Technical Market Report for January 21, 2012

By: Mike Burk | Sat, Jan 21, 2012
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The good news is:
• The NYSE advance - decline line hit another new all time high last week.


The negatives

Since the beginning of the year the major indices are up 4.5% - 7% so the market is overbought. New highs have been accumulating slowly. Both NASDAQ and NYSE new highs peaked January 10.


The positives

Since the 1st of the year the secondaries have been leading the way upward and there have been few new lows.

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 red. Dashed vertical lines have been drawn on the 1st trading day of the month. Dashed horizontal lines have been drawn at 10% levels of the indicator; the line is solid at the neutral 50% level.

The value of OTC HL Ratio is 82%. There are trading systems that impose a NO SELL filter when variations of this indicator are above 80%.

The chart below is similar to the one above except is shows the S&P 500 (SPX) in red and NY HL Ratio has been calculated from NYSE data.

At nearly 89% this indicator is very strong.

The next chart shows the OTC in blue and a 10% trend (19 day EMA) of NASDAQ new highs (OTC NH) in green.

OTC NH is finally showing some signs of life.

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

NY NH stumbled at the beginning of the year, but, began recovering last week.


Seasonality

Next week includes the 5 trading days prior to the 4th Friday of January during the 4th year of the Presidential Cycle.

The tables below show the return on a percentage basis for the 5 trading days prior to the 4th Friday of January during the 4th year of the Presidential Cycle. There are a lot of 0's on Monday because the Martin Luther King holiday often falls on the Monday prior to the 4th Friday.

NASDAQ composite (OTC) data covers the period from 1963 - 2010 and SPX data covers the period from 1953 - 2010. There are summaries for both the 4th 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.

Big losses in 2000 hurt the 4th year averages helping to make next week the weakest period of the month.

Report for the week before the 4th Friday of January.
The number following the year is the position in the presidential cycle.
Daily returns from Monday through the 4th Friday.

OTC Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1964-4 0.00% -0.76% 0.14% -0.22% 0.36% -0.49%
1968-4 0.00% -0.94% -0.72% -0.08% -0.34% -2.08%
 
1972-4 -0.61% -0.16% 0.08% 0.84% 0.91% 1.05%
1976-4 0.51% 0.20% 0.06% -0.39% 0.76% 1.14%
1980-4 0.77% -0.27% 1.01% 0.47% 0.29% 2.26%
1984-4 -1.48% -0.49% -0.53% -0.63% -0.88% -4.01%
1988-4 0.86% -0.38% 0.17% 0.75% 0.67% 2.08%
Avg 0.01% -0.22% 0.16% 0.21% 0.35% 0.51%
 
1992-4 -1.19% -2.36% 2.64% 0.35% 0.29% -0.28%
1996-4 1.07% -0.14% 1.51% -0.72% 0.48% 2.21%
2000-4 -3.29% 1.74% -2.34% -0.74% -3.78% -8.41%
2004-4 0.00% 0.35% -0.26% -1.09% 0.23% -0.77%
2008-4 0.00% -2.04% 1.05% 1.92% -1.47% -0.54%
Avg -1.14% -0.49% 0.52% -0.06% -0.85% -1.56%
 
OTC summary for Presidential Year 4 1964 - 2008
Avg -0.42% -0.44% 0.23% 0.04% -0.21% -0.65%
Win% 50% 25% 67% 42% 67% 42%
 
OTC summary for all years 1963 - 2011
Avg -0.16% -0.11% 0.26% 0.09% -0.01% 0.09%
Win% 55% 46% 55% 49% 67% 56%
 
SPX Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1956-4 -0.25% 1.25% 0.16% -0.59% -0.25% 0.31%
1960-4 -1.05% 0.14% -0.25% -1.04% -0.93% -3.12%
1964-4 -0.20% 0.27% 0.54% 0.08% 0.03% 0.72%
1968-4 -1.27% -0.39% -0.52% 0.14% 0.16% -1.89%
 
1972-4 -1.04% 0.20% -0.27% 0.98% 0.64% 0.50%
1976-4 1.36% 0.55% -0.63% -0.20% 1.19% 2.27%
1980-4 0.93% -0.53% 1.73% 0.23% -0.08% 2.28%
1984-4 -0.81% 0.65% -0.66% -0.36% -0.18% -1.37%
1988-4 2.30% -1.03% -0.08% 1.57% 1.49% 4.25%
Avg 0.55% -0.03% 0.02% 0.44% 0.61% 1.59%
 
1992-4 -0.60% -0.89% 1.33% -0.76% 0.13% -0.79%
1996-4 0.26% -0.10% 1.17% -0.47% 0.74% 1.60%
2000-4 -2.74% 0.58% -0.42% -0.39% -2.75% -5.72%
2004-4 0.00% -0.09% 0.78% -0.32% -0.21% 0.15%
2008-4 0.00% -1.11% 2.14% 1.01% -1.59% 0.45%
Avg -1.03% -0.32% 1.00% -0.19% -0.73% -0.86%
 
SPX summary for Presidential Year 4 1956 - 2008
Avg -0.26% -0.04% 0.36% -0.01% -0.11% -0.02%
Win% 33% 50% 50% 43% 50% 64%
 
SPX summary for all years 1953 - 2011
Avg -0.11% 0.00% 0.20% 0.14% 0.00% 0.24%
Win% 51% 59% 56% 59% 55% 64%


Money supply (M2)

The money supply chart was provided by Gordon Harms. M2 continued its rapid expansion last week.

M2


Conclusion

The market extended its winning streak last week and is overbought. But, the technical indicators are consistent with what you would expect in a rising market. Seasonality for the coming week is weak, right on schedule for a slightly overdue pull back.

I expect the major averages to be lower on Friday January 27 than they were on Friday January 20.

This report is free to anyone who wants it, so please tell your friends. They can sign up at: http://alphaim.net/signup.html. If it is not for you, reply with REMOVE in the subject line.

In his latest newsletter, Jerry Minton focuses on the "January Effect". To find out what it is and what causes it, go www.alphaim.net to read the newsletter and sign up for a free subscription.

Good Luck,

YTD W 2 /L 1 /T 0

 


 

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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