Technical Market Report for April 16, 2011

By: Mike Burk | Sat, Apr 16, 2011
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The good news is:
• There has been very little build up of new lows in this recent decline.


The negatives

The market had a feeble 3 day rally at the end of last week. For those 3 days the blue chip indices gained less than 1% while the secondaries did a little better. New highs increased a bit, but not enough to turn the new high indicators 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.

The market does well while OTC NH is rising and poorly when it is falling. It will take more than 100 NASDAQ new highs to turn this indicator upward. Friday was the 3rd consecutive up day and there were not enough new highs to turn this indicator upward.

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 patterns are similar.


The positives

New lows remained benign last week while new highs declined.

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 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.

OTC HL Ratio tumbled last week before recovering a little on Friday.

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. NY HL ratio also tumbled last week before recovering a little last Friday.

The rally at the end of last week was unimpressive. Next Monday and/or Tuesday are likely to be down and the numbers they generate will reveal whether or not this recent pull back is over. If new highs decline sharply the decline is likely to continue for a while longer. If new highs hold near Friday's levels on a down day or two the market is likely to continue its rally.


Seasonality

Seasonality for next week is a mess. You can look at it as the 4 trading days prior to Good Friday which are usually strong, but Good Friday is late this year. Or you can look at it as the 4 trading days prior to the 4th Friday of April, but, when you count trading Fridays in April you rarely get 4 of them so I am going to use the 4 trading days prior to Good Friday to represent next week.

The tables below show the return on a percentage basis for the 4 trading days prior to Good Friday 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 week prior to Good Friday have been strong over all periods and stronger during the 3rd year of the Presidential Cycle than other years. The week prior to Good Friday during the 3rd. year of the Presidential Cycle has not been down since 1987. The 3rd week in April has, on average, been the strongest week of the month.

Report for the 4 days prior to Good Friday.
The number following the year represents its position in the presidential cycle.
The number following the daily return represents the day of the week;
1 = Monday, 2 = Tuesday etc.

OTC Presidential Year 3
  Day4 Day3 Day2 Day1 Totals
1963-3 0.25% 1 0.18% 2 -0.18% 3 -0.28% 4 -0.03%
1967-3 0.15% 1 0.16% 2 -0.65% 3 0.36% 4 0.02%
 
1971-3 0.29% 1 0.36% 2 0.46% 3 0.30% 4 1.41%
1975-3 -1.98% 1 -0.12% 2 1.65% 3 0.82% 4 0.38%
1979-3 -0.01% 1 0.36% 2 -0.48% 3 -0.02% 4 -0.16%
1983-3 -0.64% 1 -0.14% 2 0.75% 3 0.01% 4 -0.03%
1987-3 -1.68% 1 -2.48% 2 0.76% 3 0.75% 4 -2.65%
Avg -0.80% -0.40% 0.63% 0.37% -0.21%
 
1991-3 0.94% 1 2.15% 2 0.79% 3 -0.01% 4 3.87%
1995-3 0.81% 1 0.43% 2 0.45% 3 0.50% 4 2.19%
1999-3 3.04% 1 -0.50% 2 -0.76% 3 1.30% 4 3.08%
2003-3 1.92% 1 0.44% 2 0.27% 3 2.21% 4 4.83%
2007-3 0.03% 1 1.16% 2 0.34% 3 0.51% 4 2.04%
Avg 1.35% 0.74% 0.22% 0.90% 3.20%
 
OTC summary for Presidential Year 3 1963 - 2007
Averages 0.26% 0.17% 0.28% 0.54% 1.25%
%Winners 67% 67% 67% 75% 67%
MDD 4/14/1987 4.11% -- 3/25/1975 2.09% -- 3/31/1999 1.26%
 
OTC summary for all years 1963 - 2010
Averages 0.09% 0.32% 0.22% 0.48% 1.11%
% Winners 50% 60% 67% 77% 63%
 
SPX Presidential Year 3
  Day4 Day3 Day2 Day1 Totals
1955-3 0.59% 2 0.13% 3 0.21% 4 0.45% 5 1.38%
1959-3 -0.92% 1 0.16% 2 -0.14% 3 -0.21% 4 -1.12%
1963-3 0.35% 1 -0.10% 2 -0.23% 3 0.70% 4 0.72%
1967-3 -0.06% 1 -0.22% 2 0.28% 3 0.76% 4 0.77%
 
1971-3 0.23% 1 0.71% 2 0.46% 3 0.12% 4 1.52%
1975-3 -2.36% 1 0.79% 2 1.86% 3 0.31% 4 0.60%
1979-3 -0.30% 1 0.46% 2 -1.00% 3 -0.30% 4 -1.14%
1983-3 -0.54% 1 -0.17% 2 1.19% 3 -0.28% 4 0.20%
1987-3 -2.35% 1 -2.26% 2 1.89% 3 0.87% 4 -1.85%
Avg -1.06% -0.10% 0.88% 0.14% -0.13%
 
1991-3 0.64% 1 1.75% 2 -0.25% 3 -0.03% 4 2.10%
1995-3 0.12% 1 -0.29% 2 0.32% 3 0.41% 4 0.56%
1999-3 2.14% 1 -0.72% 2 -1.11% 3 0.57% 4 0.88%
2003-3 1.95% 1 0.63% 2 -1.22% 3 1.55% 4 2.91%
2007-3 0.26% 1 0.93% 2 0.11% 3 0.30% 4 1.60%
Avg 1.02% 0.46% -0.43% 0.56% 1.61%
 
SPX summary for Presidential Year 3 1955 - 2007
Averages -0.02% 0.13% 0.17% 0.37% 0.65%
%Winners 57% 57% 57% 71% 79%
MDD 4/14/1987 4.56% -- 3/24/1975 2.36% -- 3/31/1999 1.82%
 
SPX summary for all years 1953 - 2010
Averages 0.03% 0.18% 0.04% 0.35% 0.59%
% Winners 48% 55% 55% 68% 68%


Money supply (M2)

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

M2


Conclusion

The feeble rally at the end of last week was not convincing, but, the 3rd week in April is usually strong as is the week prior to Good Friday. I expect the major averages to be higher on Thursday April 21 than they were on Friday April 15.

Last weeks positive forecast was a miss.

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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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