Technical Market Report for September 3, 2011

By: Mike Burk | Sat, Sep 3, 2011
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The good news is:
• The new high indicators turned up a little last week.

On August 8 there were 1292 new lows on the NYSE and 725 on the NASDAQ. There is often a retest of the low in prices in 2 to 6 weeks following this many new lows. We saw a retest on August 19 when the major indices fell to within 1% of their August 8 lows. On August 19 there were 279 new lows on the NYSE and 317 on the NASDAQ suggesting, at least for the short term, the decline had ended.

So far nothing has changed to alter that assessment.


The negatives

The charts are all updates of those I showed last week.

The chart below covers the past 6 months showing the NASDAQ composite (OTC) in blue and a 10% trend of NASDAQ new highs (OTC NH) in green. Dashed vertical lines have been drawn on the 1st trading day of each month.

The decline of OTC NH was arrested last week. Although, with a value of 16, the lowest since March 2009, it cannot go much lower.

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.

NY NH also ticked upward last week.

The next chart shows the OTC in blue and a 40% trend (4 day EMA) of the ratio of NASDAQ new highs to new highs + new lows (OTC HL Ratio) in red. Dashed horizontal lines have been drawn at 10% levels for OTC HL Ratio and the line is solid at the neutral 50% level.

OTC HL Ratio was recovering nicely until Friday when 107 new lows turned the indicator sharply downward.

The next chart is similar to the one above except it shows the SPX in red and NY HL Ratio has been calculated from NYSE data.

NY HL Ratio broke above the 50% level last week, but, like OTC HL Ratio, it turned sharply downward on Friday.


The positives

Last week NYSE new lows dropped into single digits before jumping up to 40 on Friday. On the NASDAQ new lows were in low double digits all week before jumping to 107 on Friday.

The chart below covers the past 6 months showing the OTC in blue and a 10% trend (19 day EMA) of NASDAQ new lows (OTC NL) in orange. OTC NL has been plotted on an inverted Y axis so decreasing new lows move the indicator upward (up is good).

In spite of a sharp decline in the OTC on Thursday and Friday OTC NL continued to rise. The current value of OTC NL is 109 so it will require more than 109 new lows to turn the indicator downward.

The next chart is similar to the one above except it shows the SPX in red and NY NL has been calculated from NYSE data.

The value of NY NL fell to 109 on Friday so, like OTC NL, it will require more than 109 new lows on the NYSE to turn the indicator downward.


Seasonality

Next week includes the 5 trading days prior to the 2nd Friday of September 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 of September 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 have been slightly negative over all years and slightly positive during the 3rd year of the Presidential Cycle.

Report for the week before the 2nd Friday of September.
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 -0.06% -0.17% 0.39% -0.06% -0.14% -0.03%
1967-3 0.00% 0.51% 0.12% 0.30% 0.15% 1.08%
 
1971-3 0.00% 0.50% 0.05% -0.03% -0.12% 0.40%
1975-3 -0.41% -1.11% -1.78% -0.52% -0.17% -3.99%
1979-3 0.57% -0.35% 0.18% 0.45% 0.82% 1.67%
1983-3 0.00% 1.13% -0.16% 0.34% 0.15% 1.47%
1987-3 0.00% -1.99% 0.36% 0.98% 0.61% -0.04%
Avg 0.08% -0.36% -0.27% 0.24% 0.26% -0.10%
 
1991-3 0.22% -1.31% 0.68% 1.24% -0.85% -0.02%
1995-3 0.00% 1.94% 0.48% 0.65% 0.85% 3.92%
1999-3 0.00% -0.12% -1.10% 1.54% 1.23% 1.56%
2003-3 1.63% -0.80% -2.65% 1.22% 0.48% -0.11%
2007-3 -0.26% 1.50% -0.21% 0.35% 0.04% 1.42%
Avg 0.53% 0.24% -0.56% 1.00% 0.35% 1.35%
 
OTC summary for Presidential Year 3 1963 - 2007
Avg 0.28% -0.02% -0.30% 0.54% 0.25% 0.61%
Win% 50% 42% 58% 75% 67% 58%
 
OTC summary for all years 1963 - 2010
Avg -0.39% -0.03% -0.19% 0.07% 0.14% -0.16%
Win% 45% 50% 53% 65% 60% 60%
 
SPX Presidential Year 3
Year Mon Tue Wed Thur Fri Totals
1955-3 0.00% 0.60% -0.02% 0.07% 0.02% 0.66%
1959-3 0.00% -1.43% -0.71% -0.52% 0.74% -1.93%
1963-3 -0.36% 0.56% 0.29% -0.07% 0.03% 0.45%
1967-3 0.00% 0.57% 0.19% -0.06% 0.03% 0.73%
 
1971-3 0.00% 0.46% 0.19% -0.53% -0.38% -0.27%
1975-3 0.32% -1.50% -0.96% -0.41% -0.18% -2.73%
1979-3 0.47% -0.61% 0.29% 0.03% 0.84% 1.02%
1983-3 0.00% 1.75% 0.04% -0.11% -0.51% 1.17%
1987-3 0.00% -0.99% 0.11% 1.02% 1.53% 1.68%
Avg 0.39% -0.18% -0.06% 0.00% 0.26% 0.18%
 
1991-3 -0.14% -1.03% 0.14% 0.58% -0.97% -1.41%
1995-3 0.00% 0.95% 0.18% 0.02% 0.42% 1.56%
1999-3 0.00% -0.50% -0.47% 0.26% 0.30% -0.41%
2003-3 1.00% -0.82% -1.20% 0.54% 0.22% -0.25%
2007-3 -0.13% 1.36% 0.00% 0.84% 0.02% 2.10%
Avg 0.25% -0.01% -0.27% 0.45% 0.00% 0.32%
 
SPX summary for Presidential Year 3 1955 - 2007
Avg 0.20% -0.05% -0.14% 0.12% 0.15% 0.17%
Win% 50% 50% 64% 57% 71% 57%
 
SPX summary for all years 1953 - 2010
Avg -0.30% -0.04% -0.10% -0.18% 0.12% -0.32%
Win% 46% 52% 54% 48% 64% 52%


Money supply (M2)

The money supply chart was provided by Gordon Harms. M2's spectacular assent of the past 6 weeks continued to level off.

M2


Conclusion

The messy bottom we are having is not surprising considering the high levels of new lows seen in early August. Barring a large build up of new lows, it appears the price low is behind us.

I expect the major averages to be higher on Friday September 9 than they were on Friday September 2.

Last week the OTC was up slightly while the other major indices were down slightly so I am calling last weeks positive forecast a tie.

Thank you to all of you who pointed out my evaluation of the previous weeks forecast was incorrect.

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In his latest newsletter, Jerry Minton looks at Alpha programs that are fully invested in the market at this time. You can follow his assessment at www.alphaim.net and sign up for his free newsletter on the home page.

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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