Technical Market Report for March 31, 2012

By: Mike Burk | Sun, Apr 1, 2012
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The good news is:
• In spite of finishing the week with 4 consecutive down days there was no increase in the number of new lows.


The negatives

New highs have been lackluster throughout this rally, but, that has not mattered, the large cap issues that account for most of the market's capitalization have pulled the indices up impressively.

The chart below covers the past 6 months showing the S&P 500 (SPX) in red and a 10% trend (19 day EMA) of NYSE new highs (NY NH) in green. Dashed vertical lines have been drawn on the 1st trading day of each month.

Since early February the SPX and NY NH have been going in opposite directions.


The positives

There still has been no significant build up of 52 week new lows. Unless and until there is a build up of 52 week new lows there will be little price deterioration.

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.

OTC HL Ratio closed at 82% Friday. There are trading systems that impose a No Sell Filter when variations of this indicator are above 80%. That filter would have served them well over the past 3 months.

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

NY HL Ratio has been ratcheting lower for the past month and is now lower than OTC HL Ratio. A condition we have not seen for many years.


Seasonality

Next week includes the first 4 trading days of April during the 4th year of the Presidential Cycle. It is also includes the 4 trading days prior to Good Friday.

The tables below show the return on a percentage basis for the first 5 trading days of April during the 4th year of the Presidential Cycle.

OTC data covers the period from 1963 - 2011 and SPX data covers the period from 1928 - 2011. There are summaries for both the 4th year of the Presidential Cycle and all years combined.

By all measures, average returns for the coming week have been positive.

Report for the first 4 days of April.
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
  Day1 Day2 Day3 Day4 Totals
1964-4 0.05% 3 0.72% 4 0.95% 5 0.37% 1 1.99%
1968-4 2.39% 1 0.13% 2 0.98% 3 0.20% 4 3.70%
 
1972-4 -0.06% 1 0.56% 2 0.95% 3 0.71% 4 2.15%
1976-4 -0.20% 4 0.21% 5 0.88% 1 0.13% 2 1.03%
1980-4 1.63% 2 2.00% 3 0.15% 4 -1.92% 1 1.87%
1984-4 -0.39% 1 -0.37% 2 -0.15% 3 -1.11% 4 -2.02%
1988-4 -0.73% 1 0.41% 2 1.16% 3 0.30% 4 1.14%
Avg 0.05% 0.56% 0.60% -0.38% 0.83%
 
1992-4 -0.28% 3 -1.37% 4 -0.64% 5 1.06% 1 -1.23%
1996-4 0.47% 1 0.42% 2 0.41% 3 0.21% 4 1.52%
2000-4 -7.63% 1 -1.77% 2 0.49% 3 2.36% 4 -6.56%
2004-4 1.04% 4 2.09% 5 1.07% 1 -0.92% 2 3.28%
2008-4 3.67% 2 -0.06% 3 0.08% 4 0.32% 5 4.02%
Avg -0.55% -0.14% 0.28% 0.61% 0.21%
 
OTC summary for Presidential Year 4 1964 - 2008
Averages -0.01% 0.25% 0.53% 0.14% 0.91%
% Winners 42% 67% 83% 75% 75%
MDD 4/4/2000 9.27% -- 4/3/1992 2.28% -- 4/5/1984 2.01%
 
OTC summary for all years 1963 - 2011
Averages -0.02% 0.20% 0.20% 0.18% 0.55%
% Winners 53% 65% 73% 57% 65%
MDD 4/4/2001 10.95% -- 4/4/2000 9.27% -- 4/5/1973 4.63%
 
SPX Presidential Year 4
  Day1 Day2 Day3 Day4 Totals
1928-4 -1.15% 1 0.58% 2 -0.16% 3 1.26% 4 0.54%
 
1932-4 -1.78% 5 -1.11% 6 -0.56% 1 -4.67% 2 -8.13%
1936-4 1.81% 3 0.99% 4 -0.46% 5 0.79% 6 3.13%
1940-4 -0.33% 1 0.33% 2 1.55% 3 0.64% 4 2.20%
1944-4 0.17% 6 -0.66% 1 0.08% 2 0.08% 3 -0.33%
1948-4 0.27% 4 0.20% 5 0.00% 6 0.20% 1 0.66%
Avg 0.03% -0.05% 0.12% -0.59% -0.50%
 
