Technical Market Report for April 2, 2011

By: Mike Burk | Sat, Apr 2, 2011
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The good news is:
• The Russell 2000 (R2K) and S&P mid cap index (Mid) closed at multi year highs on Friday. Most of the other major indices are within 1% of multi year highs.


The negatives

The market has been on a tear for the past 2.5 weeks. The major indices are up 6% - 8% over that period making the market over bought.

Buying increased sharply for 3 days when the market rose from its mid March low, but the enthusiasm shown in upside volume has waned in the past 2 weeks.

The chart below covers the past 3 months showing the S&P 500 (SPX) in red and a 5% trend (39 day EMA) in NYSE upside volume (NY UV) in green. Dashed vertical lines have been drawn on the 1st trading day of each week and each month.

NY UV has been falling over the past 2 weeks of this rally.

The next chart covers the same period showing the SPX in red and a 5% trend of NYSE downside volume (NY DV) in brown. NY DV has been plotted on an inverted Y axis so decreasing NY DV moves the indicator upward (up is good).

The action over the past 2 weeks is typical of what has been happening over the past 2 years, that is, a lack of sellers, but little enthusiasm for buying.


The positives

New lows remained benign last week while new highs expanded nicely.

The chart below covers the past 6 months showing the NASDAQ composite (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 vertical lines have been drawn on the 1st trading day of each month and dashed horizontal lines have been drawn at 10% increments for the indicator. The horizontal line is solid at the neutral 50% level.

As of Friday the value of the indicator is 85%. 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 it shows the SPX in red and NY HL Ratio, in dark blue, has been calculated from NYSE data.

NY HL Ratio has a more positive bias than OTC HL Ratio. At 93% NY HL Ratio is very strong.


Seasonality

Next week includes the 5 trading days prior to the 2nd Friday in April 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 2nd Friday in April 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 have been modest over all periods, but, slightly better during the 3rd. year of the Presidential Cycle.

Report for the week before the 2nd Friday of April.
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 0.43% -0.34% 0.03% -0.28% 0.25% 0.09%
1967-3 -0.74% -1.20% 0.29% 0.57% 0.30% -0.78%
 
1971-3 0.45% -0.02% 0.21% 0.56% 0.25% 1.45%
1975-3 -0.52% 0.26% 1.17% 0.48% 0.73% 2.10%
1979-3 -0.79% -0.17% 0.49% 0.20% 0.37% 0.10%
1983-3 1.01% 0.71% 1.17% 1.04% 1.00% 4.94%
1987-3 0.10% -0.86% 0.21% -0.67% -0.25% -1.47%
Avg 0.05% -0.02% 0.65% 0.32% 0.42% 1.42%
 
1991-3 -0.03% -0.64% -0.35% 1.74% 0.46% 1.19%
1995-3 -0.22% -0.61% -1.11% 0.30% 0.54% -1.10%
1999-3 0.22% -0.59% -2.95% 0.59% -1.51% -4.24%
2003-3 0.43% -0.47% -1.89% 0.65% -0.50% -1.77%
2007-3 1.06% -0.05% -0.26% -0.21% 0.84% 1.38%
Avg 0.29% -0.47% -1.31% 0.62% -0.03% -0.91%
 
OTC summary for Presidential Year 3 1963 - 2007
Avg 0.12% -0.33% -0.25% 0.42% 0.21% 0.16%
Win% 58% 17% 58% 75% 75% 58%
 
OTC summary for all years 1963 - 2010
Avg 0.01% -0.09% -0.09% 0.23% -0.26% -0.19%
Win% 63% 52% 54% 58% 56% 63%
 
SPX Presidential Year 3
Year Mon Tue Wed Thur Fri Totals
1955-3 0.27% 0.59% 0.13% 0.21% 0.45% 1.65%
1959-3 0.28% -0.21% -0.48% -0.07% 0.09% -0.39%
1963-3 0.47% 0.07% -0.32% -0.04% 0.49% 0.67%
1967-3 -1.25% 0.73% -0.11% 0.77% 1.08% 1.21%
 
1971-3 0.76% 0.10% 0.38% 0.15% -0.03% 1.36%
1975-3 -0.66% 0.80% 2.28% 1.12% 0.49% 4.04%
1979-3 -0.86% 0.12% 0.45% -0.41% -0.05% -0.75%
1983-3 1.50% 0.44% 0.61% 0.85% 0.40% 3.81%
1987-3 0.51% -1.74% 0.19% -1.48% -0.13% -2.64%
Avg 0.25% -0.06% 0.78% 0.05% 0.14% 1.16%
 
1991-3 0.88% -1.35% -0.11% 1.20% 0.73% 1.36%
1995-3 -0.61% -0.15% -0.09% 0.07% 0.63% -0.14%
1999-3 0.76% -0.65% -1.58% -0.42% -0.29% -2.19%
2003-3 0.12% -0.19% -1.40% 0.65% -0.38% -1.19%
2007-3 1.08% 0.20% 0.07% -0.12% 0.93% 2.16%
Avg 0.44% -0.43% -0.62% 0.28% 0.32% 0.00%
 
SPX summary for Presidential Year 3 1955 - 2007
Avg 0.23% -0.09% 0.00% 0.18% 0.32% 0.64%
Win% 71% 57% 50% 57% 64% 57%
 
SPX summary for all years 1953 - 2010
Avg 0.16% 0.07% 0.04% 0.02% -0.08% 0.20%
Win% 61% 55% 55% 55% 53% 57%


Money supply (M2)

The money supply chart was provided by Gordon Harms. M2 turned up last week.


Conclusion

The markets move off the March low has been manic so any, slightly over due, pull back is likely to be no more than a 1 or 2 day affair.

I expect the major averages to be higher on Friday April 8 than they were on Friday April 1.

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In his latest newsletter, entitled "False Promises", Jerry Minton looks at the claim that "long term" investors in the stock market should expect returns of 10% annually for their perseverance. You can read it and sign up for a free subscription at www.alphaim.net.

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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