Technical Market Report for January 28, 2012

By: Mike Burk | Sat, Jan 28, 2012
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The good news is:
• The secondaries have been outperforming the blue chips.


The negatives

The market is overbought.

The chart below covers the period from mid December when the recent rally began. It shows the major indices on log scales for relative comparison. The second line of the legend shows the Maximum Drawdown (MDD), the date it occurred and the annualized rate of return (CAR). Dashed vertical lines have been drawn on the 1st trading day of each week.

Over the past 6 weeks the Russell 2000 (R2K) has been rising at an annualized rate of 221% while the Dow Jones Industrial Average (DJIA), the laggard, has bee rising at an annualized rate of 103%. These rates are unsustainable. It is a positive that the secondaries are leading the way upward.

The next chart covers the past year showing the S&P 500 (SPX) in red and a 5 day moving average of the absolute value of the daily change of the NYSE advance - decline line which is a running total of NYSE declining issues subtracted from advancing issues. Dashed vertical lines have been drawn on the 1st trading day of each week.

The indicator is near its low point of the past year. Most short term price highs have occurred near low points of this indicator. I have drawn arrows on some of them.

The next chart covers the past year showing the SPX in red and a 5% trend (39 day EMA) of NYSE advancing volume (NY UV) in green.

NY UV usually rises during rallies, but has remained comatose during this one.


The positives

New highs have been increasing, albeit slowly, and, more importantly, new lows have been minimal.

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 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 87%. 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 SPX in red and NY HL Ratio has been calculated from NYSE data.

At 94% 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 has been rising steadily, but, with the OTC only 2% off its previous high OTC NY is seriously lagging.

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.

The SPX is 3.5% off its high of the past year while NY NH, although rising, is far from its high of nearly a year ago.


Seasonality

Next week includes the last 2 trading days of January and the 1st 3 trading days of February during the 4th year of the Presidential Cycle.

The tables below show the return on a percentage basis for the last 2 trading days of January and the 1st 3 trading days of February during the 4th year of the Presidential Cycle.

OTC data covers the period from 1963 - 2010 and SPX data covers the period from 1928 - 2010. There are summaries for both the 4th year of the Presidential Cycle and all years combined.

The coming week has been modestly positive by all measures.

Last 2 days of January and first 3 days of February.
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 4
  Day2 Day1 Day1 Day2 Day3 Totals
1964-4 -0.35% 4 0.00% 5 0.25% 1 0.16% 2 0.00% 3 0.06%
1968-4 0.35% 2 -0.86% 3 -0.47% 4 0.12% 5 -0.20% 1 -1.07%
 
1972-4 0.91% 5 0.36% 1 0.60% 2 0.74% 3 0.16% 4 2.77%
1976-4 1.80% 4 1.04% 5 0.26% 1 0.11% 2 1.22% 3 4.44%
1980-4 0.63% 3 0.28% 4 0.34% 5 -0.17% 1 0.11% 2 1.19%
1984-4 -1.45% 1 -0.30% 2 -0.75% 3 -0.10% 4 -0.81% 5 -3.40%
1988-4 0.75% 4 0.67% 5 0.45% 1 0.29% 2 -1.00% 3 1.16%
Avg 0.53% 0.41% 0.18% 0.17% -0.06% 1.23%
 
1992-4 0.82% 4 -0.19% 5 0.52% 1 1.21% 2 0.95% 3 3.31%
1996-4 0.84% 2 0.81% 3 0.92% 4 0.24% 5 1.04% 1 3.86%
2000-4 -3.78% 5 1.37% 1 2.83% 2 0.54% 3 3.36% 4 4.33%
2004-4 -0.44% 4 -0.10% 5 -0.15% 1 0.15% 2 -2.52% 3 -3.06%
2008-4 -0.38% 3 1.74% 4 0.98% 5 -1.26% 1 -3.08% 2 -2.00%
Avg -0.59% 0.73% 1.02% 0.18% -0.05% 1.29%
 
OTC summary for Presidential Year 4 1964 - 2008
Averages -0.02% 0.40% 0.48% 0.17% -0.06% 0.97%
% Winners 58% 58% 75% 75% 50% 67%
MDD 2/5/2008 4.30% -- 1/28/2000 3.78% -- 2/3/1984 3.36%
 
OTC summary for all years 1963 - 2011
Averages -0.07% 0.24% 0.27% -0.05% 0.09% 0.48%
% Winners 55% 64% 69% 67% 58% 61%
MDD 2/5/2001 6.88% -- 1/30/2009 5.26% -- 2/3/1970 5.12%
 
SPX Presidential Year 4
  Day2 Day1 Day1 Day2 Day3 Totals
1928-4 -0.51% 1 0.46% 2 -0.23% 3 0.57% 4 -1.30% 5 -1.02%
 
1932-4 -1.12% 5 -0.63% 6 4.31% 1 -2.19% 2 0.50% 3 0.87%
1936-4 -0.49% 4 1.63% 5 -0.07% 6 0.98% 1 -0.14% 2 1.91%
1940-4 -0.58% 2 -0.33% 3 0.00% 4 0.08% 5 0.17% 6 -0.66%
1944-4 0.00% 6 0.34% 1 -0.17% 2 -0.25% 3 -0.85% 4 -0.93%
1948-4 0.20% 5 0.07% 6 0.14% 1 -0.61% 2 -1.85% 3 -2.05%
Avg -0.40% 0.22% 0.84% -0.40% -0.43% -0.17%
 
