Technical Market Report for July 14, 2012

By: Mike Burk | Sat, Jul 14, 2012
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The good news is:
• New lows increased only modestly last week while most of the major indices were down for 6 consecutive days.


The negatives

The mid and small cap indices were down last week while the blue chip indices finished the week with modest gains. It is probably the higher betas of the small caps showing rather than a downward turn.

Seasonally, next week has been one of the weakest of the year.


The positives

Corrections give us insight into market strength; last week we had a nice correction and the breadth indicators held up well.

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

In spite of a nearly 3% correction in the OTC, OTC HL Ratio managed to hold above the neutral level.

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

NY HL Ratio is even stronger than OTC HL Ratio and finished the week above 80%.

The sharp decline in prices did not bring a significant increase in the number of new lows.

The chart below covers the past 6 months showing the OTC in blue and a 10% trend (19 day EMA) of NASDAQ new highs (OTC NH) in green.

OTC NH held up quite well while prices fell sharply.

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 also held up very well during the recent correction.


Seasonality

Next week includes the 5 trading days prior to the 3rd Friday of July during the 4th year of the Presidential Cycle.

The tables below show the daily return on a percentage basis for the 5 trading days prior to the 3rd Friday of July 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.

The SPX has not been up during the coming week, during the 4th year of the Presidential Cycle, since 1988.

Report for the week before the 3rd Friday of July.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday through 3rd Friday.

OTC Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1964-4 0.34% -0.15% -0.10% 0.12% -0.05% 0.17%
1968-4 -0.07% -1.00% 0.00% -0.84% -1.41% -3.32%
 
1972-4 -0.76% -0.67% 0.18% -0.53% 0.42% -1.35%
1976-4 0.50% 0.03% 0.51% 0.09% -0.13% 1.00%
1980-4 0.29% -0.40% 0.02% 0.06% -0.17% -0.21%
1984-4 -0.42% -0.08% -0.54% -0.58% -0.66% -2.28%
1988-4 -0.05% -0.16% 0.01% 0.28% -0.02% 0.07%
Avg -0.09% -0.26% 0.04% -0.14% -0.11% -0.55%
 
1992-4 -1.09% 0.77% -0.84% 0.24% 0.07% -0.85%
1996-4 -3.92% -0.63% 3.15% 2.13% -1.09% -0.37%
2000-4 0.67% -2.28% -2.91% 3.18% -2.15% -3.49%
2004-4 -0.48% -0.27% -0.87% -0.11% -1.55% -3.28%
2008-4 -0.14% 1.07% 0.95% -1.97% 1.33% 1.25%
Avg -0.99% -0.27% -0.10% 0.69% -0.68% -1.35%
 
OTC summary for Presidential Year 4 1964 - 2008
Avg -0.43% -0.31% -0.04% 0.17% -0.45% -1.06%
Win% 33% 25% 55% 58% 25% 33%
 
OTC summary for all years 1963 - 2011
Avg -0.12% -0.15% 0.01% 0.02% -0.14% -0.36%
Win% 56% 37% 50% 56% 49% 43%
 
SPX Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1956-4 0.86% 0.35% -0.02% 0.04% 0.06% 1.29%
1960-4 -0.89% -1.09% -0.27% 0.04% -0.12% -2.33%
1964-4 -0.32% -0.24% -0.02% -0.05% -0.02% -0.66%
1968-4 -1.12% -0.12% 0.00% -1.28% 0.41% -2.12%
 
1972-4 -0.86% -0.05% 0.29% -0.31% 0.80% -0.12%
1976-4 0.88% -0.22% 0.26% -0.71% -0.49% -0.28%
1980-4 0.39% -0.26% -0.21% -0.11% -0.83% -1.03%
1984-4 0.48% 0.51% -0.64% -0.68% -0.55% -0.88%
1988-4 0.20% -1.00% 0.55% 0.35% 0.66% 0.76%
Avg 0.21% -0.20% 0.05% -0.29% -0.08% -0.31%
 
1992-4 -0.45% 0.00% -0.68% 0.28% -0.12% -0.97%
1996-4 -2.53% -0.23% 0.91% 1.50% -0.75% -1.11%
2000-4 0.03% -1.11% -0.78% 0.92% -1.03% -1.97%
2004-4 0.14% 0.07% -0.33% -0.43% -0.48% -1.03%
2008-4 -0.05% 1.35% 0.41% -2.31% 0.42% -0.19%
Avg -0.57% 0.02% -0.10% -0.01% -0.39% -1.06%
 
SPX summary for Presidential Year 4 1956 - 2008
Avg -0.23% -0.15% -0.04% -0.20% -0.15% -0.76%
Win% 50% 36% 38% 43% 36% 14%
 
SPX summary for all years 1953 - 2011
Avg -0.12% -0.23% 0.02% -0.02% -0.09% -0.43%
Win% 47% 31% 50% 57% 51% 37%


Money Supply (M2)

The money supply chart was supplied by Gordon Harms. M2 has continued at an elevated rate.

M2


Conclusion

The indicators held up well during the recent correction suggesting higher prices ahead. Seasonally the coming week has been one of the worst of the year.

I expect the major averages to be higher on Friday July 20 than they were on Friday July 13.

Last week the secondaries were down while the blue chips were up so I am calling last weeks positive forecast a tie.

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Good Luck,

YTD W 8 /L11/T 9

 


 

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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