Technical Market Report for November 19, 2011

By: Mike Burk | Sat, Nov 19, 2011
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The good news is:
• The market is oversold going into a seasonally strong period.


The negatives

New highs declined a bit last week and new lows expanded, not surprising for a down week, but not comforting.

The chart below covers the past 6 months 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) in blue. 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.

At 20% OTC HL Ratio is uncomfortably low.

The chart below 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 is little stronger than OTC_HL_Ratio, but not much.


The positives

The positives are the lack of negatives.

The chart below covers the past 6 months showing the OTC in blue and a 10% trend (19 day EMA) of NASDAQ new highs (OTC NH) in green.

Last week the OTC was down 4%, but OTC NH fell only slightly.

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

The SPX was also down nearly 4% last week and NY NH, like OTC NH held up pretty well.

The picture I see is not of a surging market, but not a market on the verge of collapse either.


Seasonality

Next week is the week of Thanksgiving during the 3rd year of the Presidential Cycle.

The tables below show the return on a percentage basis for the week of Thanksgiving 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.

The week of Thanksgiving has been, on average, positive by all measures, but a little weaker during the 3rd year of the Presidential Cycle than other years.

Report for the 3 days before Thanksgiving and 1 day after. Day1 = the day after
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
  Day4 Day3 Day2 Day1 Totals
1963-3 -1.20% 5 -1.48% 2 0.97% 3 0.09% 5 -1.62%
1967-3 -1.99% 1 1.11% 2 1.62% 3 1.02% 5 1.76%
 
1971-3 -1.13% 1 -1.45% 2 0.09% 3 1.24% 5 -1.26%
1975-3 0.23% 1 0.33% 2 0.49% 3 0.31% 5 1.36%
1979-3 0.65% 1 -0.34% 2 -0.44% 3 0.70% 5 0.57%
1983-3 0.63% 1 0.53% 2 0.05% 3 0.28% 5 1.49%
1987-3 0.20% 1 1.13% 2 0.35% 3 -0.41% 5 1.27%
Avg 0.12% 0.04% 0.11% 0.42% 0.69%
 
1991-3 -0.68% 1 -0.12% 2 0.11% 3 0.21% 5 -0.48%
1995-3 -1.48% 1 -0.44% 2 -0.37% 3 0.88% 5 -1.41%
1999-3 0.69% 1 -1.46% 2 2.32% 3 0.80% 5 2.35%
2003-3 2.81% 1 -0.21% 2 0.53% 3 0.36% 5 3.49%
2007-3 -1.66% 1 0.13% 2 -1.33% 3 1.34% 5 -1.52%
Avg -0.06% -0.42% 0.25% 0.72% 0.48%
 
OTC summary for Presidential Year 3 1963 - 2007
Averages -0.24% -0.19% 0.36% 0.57% 0.50%
%Winners 50% 42% 75% 92% 58%
MDD 11/21/2007 2.85% -- 11/26/1963 2.67% -- 11/23/1971 2.56%
 
OTC summary for all years 1963 - 2010
Averages -0.07% -0.21% 0.40% 0.48% 0.60%
% Winners 48% 51% 77% 81% 65%
 
SPX Presidential Year 3
  Day4 Day3 Day2 Day1 Totals
1955-3 -0.70% 1 0.97% 2 0.13% 3 -0.09% 5 0.31%
1959-3 0.19% 1 0.47% 2 0.16% 3 0.45% 5 1.28%
1963-3 -2.81% 5 3.98% 2 -0.18% 3 1.36% 5 2.35%
1967-3 -1.26% 1 1.58% 2 0.59% 3 0.27% 5 1.18%
 
1971-3 -0.90% 1 -0.69% 2 0.19% 3 1.78% 5 0.38%
1975-3 0.19% 1 1.13% 2 0.25% 3 0.33% 5 1.90%
1979-3 0.42% 1 -0.52% 2 0.19% 3 0.75% 5 0.85%
1983-3 0.58% 1 0.48% 2 0.07% 3 0.13% 5 1.26%
1987-3 0.41% 1 1.40% 2 -0.93% 3 -1.54% 5 -0.66%
Avg 0.14% 0.36% -0.04% 0.29% 0.75%
 
1991-3 -0.21% 1 0.70% 2 -0.37% 3 -0.35% 5 -0.24%
1995-3 -0.54% 1 0.57% 2 -0.31% 3 0.26% 5 -0.01%
1999-3 -0.08% 1 -1.14% 2 0.88% 3 -0.04% 5 -0.37%
2003-3 1.62% 1 0.17% 2 0.43% 3 -0.02% 5 2.20%
2007-3 -1.75% 1 0.45% 2 -1.59% 3 1.69% 5 -1.20%
Avg -0.19% 0.15% -0.19% 0.31% 0.08%
 
SPX summary for Presidential Year 3 1955 - 2007
Averages -0.34% 0.68% -0.03% 0.36% 0.66%
%Winners 43% 79% 64% 64% 64%
MDD 11/21/2007 2.88% -- 11/22/1963 2.81% -- 11/27/1987 2.46%
 
SPX summary for all years 1952 - 2010
Averages -0.12% 0.10% 0.40% 0.37% 0.75%
% Winners 44% 59% 80% 76% 68%


Money supply (M2)

The money supply chart was provided by Gordon Harms. M2 growth increased a little last week. That has been the recent pattern during down periods in the equity market.

M2


Conclusion

The past 2 weeks have followed the seasonal pattern with a negative bias leaving the market oversold as we enter a seasonally strong period for the next 2 weeks.

I expect the major averages to be higher on Friday November 25 than they were on Friday November 18.

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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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