1952-4 -1.38% 3 -0.37% 4 0.66% 5 0.45% 6 -1.19% 1 -1.83%
1956-4 0.35% 1 0.74% 2 0.48% 3 0.43% 4 1.27% 5 3.26%
1960-4 -1.04% 4 -0.93% 5 0.63% 1 1.54% 2 -0.88% 3 -0.68%
1964-4 0.09% 4 0.44% 5 -0.09% 1 -0.12% 2 -0.17% 3 0.16%
1968-4 -0.49% 2 -0.70% 3 0.35% 4 -0.31% 5 -0.43% 1 -1.59%
Avg -0.50% -0.16% 0.41% 0.40% -0.28% -0.14%
 
1972-4 0.64% 5 -0.21% 1 0.07% 2 0.64% 3 -0.04% 4 1.10%
1976-4 1.60% 4 0.75% 5 0.01% 1 0.31% 2 0.72% 3 3.39%
1980-4 0.99% 3 -0.90% 4 0.84% 5 -0.65% 1 0.25% 2 0.53%
1984-4 -0.65% 1 0.33% 2 -0.41% 3 0.38% 4 -1.50% 5 -1.85%
1988-4 1.57% 4 1.49% 5 -0.79% 1 0.21% 2 -1.31% 3 1.16%
Avg 0.83% 0.29% -0.06% 0.18% -0.38% 0.87%
 
1992-4 0.31% 4 -0.69% 5 0.18% 1 1.05% 2 0.00% 3 0.86%
1996-4 0.95% 2 0.93% 3 0.38% 4 -0.41% 5 0.88% 1 2.73%
2000-4 -2.75% 5 2.52% 1 1.06% 2 -0.01% 3 1.13% 4 1.95%
2004-4 0.50% 4 -0.26% 5 0.37% 1 0.07% 2 -0.84% 3 -0.17%
2008-4 -0.48% 3 1.68% 4 1.22% 5 -1.05% 1 -3.20% 2 -1.82%
Avg -0.29% 0.84% 0.64% -0.07% -0.41% 0.71%
 
SPX summary for Presidential Year 4 1928 - 2008
Averages -0.11% 0.30% 0.43% 0.05% -0.42% 0.25%
% Winners 48% 57% 67% 57% 33% 52%
MDD 2/5/2008 4.21% -- 1/28/2000 2.75% -- 2/4/1948 2.45%
 
SPX summary for all years 1928 - 2011
Averages 0.07% 0.27% 0.19% 0.08% -0.15% 0.45%
% Winners 60% 64% 63% 59% 46% 67%
MDD 2/3/1933 6.45% -- 2/2/2009 5.57% -- 2/3/1938 5.05%


Money supply (M2)

The money supply chart was provided by Gordon Harms. M2 growth continued at its elevated trend.


February

Since 1963, over all years, the OTC in February has been up 53% of the time with an average gain of 0.1%. During the 4th year of the Presidential Cycle February has been up 58% time with an average gain of 1.6%. The best February for the OTC was 1991 (+8.5%), the worst 2001 (-22.7%).

The average month has 21 trading days. The chart below has been calculated by averaging the daily percentage change of the OTC for each of the 1st 11 trading days and each of the last 10. In months when there were more than 21 trading days some of the days in the middle were not counted. In months when there were less than 21 trading days some of the days in the middle of the month were counted twice. Dashed vertical lines have been drawn after the 1st trading day and at 5 trading day intervals after that. The line is solid on the 11th trading day, the dividing point.

In the chart below the blue line shows the average of the OTC in February over all years since 1963 while the black line shows the average during the 4th year of the Presidential Cycle over the same period.

Since 1928 the SPX has been up 52% of the time in February with an average loss of -0.4%. During the 4th year of the Presidential Cycle the SPX has been up 52% of the time with an average loss of -0.5%. The best February for the SPX was 1931 (+11.0%) the worst 1933 (-15.1%).

The chart below is similar to the one above except it shows the daily average performance over all years for the SPX in February in red and the performance during the 4th year of the Presidential Cycle in black.

Since 1979 the Russell 2000 (R2K) has been up 55% of the time in February with an average gain of 0.6%. During the 4th year of the Presidential Cycle the R2K has been up 63% of the time with an average gain of 1.8%. The best February for the R2K 2000 (+14.7%), the worst 2009 (-13.5%)

The chart below is similar to those above except it shows the daily performance over all years of the R2K in February in green and the performance during the 4th year of the Presidential Cycle in black.

Since 1885 the Dow Jones Industrial Average (DJIA) has been up 51% of the time in February with an average loss of -0.3%. During the 4th year of the Presidential Cycle the DJIA has been up 48% of the time in February with an average loss of -1.0%. The best February for the DJIA 1931 (+12.4%), the worst 1933 (-13.0%)

The chart below is similar to those above except it shows the daily performance over all years of the DJIA in February in black and the performance during the 4th year of the Presidential Cycle in black.

The upper plot if for all years and the lower one for the 4th year.


Conclusion

The market is doing everything you like to see in a rally. New highs are expanding, the secondaries are leading the blue chips and new lows are insignificant.

I expect the major averages to be higher on Friday February 3 than they were on Friday January 27.

Last week the DJIA was down a little while everything else was up a little so I am calling last weeks negative forecast a tie.

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 1

 


 

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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