Technical Market Report for May 28, 2011

By: Mike Burk | Sat, May 28, 2011
Print Email

The good news is:
• The market is entering a seasonally strong period.


The negatives

The number of new highs has been trending downward all year.

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.

OTC NH has been trending downward since mid January and hit its low for the year 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 new highs.

The pattern of NY NH is slightly better. After hitting a low in Mid February NY NH has had a pattern of higher highs and higher lows. If NY NH does not turn upward immediately that positive pattern will be broken.

A diminishing number of new highs means narrowing leadership and that is not good.


The positives

NASDAQ new lows rose to uncomfortable levels early last week, but recovered by the end of the week. NYSE new lows held up a little better.

The charts below are updates I often show.

The first chart shows 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% increments for the indicator. The horizontal line is solid at the neutral 50% level.

OTC HL Ratio took another dip below the neutral level early last week before recovering.

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.

NY HL Ratio has held up pretty well, but has, during May, established a down trend.


Seasonality

Next week includes the last trading day of May and the first 3 trading days of June during the 3rd year of the Presidential Cycle.

The tables below show the return on a percentage basis for the last trading day of May and the 1st 3 trading days of June during the 3rd year of the Presidential Cycle. OTC data covers the period from 1963 - 2010 and SPX data covers the period from 1928 - 2010. There are summaries for both the 3rd year of the Presidential Cycle and all years combined.

Average returns have been strong by all measures.

Report for the last day of May and first 3 days of June.
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 Day1 Day2 Day3 Totals
1963-3 1.05% 5 0.03% 1 -0.24% 2 0.54% 3 1.38%
1967-3 -0.63% 3 -1.76% 4 0.22% 5 -1.39% 1 -3.55%
 
1971-3 0.60% 5 0.57% 2 0.63% 3 0.60% 4 2.41%
1975-3 1.61% 5 0.00% 1 0.94% 2 0.24% 3 2.79%
1979-3 0.02% 4 0.26% 5 0.14% 1 0.81% 2 1.24%
1983-3 -1.06% 2 -0.25% 3 0.81% 4 1.10% 5 0.59%
1987-3 0.53% 5 -0.37% 1 -0.34% 2 0.56% 3 0.38%
Avg 0.34% 0.04% 0.44% 0.66% 1.48%
 
1991-3 0.58% 5 0.20% 1 0.03% 2 -0.40% 3 0.40%
1995-3 0.68% 3 0.49% 4 0.48% 5 1.13% 1 2.78%
1999-3 2.12% 5 -2.35% 2 0.82% 3 -1.19% 4 -0.59%
2003-3 1.33% 5 -0.32% 1 0.81% 2 1.94% 3 3.75%
2007-3 0.46% 4 0.36% 5 0.17% 1 -0.27% 2 0.72%
Avg 1.04% -0.32% 0.46% 0.24% 1.41%
 
OTC summary for Presidential Year 3 1063 - 2007
Averages 0.61% -0.26% 0.37% 0.30% 1.02%
% Winners 83% 50% 83% 67% 83%
MDD 6/5/1967 3.52% -- 6/3/1999 2.72% -- 6/1/1983 1.31%
 
OTC summary for all years 1963 - 2010
Averages 0.27% 0.27% 0.39% 0.20% 1.11%
% Winners 71% 60% 71% 60% 69%
MDD 6/3/2002 4.25% -- 6/5/1967 3.52% -- 6/3/1998 2.91%
 
SPX Presidential Year 3
  Day1 Day1 Day2 Day3 Totals
1931-3 -2.18% 5 -4.76% 1 -1.61% 2 7.54% 3 -1.01%
1935-3 -1.14% 5 -0.73% 6 1.68% 1 2.59% 2 2.40%
1939-3 -0.43% 3 -1.55% 4 0.53% 5 0.35% 6 -1.11%
1943-3 0.50% 6 0.58% 2 0.08% 3 0.41% 4 1.57%
1947-3 0.77% 4 -1.04% 1 1.40% 2 -0.69% 3 0.44%
Avg -0.50% -1.50% 0.42% 2.04% 0.46%
 
