Technical Market Report for May 5, 2012

By: Mike Burk | Sat, May 5, 2012
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The good news is:
• There should be a good buying opportunity near the end of the month.


The negatives

Last week finished badly. New lows hit threatening levels on both the NYSE and NASDAQ.

The chart below covers the past 6 months showing the NASDAQ composite in blue and a 10% trend (19 day EMA) of NASDAQ new lows (OTC NL) in red. OTC NL has been plotted on an inverted Y axis so decreasing new lows move the indicator upward (up is good). Dashed vertical lines have been drawn on the 1st trading day of each month.

OTC NL is at its lowest point in months and heading downward.

A positive, is this indicator is easy to read because it reverses and moves upward sharply when a bottom has been reached as you can see on the left side of the chart.


The positives

The breadth indicators took a thumping last week, but for many of them the positive pattern of higher highs and higher lows has not been broken.

The chart below covers the past 6 months showing the 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 is still slightly above the neutral 50% level.

The chart below 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.

At 70% NY HL Ratio is still in pretty good shape. The direction it appears to be headed is a problem.


Seasonality

Next week includes the 5 trading days prior to the 2nd Friday of May 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 May during the 4th year of the Presidential Cycle.

OTC data covers the period from 1963 - 2011 and SPX data covers the period from 1953 - 2011. 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.

Average returns for the coming week have been negative by all measures.

Report for the week before the 2nd Friday of May.
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 0.85% -0.36% 0.59% 0.25% 0.18% 1.51%
1968-4 0.09% 0.18% 0.53% 0.26% -0.56% 0.51%
 
1972-4 -0.63% -2.21% 0.79% 0.93% 1.16% 0.05%
1976-4 0.59% 0.04% 0.06% -0.46% -0.49% -0.26%
1980-4 0.56% 0.84% 0.95% -0.22% -0.14% 1.99%
1984-4 0.18% 0.43% 0.07% 0.12% -0.93% -0.12%
1988-4 -0.83% -0.22% -1.65% 0.27% 0.61% -1.83%
Avg -0.02% -0.22% 0.04% 0.13% 0.04% -0.03
 
1992-4 0.93% 0.78% 0.22% -0.37% -0.24% 1.32%
1996-4 0.14% -0.30% 0.06% 0.37% 1.26% 1.53%
2000-4 -3.86% -2.30% -5.59% 3.39% 0.84% -7.51%
2004-4 -1.14% 1.86% -0.30% 0.02% -1.13% -0.69%
2008-4 -0.52% 0.78% -1.80% 0.52% -0.23% -1.26%
Avg -0.89% 0.16% -1.48% 0.79% 0.10% -1.32%
 
OTC summary for Presidential Year 4 1964 - 2008
Avg -0.30% -0.04% -0.51% 0.42% 0.03% -0.40%
Win% 58% 58% 67% 75% 42% 50%
 
OTC summary for all years 1963 - 2011
Avg 0.05% -0.09% -0.01% -0.09% 0.04% -0.10%
Win% 53% 51% 53% 59% 57% 55%
 
SPX Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1956-4 -0.60% -0.41% -0.17% -1.63% -0.08% -2.89%
1960-4 0.09% -0.69% 0.28% 0.51% 0.82% 1.01%
1964-4 0.37% 0.51% 0.22% 0.11% -0.18% 1.03%
1968-4 -0.31% 0.56% 0.01% -0.53% 0.11% -0.16%
 
1972-4 -0.46% -1.32% 0.65% 0.33% 0.58% -0.22%
1976-4 1.20% -0.15% -0.17% -0.59% -0.80% -0.52%
1980-4 0.76% -0.12% 0.88% -0.98% -1.33% -0.80%
1984-4 0.23% 0.66% -0.26% -0.07% -0.94% -0.38%
1988-4 -0.37% 0.42% -1.67% 0.21% 1.15% -0.25%
Avg 0.27% -0.10% -0.12% -0.22% -0.27% -0.43%
 
1992-4 1.06% -0.02% -0.01% -0.23% 0.05% 0.86%
1996-4 -0.13% -0.40% 1.02% 0.10% 1.03% 1.63%
2000-4 -0.59% -0.85% -2.05% 1.79% 0.94% -0.77%
2004-4 -1.05% 0.77% 0.17% -0.08% -0.07% -0.26%
2008-4 -0.45% 0.77% -1.81% 0.37% -0.67% -1.81%
Avg -0.23% 0.05% -0.54% 0.39% 0.25% -0.07%
 
SPX summary for Presidential Year 4 1956 - 2008
Avg -0.02% -0.02% -0.21% -0.05% 0.04% -0.25%
Win% 43% 43% 50% 50% 50% 29%
 
SPX summary for all years 1953 - 2011
Avg 0.00% 0.01% -0.01% -0.15% 0.03% -0.12%
Win% 41% 47% 53% 47% 53% 42%


Money supply (M2)

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

M2 Money Supply


Conclusion

The market had a bad week and seasonality for next week is negative.

I expect the major averages to be lower on Friday May 11 than they were on Friday May 4.

Last weeks positive forecast was a miss.

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Gordon Harms produces a Power Point for our local timing group meetings, you can get a copy of that at: http://www.stockmarket-ta.com/

In his latest newsletter, Jerry Minton looks at what it takes to be #1 over the long-term. You can get his bi-weekly letter for free by subscribing at the home page at www.alphaim.net.

Good Luck,

YTD W 5 /L7 /T 6

 


 

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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