Technical Market Report for February 4, 2012

By: Mike Burk | Sat, Feb 4, 2012
Print Email

The good news is:
• All of the major indices closed at multi month highs on Friday.


The negatives

The market is overbought.

The chart below covers the period from the end of last year showing the major indices on log scales for a 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.

Since the beginning of the year the Russell 2000 (R2K) has been rising at an annualized rate of 253% while the Dow Jones Industrial Average (DJIA), the laggard, has bee rising at an annualized rate of 76%. These rates are unsustainable. It is a positive that the secondaries are leading the way upward.


The positives

We are seeing multi month index highs, expanding new highs, secondaries leading the blue chips and increasing volume. These are characteristics bull markets are made of.

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 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 91%. 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 96% this indicator is very strong.


Seasonality

Next week includes the 5 trading days prior to the 2nd Friday of February 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 2nd Friday 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. Prior to 1953 the market traded 6 days a week so that data has been ignored.

In the coming week the OTC has been modestly positive while the SPX has been up a little more than 50% of the time with negative average returns.

Report for the week before the 2nd Friday of February.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday to 2nd Friday.

OTC Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1964-4 0.08% 0.05% 0.16% 0.24% -0.16% 0.38%
1968-4 -0.20% -0.26% 0.10% 0.21% -1.40% -1.55%
 
1972-4 -0.08% 0.17% 0.67% 0.45% 0.12% 1.33%
1976-4 0.66% 0.14% 0.84% 0.21% 0.09% 1.95%
1980-4 -0.17% 0.11% 0.49% 0.48% 0.90% 1.81%
1984-4 -2.03% -0.32% -1.49% -0.89% 0.93% -3.81%
1988-4 -0.36% 0.13% 1.26% 0.49% 0.64% 2.16%
Avg -0.40% 0.05% 0.35% 0.15% 0.54% 0.69%
 
1992-4 -0.13% -0.12% 1.82% -0.90% -0.42% 0.25%
1996-4 1.04% 0.54% -0.39% 0.77% 0.13% 2.09%
2000-4 1.83% 2.45% -1.46% 2.81% -2.01% 3.62%
2004-4 -0.17% 0.72% 0.69% -0.77% -0.97% -0.49%
2008-4 -1.26% -3.08% -1.33% 0.63% 0.52% -4.53%
Avg 0.26% 0.10% -0.13% 0.51% -0.55% 0.19%
 
OTC summary for Presidential Year 4 1964 - 2008
Avg -0.07% 0.04% 0.11% 0.31% -0.14% 0.27%
Win% 33% 67% 67% 75% 58% 67%
 
OTC summary for all years 1963 - 2011
Avg -0.08% -0.09% 0.07% 0.26% -0.05% 0.11%
Win% 40% 53% 55% 69% 56% 57%
 
SPX Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1956-4 0.07% -0.47% -0.99% -1.13% -0.05% -2.57%
1960-4 -1.18% 0.94% -0.63% -0.56% 0.51% -0.92%
1964-4 -0.17% 0.36% 0.31% -0.06% -0.05% 0.39%
0.43% 0.03% 0.17% -1.26% -1.14% -2.63%
 
1972-4 -0.31% 0.19% 0.77% 0.04% -0.48% 0.21%
1976-4 0.16% 0.85% 0.30% -0.52% -0.58% 0.22%
1980-4 -0.65% 0.25% 0.92% 0.48% 1.44% 2.45%
1984-4 -1.76% 0.42% -1.82% -0.28% 0.57% -2.87%
1988-4 -0.74% 1.05% 1.96% -0.28% 0.66% 2.65%
Avg -0.66% 0.55% 0.43% -0.11% 0.32% 0.53%
 
1992-4 0.65% 0.00% 0.81% -0.82% -0.29% 0.35%
1996-4 0.88% 0.76% 0.56% 0.94% 0.05% 3.19%
2000-4 -0.10% 1.32% -2.09% 0.36% -2.10% -2.60%
2004-4 -0.26% 0.50% 1.07% -0.49% -0.55% 0.28%
2008-4 -1.05% -3.20% -0.76% 0.79% -0.42% -4.64%
Avg 0.03% -0.12% -0.08% 0.16% -0.66% -0.69%
 
SPX summary for Presidential Year 4 1956 - 2008
Avg -0.35% 0.22% 0.04% -0.20% -0.17% -0.46%
Win% 29% 79% 64% 36% 36% 57%
 
SPX summary for all years 1953 - 2011
Avg -0.23% -0.14% 0.12% 0.01% 0.01% -0.21%
Win% 39% 47% 59% 43% 50% 56%


Money supply (M2)

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


Conclusion

So far this year the market has been rising at an unsustainable pace, but, there have been no signs of weakness.

I expect the major averages to be higher on Friday February 10 than they were on Friday February 3.

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 3 /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.

Copyright © 2003-2017 Mike Burk

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com