Technical Market Report for April 30, 2011

By: Mike Burk | Sat, Apr 30, 2011
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The good news is:
• All of the major averages closed at multi year highs on Friday.


The negatives

The market is overbought.

The NASDAQ composite (OTC) has been up for 8 consecutive days and most of the other indices were up the last 4 days of last week. This is a short term negative, but a longer term positive because we rarely see 8 consecutive up days near the beginning of a bear market (the only recent example I found was April 1998).


The positives

There was a nice build up of new highs last week, the most we have seen since early April.

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. 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 rose to 87% Friday.

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 S&P 500 (SPX) in red and NY HL Ratio, in dark blue, has been calculated from NYSE data.

At 95% NY HL Ratio is very strong.


Seasonality

Next week includes the first 5 trading days of May during the 3rd year of the Presidential Cycle.

The tables below show the return on a percentage basis for the first 5 trading days of May during the 3rd year of the Presidential Cycle. OTC data covers the period from 1963 - 2010 and SPX data from 1928 - 2010. There are summaries for both the 3rd year of the Presidential Cycle and all years combined.

Average returns by all measures have been strong.

First 5 days of May.
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
  Day1 Day2 Day3 Day4 Day5 Totals
1963-3 0.73% 3 -0.12% 4 0.39% 5 -0.45% 1 -0.51% 2 0.04%
1967-3 0.85% 1 0.41% 2 0.31% 3 1.45% 4 1.50% 5 4.52%
 
1971-3 -0.85% 1 0.38% 2 -0.08% 3 -0.56% 4 -0.36% 5 -1.46%
1975-3 0.93% 4 1.24% 5 1.11% 1 -0.41% 2 1.24% 3 4.11%
1979-3 -0.02% 2 0.15% 3 0.16% 4 -0.36% 5 -2.33% 1 -2.41%
1983-3 -0.86% 1 -0.31% 2 1.23% 3 1.40% 4 1.45% 5 2.92%
1987-3 0.15% 5 0.00% 1 0.95% 2 -0.01% 3 0.06% 4 1.15%
Avg -0.13% 0.29% 0.67% 0.01% 0.01% 0.86%
 
1991-3 0.65% 3 0.67% 4 0.20% 5 -0.13% 1 0.01% 2 1.40%
1995-3 -0.28% 1 0.02% 2 1.01% 3 -0.41% 4 -0.38% 5 -0.05%
1999-3 -0.29% 1 -1.99% 2 1.98% 3 -2.41% 4 1.23% 5 -1.48%
2003-3 0.56% 4 2.06% 5 0.08% 1 1.31% 2 -1.11% 3 2.89%
2007-3 0.26% 2 1.04% 3 0.30% 4 0.26% 5 -0.05% 1 1.81%
Avg 0.18% 0.36% 0.71% -0.28% -0.06% 0.91%
 
OTC summary for Presidential Year 3 1963 - 2007
Averages 0.15% 0.30% 0.64% -0.03% 0.06% 1.12%
% Winners 58% 75% 92% 33% 50% 67%
MDD 5/6/1999 2.74% -- 5/7/1979 2.68% -- 5/7/1971 1.46%
 
OTC summary for all years 1963 - 2010
Averages 0.34% 0.18% 0.08% 0.00% -0.11% 0.48%
% Winners 64% 71% 62% 58% 52% 65%
MDD 5/7/2010 9.33% -- 5/7/2002 6.78% -- 5/3/2000 6.34%
 
SPX Presidential Year 3
  Day1 Day2 Day3 Day4 Day5 Totals
1931-3 -2.92% 5 1.16% 6 1.62% 1 -0.80% 2 0.47% 3 -0.46%
1935-3 -0.54% 3 0.43% 4 1.62% 5 0.85% 6 -0.84% 1 1.52%
1939-3 -0.55% 1 1.29% 2 2.64% 3 -0.35% 4 -0.36% 5 2.67%
1943-3 0.52% 6 1.46% 1 0.34% 2 0.59% 3 0.34% 4 3.24%
1947-3 0.75% 4 0.68% 5 0.34% 6 0.07% 1 -1.08% 2 0.76%
Avg -0.55% 1.00% 1.31% 0.07% -0.29% 1.55%
 
1951-3 0.45% 2 0.40% 3 0.84% 4 -0.18% 5 -0.35% 6 1.16%
1955-3 0.21% 1 -0.89% 2 -0.16% 3 0.48% 4 0.19% 5 -0.18%
1959-3 0.10% 5 0.00% 1 0.17% 2 -0.24% 3 -1.27% 4 -1.23%
1963-3 0.24% 3 0.29% 4 -0.20% 5 -0.71% 1 -0.13% 2 -0.51%
1967-3 -0.18% 1 -0.18% 2 0.26% 3 0.44% 4 0.13% 5 0.46%
Avg 0.16% -0.08% 0.18% -0.04% -0.29% -0.06%
 