1952-4 -0.78% 2 -0.25% 3 0.00% 4 -0.41% 5 -1.44%
1956-4 0.45% 1 -0.35% 2 0.56% 3 -0.47% 4 0.19%
1960-4 0.16% 5 0.20% 1 0.59% 2 1.15% 3 2.10%
1964-4 0.33% 3 0.58% 4 0.30% 5 0.10% 1 1.31%
1968-4 2.53% 1 0.17% 2 0.90% 3 0.40% 4 3.99%
Avg 0.54% 0.07% 0.47% 0.15% 1.23%
 
1972-4 0.26% 1 0.60% 2 0.81% 3 0.39% 4 2.06%
1976-4 -0.52% 4 0.01% 5 1.23% 1 -0.14% 2 0.58%
1980-4 0.09% 2 0.49% 3 -0.52% 4 -1.92% 1 -1.86%
1984-4 -0.75% 1 -0.20% 2 -0.08% 3 -1.59% 4 -2.62%
1988-4 -1.08% 1 0.94% 2 2.70% 3 0.25% 4 2.82%
Avg -0.40% 0.37% 0.83% -0.60% 0.20%
 
1992-4 0.13% 3 -0.92% 4 0.26% 5 1.01% 1 0.48%
1996-4 1.27% 1 0.24% 2 0.09% 3 0.00% 4 1.60%
2000-4 0.49% 1 -0.75% 2 -0.49% 3 0.93% 4 0.19%
2004-4 0.53% 4 0.85% 5 0.77% 1 -0.21% 2 1.94%
2008-4 3.59% 2 -0.19% 3 0.13% 4 0.08% 5 3.61%
Avg 1.20% -0.16% 0.15% 0.36% 1.56%
 
SPX summary for Presidential Year 4 1928 - 2008
Averages 0.27% 0.08% 0.37% -0.10% 0.62%
% Winners 67% 62% 62% 62% 76%
MDD 4/5/1932 7.93% -- 4/5/1984 2.60% -- 4/7/1980 2.43%
 
SPX summary for all years 1928 - 2011
Averages 0.16% 0.20% 0.12% 0.16% 0.64%
% Winners 63% 58% 56% 61% 70%
MDD 4/5/1932 7.93% -- 4/4/2001 4.92% -- 4/4/1986 4.27%


Money supply (M2)

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

M2


April

Since 1963, over all years, the OTC in April has been up 71% of the time with an average gain of 1.8%. During the 4th year of the Presidential Cycle April has been up 58% time with an average gain of 1.3%. The best April for the OTC was 2001 (+18.7%), the worst 1970 (-18.9%).

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 April 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 60% of the time in April with an average gain of 1.2%. During the 4th year of the Presidential Cycle the SPX has been up 52% of the time with an average loss of -0.9% (helped considerably by an 18.8% loss in 1932). The best April for the SPX was 1933 (+41.5%) the worst 1932 (-18.8%). The SPX has not had a double digit % move in April since 1933.

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

Since 1979 the R2K has been up 70% of the time in April with an average gain of 2.0%. During the 4th year of the Presidential Cycle the R2K has been up 50% of the time with an average gain of 0.3%. The best April for the R2K, 2009 (+13.6%), the worst 2004 (-6.0%)

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

Since 1885 the DJIA has been up 60% of the time in April with an average gain of 1.2%. During the 4th year of the Presidential Cycle the DJIA has been up 55% of the time in April with an average loss of -0.8%. The best April for the DJIA 1933 (+39.5%), the worst 1932 (-22.3%)

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


Conclusion

The market appears to be consolidating its gains of the past several months. New highs have been declining, but new lows have not been increasing so risk remains limited. Seasonally next week has been strong by all measures

I expect the major averages to be higher on Thursday April 6 than they were on Friday March 30.

Last weeks negative forecast was a miss

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Good Luck,

YTD W 3 /L 5 /T 5

 


 

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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