1951-3 0.80% 4 -0.19% 5 -1.12% 1 0.42% 2 -0.08%
1955-3 -0.05% 2 0.13% 3 0.34% 4 0.74% 5 1.16%
1959-3 0.50% 5 -0.09% 1 -0.68% 2 0.03% 3 -0.24%
1963-3 0.67% 5 -0.16% 1 0.01% 2 -0.24% 3 0.29%
1967-3 -1.56% 3 1.29% 4 -0.49% 5 -1.51% 1 -2.27%
Avg 0.07% 0.20% -0.39% -0.11% -0.23%
 
1971-3 0.23% 5 0.57% 2 0.76% 3 0.05% 4 1.61%
1975-3 1.64% 5 1.57% 1 0.33% 2 -0.31% 3 3.23%
1979-3 -0.03% 4 0.09% 5 0.15% 1 1.31% 2 1.52%
1983-3 -1.26% 2 0.10% 3 0.88% 4 0.27% 5 -0.01%
1987-3 -0.23% 5 -0.09% 1 -0.47% 2 1.74% 3 0.94%
Avg 0.07% 0.45% 0.33% 0.61% 1.46%
 
1991-3 0.74% 5 -0.45% 1 -0.08% 2 -0.68% 3 -0.48%
1995-3 1.88% 3 0.02% 4 -0.18% 5 0.58% 1 2.29%
1999-3 1.59% 5 -0.58% 2 0.04% 3 0.36% 4 1.42%
2003-3 1.47% 5 0.35% 1 0.47% 2 1.51% 3 3.81%
2007-3 0.03% 4 0.37% 5 0.18% 1 -0.53% 2 0.05%
Avg 1.14% -0.06% 0.09% 0.25% 1.42%
 
SPX summary for Presidential Year 3 1931 - 2007
Averages 0.20% -0.23% 0.11% 0.70% 0.78%
% Winners 60% 50% 65% 70% 65%
MDD 6/2/1931 8.34% -- 6/5/1967 2.28% -- 6/1/1939 1.97%
 
SPX summary for all years 1928 - 2010
Averages 0.04% 0.02% 0.22% 0.22% 0.49%
% Winners 59% 51% 63% 53% 59%
MDD 6/1/1932 9.28% -- 6/2/1931 8.34% -- 6/2/1934 4.49%


Money supply (M2)

The money supply chart was provided by Gordon Harms. M2 has continued to increase above trend.


June

Since 1963, over all years the OTC in June has been up 52% of the time with an average gain of 0.2%. During the 3rd year of the Presidential Cycle June has been up 75% time with an average gain of 2.8%. The worst June ever, 1969 (-7.4%), the best 1999 (+11.3%)

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 June 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 52% of the time in June with an average gain of 0.8%. During the 3rd year of the Presidential Cycle the SPX has been up 65% of the time with an average gain of 2.5%. The best ever June for the SPX was 1938 (+20.8%) the worst 1930 (-16.1%). Recently, every June has been down since 2005.

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

Since 1979 the Russell 2000 (R2K) has been up 56% of the time in June with an average gain of 0.1%. During the 3rd year of the Presidential Cycle the R2K has been up 75% of the time with an average gain of 1.7%. The best ever June for the R2K, 1988 (+5.8%), the worst 2008 (-6.9%)

The chart below is similar to those above except it shows the daily performance over all years of the R2K in June 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 45% of the time in June with an average gain of 0.1%. During the 3rd year of the Presidential Cycle the DJIA has been up 58% of the time with an average gain of 1.3%. The best June ever for the DJIA 1931 (+22.3%), the worst 1930 (-17.5%).

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


Conclusion

The market got oversold early last week and began a recovery. The market has been following the seasonal pattern for the 3rd year of the Presidential Cycle quite closely and that pattern is positive for the next two weeks.

I expect the major averages to be higher on Friday June 3 than they were on Friday May 27.

Last week the blue chips were down while the small caps were up so I am calling last weeks negative forecast a tie.

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 recent DALBAR report on investor behavior and offers his own cure for foot-shooting investors. 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.

Copyright © 2003-2017 Mike Burk

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com