Technical Market Report for July 9, 2011

By: Mike Burk | Sat, Jul 9, 2011
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The good news is:
• Most of the major indices rose to within 1% of their April highs last week.


The negatives

The market is overbought. The small and mid cap indices had a run of 8 consecutive up days as of Thursday.

It is the down days that give a perspective on the strength of the market and Friday is the only down day we have seen in the past 2 weeks. Not enough to be revealing. On the other hand a long string of up days is a positive.


The positives

The secondaries lead both up and down and, last week, the secondaries outperformed the blue chips.

The chart below is an update of one I showed last week. It covers the past year 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). Dashed vertical lines have been drawn on the 1st trading day of each month and dashed horizontal lines have been drawn at 10% levels for the indicator, the line is solid at the neutral, 50% level.

OTC HL Ratio rose above 80% last week. There are trading systems that impose a "No Sell" filter when variations of this indicator are above 80%.

OTC HL Ratio rose above 80% last week

The next chart is similar to the one above except it shows the S&P 500 (SPX) in red and NY HL Ratio, in black, has been calculated from NYSE data.

NY HL Ratio rose above 90% for a few days last week and closed at 88%, very strong.

NY HL Ratio rose above 90%


Seasonality

Recently the market has been following the typical pattern for the 3rd year of the Presidential Cycle very closely. There are conflicting results from variations in how the coming week is defined. The week prior to the 3rd Friday of July, shown in the tables below has been weak. However, the 1st 10 trading days of July have been, on average, strong (shown in the July charts last week). July 1 was a Friday so all of the Friday based tables have been moved up.

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

Average returns over all periods prior to the 3rd Friday of July have been negative, however, average returns for the 2nd 5 trading days in July (not shown) have been positive.

Report for the week before the 3rd Friday of July.
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 -0.21% -0.32% -0.32% -0.59% -0.39% -1.83%
1967-3 -0.03% -0.14% 0.92% 0.19% 0.18% 1.12%
 
1971-3 0.30% -0.43% -0.38% 0.34% -0.67% -0.84%
1975-3 -0.29% -1.21% -1.28% -0.57% -0.64% -3.99%
1979-3 0.27% -0.74% -0.44% 0.23% 0.30% -0.39%
1983-3 0.13% -0.96% -0.74% 0.29% -0.83% -2.11%
1987-3 -0.59% -0.50% -0.02% -0.39% 0.35% -1.14%
Avg -0.04% -0.77% -0.57% -0.02% -0.30% -1.69%
 
1991-3 0.71% -0.52% -0.04% 0.69% 0.15% 0.98%
1995-3 0.60% -1.44% -4.15% 1.14% 0.12% -3.72%
1999-3 -0.10% -0.44% 1.44% 0.76% 0.88% 2.54%
2003-3 -1.59% 1.47% 0.77% -1.03% 1.72% 1.34%
2007-3 -0.36% 0.55% -0.47% 0.76% -1.19% -0.71%
Avg -0.15% -0.07% -0.49% 0.46% 0.34% 0.09%
 
OTC summary for Presidential Year 3 1963 - 2007
Avg -0.10% -0.39% -0.39% 0.15% 0.00% -0.73%
Win% 42% 17% 25% 67% 58% 33%
 
OTC summary for all years 1963 - 2010
Avg -0.08% -0.13% 0.00% 0.05% -0.16% -0.32%
Win% 57% 38% 49% 57% 48% 44%
 
SPX Presidential Year 3
Year Mon Tue Wed Thur Fri Totals
1955-3 0.26% 0.00% -1.19% 0.02% 0.36% -0.56%
1959-3 -0.47% 0.85% 0.34% 0.10% -0.03% 0.78%
1963-3 -0.63% -0.09% -0.30% -0.64% -0.20% -1.86%
1967-3 0.01% 0.81% 0.16% 0.21% 0.20% 1.40%
 
1971-3 0.13% -1.31% -0.28% 0.06% -0.17% -1.57%
1975-3 -0.82% -1.07% -1.39% -0.12% -0.87% -4.26%
1979-3 0.41% -0.89% -0.14% -0.08% 0.21% -0.48%
1983-3 0.62% -1.53% -0.04% 0.33% -1.04% -1.66%
1987-3 -1.02% -0.91% -0.03% -0.21% 0.47% -1.69%
Avg -0.14% -1.14% -0.38% 0.00% -0.28% -1.94%
 
1991-3 0.56% -0.22% -0.09% 1.10% -0.30% 1.05%
1995-3 0.51% -0.76% -1.34% 0.46% 0.01% -1.11%
1999-3 -0.30% -0.39% 0.33% 0.82% 0.65% 1.11%
2003-3 -1.46% 0.95% 0.05% -0.71% 1.74% 0.57%
2007-3 -0.19% -0.01% -0.21% 0.45% -1.22% -1.18%
Avg -0.18% -0.09% -0.25% 0.42% 0.18% 0.09%
 
SPX summary for Presidential Year 3 1955 - 2007
Avg -0.17% -0.35% -0.30% 0.13% -0.01% -0.68%
Win% 50% 23% 29% 64% 50% 36%
 
SPX summary for all years 1953 - 2010
Avg -0.09% -0.22% 0.01% 0.00% -0.11% -0.40%
Win% 48% 32% 49% 58% 50% 38%


Money supply (M2)

The money supply chart was provided by Gordon Harms. M2 growth continued to accelerate.

M2 Money Supply


Conclusion

The market is very overbought and seasonality for the coming week is iffy. However, everything you want to see in a bull market has been happening.

I expect the major averages to be higher on Friday July 15 that they were on Friday July 8.

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.

Gordon Harms produces a power point for our local timing group meetings. You can get a copy of that at: http://www.stockmarket-ta.com/

In his latest newsletter, Jerry Minton looks at "The Dead Zone", calendar periods that claim 80% of the markets declines. You can sign up for his free newsletter 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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