Technical Market Report for October 8, 2011

By: Mike Burk | Sat, Oct 8, 2011
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The good news is:
• Last week, for the first time in a long time, volume rose with prices.


The negatives

Last Tuesday there were 1203 new lows on the NYSE and 643 on the NASDAQ, only a few less than there were on August 8 and enough imply a high likelihood of either another retest or a lower low.

The chart below covers the past 6 months showing the NASDAQ composite (OTC) in blue and a 10% trend (19 day EMA) 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). Dashed vertical lines have been drawn on the 1st trading day of each month.

OTC NL hit a new low for this decline on Tuesday.

For some perspective on how this indicator works, the following chart shows the OTC and OTC NL covering the period from late September 2008 through late March 2009 including the bottom in early March.

OTC NL had a higher low in November than it did in October and another, still higher, low in March when prices bottomed.

OTC NL hit a lower low last Tuesday with huge numbers so there is little reason to believe the current decline has run its course.


The positives

For the past 6 months volume has been increasing during price declines and decreasing on rallies so last week it was refreshing to see volume and prices increase simultaneously.

The chart below covers the past year showing the OTC in blue and a 5% (39 day EMA) of NASDAQ total volume (OTC TVT) in orange.

OTC TVT rose last week along with prices.


Seasonality

Next week includes the 5 trading days prior to the 2nd Friday of October 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 October during the 3rd year of the Presidential Cycle.

OTC data covers the period from 1963 - 2010 and S&P 500 (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 modestly positive over all years and modestly negative during the 3rd year of the Presidential Cycle.

Report for the week before the 2nd Friday of October.
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 -0.26% -0.17% 0.20% -0.58% 0.09% -0.72%
1967-3 0.49% 0.36% -0.51% -0.41% -0.39% -0.45%
 
1971-3 0.35% 0.03% 0.63% 0.27% -0.22% 1.06%
1975-3 0.70% -0.20% 0.96% 0.34% 0.12% 1.92%
1979-3 -0.86% -3.83% -4.06% 0.56% 0.44% -7.74%
1983-3 0.02% -0.68% -1.29% -0.39% -0.14% -2.48%
1987-3 0.45% -1.35% -0.64% -1.04% -0.36% -2.94%
Avg 0.13% -1.20% -0.88% -0.05% -0.03% -2.04%
 
1991-3 -0.81% 0.20% -0.67% 0.41% 0.60% -0.25%
1995-3 -2.69% -0.13% 1.84% 1.40% 0.28% 0.69%
1999-3 2.16% 0.13% 2.05% 0.12% 0.91% 5.37%
2003-3 0.69% 0.76% -0.74% 0.96% 0.18% 1.84%
2007-3 0.25% 0.59% 0.27% -1.40% 1.21% 0.93%
Avg -0.08% 0.31% 0.55% 0.30% 0.63% 1.72%
 
OTC summary for Presidential Year 3 1963 - 2007
Avg 0.04% -0.36% -0.16% 0.02% 0.23% -0.23%
Win% 67% 50% 50% 58% 67% 50%
 
OTC summary for all years 1963 - 2010
Avg -0.09% -0.29% -0.12% 0.20% 0.54% 0.25%
Win% 60% 48% 49% 71% 71% 58%
 
SPX Presidential Year 3
Year Mon Tue Wed Thur Fri Totals
1955-3 -2.90% -0.85% 1.76% -0.31% -0.41% -2.71%
1959-3 -0.10% -0.09% -0.26% -0.23% 0.33% -0.35%
1963-3 -0.21% -0.14% -0.58% 0.03% 0.10% -0.80%
1967-3 0.26% -0.69% -0.49% -0.64% 0.26% -1.30%
 
1971-3 0.28% -0.10% 0.72% 0.20% -0.66% 0.44%
1975-3 1.08% -0.13% 1.35% 0.49% -0.18% 2.61%
1979-3 -1.25% -2.96% -1.25% -0.24% -0.53% -6.22%
1983-3 1.08% -1.34% -0.42% 0.15% -0.01% -0.54%
1987-3 0.00% -2.70% -0.21% -1.38% -0.98% -5.27%
Avg 0.24% -1.44% 0.04% -0.16% -0.47% -1.80%
 
1991-3 -0.46% 0.31% -1.02% 1.00% 0.24% 0.07%
1995-3 -0.71% -0.15% 0.33% 0.37% 0.49% 0.35%
1999-3 1.70% -0.25% 1.84% -0.58% 1.39% 4.11%
2003-3 0.44% 0.47% -0.53% 0.48% -0.06% 0.80%
2007-3 -0.32% 0.81% -0.17% -0.52% 0.48% 0.28%
Avg 0.13% 0.24% 0.09% 0.15% 0.51% 1.12%
 
SPX summary for Presidential Year 3 1955 - 2007
Avg -0.08% -0.56% 0.08% -0.08% 0.03% -0.61%
Win% 50% 21% 36% 50% 50% 50%
 
SPX summary for all years 1953 - 2010
Avg 0.05% -0.22% 0.10% -0.09% 0.15% 0.00%
Win% 56% 37% 46% 43% 55% 57%


Conclusion

The market continued to follow the average seasonal pattern for the 3rd year of the Presidential Cycle and that pattern now calls for weakness until near the end of the month.

I expect the major averages to be lower on Friday October 14 than they were on Friday October 7.

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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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