1971-3 -0.63% 1 0.48% 2 -0.01% 3 -0.53% 4 -0.35% 5 -1.04%
1975-3 0.92% 4 1.27% 5 0.96% 1 -1.60% 2 0.50% 3 2.05%
1979-3 -0.08% 2 0.04% 3 0.09% 4 -1.10% 5 -1.66% 1 -2.71%
1983-3 -1.40% 1 0.14% 2 0.60% 3 0.59% 4 1.11% 5 1.04%
1987-3 -0.11% 5 0.46% 1 2.07% 2 0.04% 3 -0.26% 4 2.20%
Avg -0.26% 0.48% 0.74% -0.52% -0.13% 0.31%
 
1991-3 1.32% 3 0.06% 4 0.07% 5 -0.19% 1 -0.73% 2 0.53%
1995-3 -0.09% 1 0.12% 2 1.09% 3 0.01% 4 -0.08% 5 1.05%
1999-3 1.46% 1 -1.68% 2 1.15% 3 -1.13% 4 0.97% 5 0.77%
2003-3 -0.07% 4 1.50% 5 -0.38% 1 0.85% 2 -0.51% 3 1.39%
2007-3 0.27% 2 0.65% 3 0.43% 4 0.21% 5 0.26% 1 1.82%
Avg 0.58% 0.13% 0.47% -0.05% -0.02% 1.11%
 
SPX summary for Presidential Year 3 1931 - 2007
Averages -0.02% 0.38% 0.68% -0.13% -0.18% 0.73%
% Winners 50% 80% 80% 50% 40% 70%
MDD 5/1/1931 2.92% -- 5/7/1979 2.74% -- 5/4/1999 1.68%
 
SPX summary for all years 1928 - 2010
Averages 0.11% 0.18% 0.23% -0.02% 0.12% 0.62%
% Winners 56% 71% 65% 46% 46% 69%
MDD 5/3/1930 8.27% -- 5/7/2010 7.60% -- 5/4/2000 4.01%


Money supply (M2)

The money supply chart was provided by Gordon Harms. M2 was flat again last week.


May

Since 1963, over all years the OTC in May has been up 56% of the time with an average gain of 0.3%. During the 3rd year of the Presidential Cycle May has been up 67% time with an average gain of 2.0%. The worst May ever, 2000 (-14.1%), the best 1997 (+10.2%)

The average month has 21 trading days. The chart below has been calculated by averaging the daily percentage change of the OTC for each of the 1st 11 trading days and each of the last 10. In months when there were more than 21 trading days some of the days in the middle were not counted. In months when there were less than 21 trading days some of the days in the middle of the month were counted twice. Dashed vertical lines have been drawn after the 1st trading day and at 5 trading day intervals after that. The line is solid on the 11th trading day, the dividing point.

In the chart below the blue line shows the average of the OTC in May over all years since 1963 while the green line shows the average during the 3rd year of the Presidential Cycle.

Since 1928 the SPX has been up 55% of the time in May with an average loss of -0.3% (helped by -22.1% in 1932 and -22.9% in 1940). During the 3rd year of the Presidential Cycle the SPX has been up 60% of the time with an average gain of 0.2%. The best ever May for the SPX was 1933 (+14.4%) the worst 1940 (-22.9%).

The chart below is similar to the one above except it shows the daily performance over all years for the SPX in May in red and the performance during the 3rd year of the Presidential Cycle in green.

Since 1979 the Russell 2000 (R2K) has been up 66% of the time in May with an average gain of 1.2%. During the 3rd year of the Presidential Cycle the R2K has been up 75% of the time with an average gain of 3.3%. The best ever May for the R2K, 2003 (+10.6%), the worst 2010 (-9.7%)

The chart below is similar to those above except it shows the daily performance over all years of the R2K in May in black and the performance during the 3rd year of the Presidential Cycle in green.

Since 1885 the Dow Jones Industrial Average (DJIA) has been up 52% of the time in May with an average loss of -0.2%. During the 3rd year of the Presidential Cycle the DJIA has been up 55% of the time with an average loss of -0.3%. The best May ever for the DJIA 1933 (+13.3%), the worst 1932 (-21.0%)

The chart below is similar to those above except it shows the daily performance over all years of the DJIA in May in Magenta and the performance during the 3rd year of the Presidential Cycle in green.


Conclusion

The market has been on a tear and seasonally the 1st week of May is strong.

I expect the major averages to be higher on Friday May 6 than they were on Friday April 29.

Last weeks negative 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 looks at the current craze for dividend stocks as a replacement for bonds. Read about it at: http://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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