Technical Market Report for October 15, 2011

By: Mike Burk | Sat, Oct 15, 2011
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The good news is:
• In the past 2 weeks the market, depending on the index is up 10% -16%.


The negatives

New highs usually expand quickly when the market rallies and, so far, that has not happened.

The chart below covers the past 6 months showing the S&P500 (SPX) in red and a 10% trend (19 day EMA) NYSE new highs (NY NH) in green. Dashed vertical lines have been drawn on the 1st trading day of each month.

NY NH has continued to hit new lows over the past 2 weeks.

The next chart is similar to the one above except it shows the NASDAQ composite (OTC) in blue and OTC NH has been calculated from NASDAQ data.

OTC NH rose a little in the past week, but, has remained pretty lifeless considering the 14% gain in the index over the past 2 weeks.


The positives

New lows have disappeared since the beginning of the month

The chart below covers the past 6 months showing the SPX in red and a 10% trend of NYSE new lows (NY NL) in blue. NY NL has been plotted on an inverted Y axis so decreasing new lows move the indicator upward (up is good).

As of Friday's close the value of the indicator is 155 so it would require more than 155 new lows to turn the indicator downward. Last Friday there were 11 new lows, the high for the week.

The next chart is similar to the one above except is shows the OTC in blue and OTC NL, in red, has been calculated from NASDAQ data.

The value, last Friday, of OTC NL was 144 so it will require more than 144 new lows to turn OTC NL downward. Last week new lows on the NASDAQ fell steadily from 70 on Monday to 23 on Friday.

The extreme numbers of new lows at the beginning of this month make a retest likely, but, there is unlikely to be a significantly lower low.


Seasonality

Next week includes the 5 trading days prior to the 3rd 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 3rd 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 negative during the 3rd year of the Presidential Cycle.

Report for the week before the 3rd Friday of October.
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 0.26% -0.03% 0.14% 0.90% 0.26% 1.53%
1967-3 -0.29% -0.91% -0.45% 0.24% 0.04% -1.38%
 
1971-3 -0.03% 0.18% -0.20% -0.74% -0.25% -1.03%
1975-3 0.96% 0.63% 0.01% 0.03% -0.75% 0.88%
1979-3 -1.65% -0.04% 0.51% 0.30% -2.06% -2.93%
1983-3 -0.12% -2.10% -1.33% 0.50% -0.63% -3.67%
1987-3 -1.23% 0.41% -1.50% -1.35% -3.83% -7.50%
Avg -0.41% -0.18% -0.50% -0.25% -1.50% -2.85%
 
1991-3 1.27% 1.61% 1.28% -0.86% 0.49% 3.79%
1995-3 -0.03% 1.70% 0.97% 0.15% -0.72% 2.07%
1999-3 1.02% -1.50% -2.48% 0.20% -2.67% -5.43%
2003-3 0.95% 0.50% -0.21% 0.57% -1.94% -0.13%
2007-3 -0.91% -0.58% 1.04% 0.24% -2.65% -2.86%
Avg 0.46% 0.35% 0.12% 0.06% -1.50% -0.51%
 
OTC summary for Presidential Year 3 1963 - 2007
Avg 0.02% -0.01% -0.18% 0.01% -1.23% -1.39%
Win% 42% 50% 50% 75% 25% 33%
 
OTC summary for all years 1963 - 2010
Avg 0.43% -0.07% -0.23% 0.50% -0.17% 0.45%
Win% 62% 52% 49% 67% 54% 54%
 
SPX Presidential Year 3
Year Mon Tue Wed Thur Fri Totals
1955-3 0.32% 0.73% 1.01% 1.24% 0.00% 3.29%
1959-3 0.56% -0.28% -0.79% 0.28% 0.81% 0.59%
1963-3 0.04% 0.14% 0.79% 0.40% 0.08% 1.45%
1967-3 -0.78% -0.26% 0.26% 0.19% -0.05% -0.64%
 
1971-3 -0.20% 0.41% -0.54% -0.91% -0.35% -1.59%
1975-3 1.42% -0.20% -0.06% 0.16% -0.57% 0.75%
1979-3 -1.08% -0.16% 0.19% 0.21% -1.94% -2.78%
1983-3 0.34% -1.54% -0.64% 0.15% -0.62% -2.31%
1987-3 -0.54% 1.66% -2.95% -2.34% -5.16% -9.34%
Avg -0.01% 0.03% -0.80% -0.55% -1.73% -3.05%
 
1991-3 1.32% 1.17% 0.46% -0.22% 0.15% 2.87%
1995-3 -0.25% 0.64% 0.11% 0.55% -0.54% 0.51%
1999-3 -0.06% -1.66% -2.09% -0.17% -2.81% -6.79%
2003-3 0.70% 0.40% -0.26% 0.32% -1.02% 0.13%
2007-3 -0.84% -0.66% 0.18% -0.08% -2.56% -3.96%
Avg 0.17% -0.02% -0.32% 0.08% -1.36% -1.45%
 
SPX summary for Presidential Year 3 1955 - 2007
Avg 0.07% 0.03% -0.31% -0.02% -1.12% -1.27%
Win% 50% 50% 50% 64% 23% 50%
 
SPX summary for all years 1953 - 2010
Avg 0.46% -0.04% -0.28% 0.25% -0.21% 0.19%
Win% 65% 36% 47% 59% 47% 59%


Money supply (M2)

The money supply chart was provided by Gordon Harms. M2 resumed its climb last week after falling sharply.

M2


Conclusion

The market is overbought going into a seasonally weak period.

I expect the major averages to be lower on Friday October 21 than they were on Friday October 14.

Last weeks negative forecast was a miss.

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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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