday's close so any number above that would imply returning strength.

New lows picked up significantly on the NASDAQ ending the week at 76. That number must decline or we will be looking at substantially higher levels of risk.

The chart below covers the past 6 months showing the OTC in blue and a 40% trend (4 day EMA) of NASDAQ new highs divided by (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.

OTC HL Ratio declined to slightly below the neutral level on Friday.


The positives

New highs declined sharply on the NYSE last week, but, new lows remained at low levels.

The chart below is similar to the one above covering the past 6 months showing the S&P 500 (SPX) in red and NY HL Ratio calculated from NYSE data in black.

NY HL Ratio also fell sharply last week, but at 70% is still quite strong.

The chart below covers the past 6 months showing the SPX in red and a 10% trend (19 day EMA) of NYSE new lows (NY NL) in blue. NY NL has been plotted on an inverted Y axis so decreasing new lows move the upward (up is good). NY NL dipped sharply when treasury rates jumped in December then again in January when the Muni Bond scare hit. Last week saw a negligible increase in new lows.


Seasonality

Next week includes the 5 trading days prior to the 3rd Friday of March during the 3rd year of the Presidential Cycle.

The tables below show the return on a percentage basis for the 5 trading days prior to the 3rd Friday of March during the 3rd year of the Presidential Cycle. OTC data covers the period from 1963 - 2010 and SPX data from 1953 - 2010. Prior to 1953 the market traded 6 days a week so that data has been ignored. There are summaries for both the 3rd year of the Presidential Cycle and all years combined.

Average returns for the coming week have been weak over all years for the OTC, but modestly positive by all other measures.

Report for the week before the 3rd Friday of March.
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 0.19% 0.10% 0.10% 0.13% -0.26% 0.26%
1967-3 0.28% -0.48% 0.28% 0.31% 0.61% 1.01%
 
1971-3 0.60% 0.41% -0.06% 0.36% -0.10% 1.21%
1975-3 0.26% -0.12% -0.67% 0.15% 0.18% -0.19%
1979-3 -0.05% 0.39% -0.08% 0.20% 0.55% 1.02%
1983-3 -0.69% -0.03% 0.16% -0.25% 0.38% -0.44%
1987-3 -0.26% 0.91% 0.09% 0.42% 0.60% 1.77%
Avg -0.03% 0.31% -0.11% 0.18% 0.32% 0.67%
 
1991-3 -1.68% -1.23% 1.47% -0.08% -0.32% -1.84%
1995-3 0.01% 0.74% -0.11% 0.24% -0.12% 0.76%
1999-3 2.10% 0.29% -0.39% 1.40% -1.68% 1.71%
2003-3 3.88% 0.59% -0.25% 0.41% 1.36% 5.99%
2007-3 0.62% -2.15% 0.90% 0.29% -0.25% -0.60%
Avg 0.99% -0.35% 0.32% 0.45% -0.20% 1.21%
 
OTC summary for Presidential Year 3 1963 - 2007
Avg 0.44% -0.05% 0.12% 0.30% 0.08% 0.89%
Win% 67% 58% 50% 83% 50% 67%
 
OTC summary for all years 1963 - 2010
Avg -0.19% 0.07% 0.04% 0.15% -0.11% -0.04%
Win% 50% 56% 65% 71% 50% 56%
 
SPX Presidential Year 3
Year Mon Tue Wed Thur Fri Totals
1955-3 -2.40% 2.15% 0.76% 0.39% 0.17% 1.06%
1959-3 -1.08% 0.82% -0.23% -0.09% 0.09% -0.49%
1963-3 0.28% 0.24% 0.37% -0.02% 0.05% 0.92%
1967-3 -0.52% -0.09% 0.95% 1.01% 0.18% 1.53%
 
1971-3 1.14% 0.50% -0.09% 0.07% -0.18% 1.44%
1975-3 1.47% -1.02% -0.93% -0.87% -0.26% -1.61%
1979-3 0.13% 0.17% -0.13% 0.15% 0.83% 1.15%
1983-3 -0.27% 0.35% -1.03% -0.14% 0.21% -0.88%
1987-3 -0.57% 1.47% 0.11% 0.44% 1.39% 2.84%
Avg 0.38% 0.29% -0.41% -0.07% 0.40% 0.59%
 
1991-3 -0.53% -0.79% 1.23% -0.29% 0.02% -0.35%
1995-3 0.10% 0.58% -0.20% 0.72% 0.02% 1.21%
1999-3 0.98% -0.07% -0.66% 1.45% -1.31% 0.39%
2003-3 3.54% 0.46% 0.84% 0.19% 2.30% 7.33%
2007-3 0.27% -2.04% 0.67% 0.37% -0.38% -1.11%
Avg 0.87% -0.37% 0.37% 0.49% 0.13% 1.49%
 
SPX summary for Presidential Year 3 1955 - 2007
Avg 0.18% 0.20% 0.12% 0.24% 0.22% 0.96%
Win% 57% 64% 50% 64% 71% 64%
 
SPX summary for all years 1953 - 2010
Avg 0.02% 0.21% 0.17% 0.18% -0.01% 0.57%
Win% 63% 59% 60% 57% 57% 62%


Money supply (M2)

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

M2 Money Supply


Conclusion

QE2 appears to be failing. When it was announced, late last August, bond yields fell and equity markets jumped. Since its implementation began in November equity prices have risen, but so have treasury yields. In his March investment outlook letter, Bill Gross who manages the worlds largest bond fund announced that he has sold his treasuries and wonders who will buy them when QE2 ends. You can read his letter at: http://www.pimco.com/Pages/Two-Bits-Four-Bits-Six-Bits-a-Dollar.aspx

So far the recent market difficulties appear to be nothing more than an overdue pull back. Look for increasing new highs to signal the end of this pull back.

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

Last week's positive forecast was a miss. 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.

In his latest newsletter, Jerry Minton takes a look at some of the causes of investor underperformance and what to do about it. To read about investor self-destruction go to www.alphaim.net and sign up for Jerry's free newsletter - it's different.

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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