Technical Market Report for December 17, 2011

By: Mike Burk | Sat, Dec 17, 2011
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The good news is:
• The dollar had a good week, unfortunately, in these perverse times, that was bad for equities.


The negatives

New lows increased to uncomfortable levels last week.

The chart below 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) in red. Dashed vertical lines have been drawn on the 1st trading day of each month. Dashed horizontal lines have been drawn at 10% levels for the indicator. The horizontal line is solid at the neutral 50% level.

The current value for the indicator is a very weak 22%.

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 fell sharply last week.


The positives

The market has been deteriorating since early May with violent rallies, very unusual for the 3rd year of the Presidential Cycle. It has, however, on a very short term basis, been following the seasonal pattern pretty well, but with a negative bias. The remaining 9 trading days have had an extraordinarily positive bias, up nearly 80% of the time over all years, but, a little weaker during the 3rd year of the Presidential Cycle (up 70% of the time).


Seasonality

Next week includes the 5 trading days prior to Christmas 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 Christmas 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 for the coming week have been positive by all measures and stronger during the 3rd year of the Presidential Cycle than other years.

Report for the 5 trading days before Christmas.
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
Year Day5 Day4 Day3 Day2 Day1 Totals
1963-3 0.17% 3 0.09% 4 -0.37% 5 -0.14% 1 -0.46% 2 -0.71%
1967-3 -0.30% 1 -0.49% 2 -0.35% 3 -0.65% 4 -0.25% 5 -2.05%
 
1971-3 0.46% 5 0.89% 1 0.21% 2 0.21% 3 -0.03% 4 1.74%
1975-3 0.36% 4 -0.20% 5 -0.43% 1 0.38% 2 0.65% 3 0.75%
1979-3 -0.56% 2 -0.05% 3 0.41% 4 -0.07% 5 -0.13% 1 -0.39%
1983-3 -0.16% 1 -0.39% 2 0.41% 3 0.21% 4 0.12% 5 0.19%
1987-3 2.32% 5 0.54% 1 -0.42% 2 1.28% 3 0.52% 4 4.23%
Avg 0.48% 0.16% 0.04% 0.40% 0.22% 1.31%
 
1991-3 0.03% 3 -0.98% 4 0.23% 5 1.52% 1 1.04% 2 1.83%
1995-3 -2.71% 1 2.37% 2 -0.11% 3 1.49% 4 0.61% 5 1.66%
1999-3 1.02% 5 0.82% 1 3.36% 2 0.67% 3 0.82% 4 6.69%
2003-3 1.81% 4 -0.26% 5 0.25% 1 0.97% 2 -0.28% 3 2.48%
2007-3 0.84% 2 0.19% 3 1.53% 4 1.94% 5 0.80% 1 5.30%
Avg 0.20% 0.43% 1.05% 1.32% 0.60% 3.59%
 
OTC summary for Presidential Year 3 1963 - 2007
Averages 0.27% 0.21% 0.39% 0.65% 0.28% 1.81%
%Winners 67% 50% 58% 75% 58% 75%
MDD 12/18/1995 2.71% -- 12/22/1967 2.03% -- 12/19/1991 .98%
 
OTC summary for all years 1963 - 2010
Averages 0.08% 0.03% -0.07% 0.27% 0.31% 0.63%
%Winners 56% 49% 56% 67% 65% 58%
 
SPX Presidential Year 3
Year Day5 Day4 Day3 Day2 Day1 Totals
1955-3 -0.24% 1 -0.16% 2 0.87% 3 0.15% 4 0.20% 5 0.82%
1959-3 0.48% 5 0.17% 1 -0.17% 2 -0.30% 3 0.07% 4 0.24%
1963-3 -0.15% 3 -0.31% 4 -0.16% 5 -0.63% 1 0.22% 2 -1.03%
1967-3 -0.27% 1 -0.15% 2 0.55% 3 0.24% 4 -0.19% 5 0.18%
 
1971-3 0.52% 5 1.29% 1 0.25% 2 -0.61% 3 -0.43% 4 1.01%
1975-3 0.31% 4 -0.70% 5 -0.74% 1 0.67% 2 0.82% 3 0.36%
1979-3 -0.94% 2 -0.09% 3 0.06% 4 -0.62% 5 0.07% 1 -1.53%
1983-3 -0.04% 1 -0.20% 2 0.96% 3 -0.18% 4 -0.03% 5 0.51%
1987-3 2.54% 5 0.15% 1 0.16% 2 1.28% 3 -0.45% 4 3.69%
Avg 0.48% 0.09% 0.14% 0.11% -0.01% 0.81%
 
1991-3 0.19% 3 -0.25% 4 1.18% 5 2.53% 1 0.63% 2 4.28%
1995-3 -1.55% 1 0.84% 2 -0.98% 3 0.75% 4 0.24% 5 -0.69%
1999-3 0.16% 5 -0.21% 1 1.09% 2 0.17% 3 1.56% 4 2.77%
2003-3 1.18% 4 -0.05% 5 0.39% 1 0.28% 2 -0.18% 3 1.63%
2007-3 0.63% 2 -0.14% 3 0.49% 4 1.67% 5 0.81% 1 3.46%
Avg 0.12% 0.04% 0.43% 1.08% 0.61% 2.29%
 
SPX summary for Presidential Year 3 1955 - 2007
Averages 0.20% 0.01% 0.28% 0.39% 0.24% 1.12%
%Winners 57% 29% 71% 64% 64% 79%
MDD 12/20/1995 1.69% -- 12/21/1979 1.59% -- 12/22/1975 1.44%
 
SPX summary for all years 1953 - 2010
Averages 0.12% 0.04% 0.07% -0.02% 0.27% 0.48%
%Winners 53% 43% 56% 48% 69% 68%


Money supply (M2)

The money supply chart was provided by Gordon Harms. M2 growth picked up a little last week.

M2


Conclusion

The technical indicators look pretty bleak, but seasonally, the next two weeks have been among the strongest of the year.

I expect the major averages to be higher on Friday December 23 than they were on Friday December 16.

Last weeks positive forecast was a miss.

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In his latest newsletter (The Big Skew) Jerry Minton looks at the uneven history of equity markets over time. To read it and subscribe to his free newsletter go to http://www.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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