Technical Market Report for July 28, 2012

By: Mike Burk | Sat, Jul 28, 2012
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The good news is:
• Many of the major indices closed at multi month highs on Friday.


The negatives

The rally last week was good for the blue chips, but not so great for the small caps. The Dow Jones Industrial Average (DJIA) rose 1.97% for the week while the Russell 2000 (R2K) was up only 0.56%.

The chart below covers the past 6 months showing the NASDAQ composite (OTC) in blue and a 10% trend (19 day EMA) of NASDAQ new highs (OTC NH) in green. Dashed vertical lines have been drawn on the 1st trading day of each month.

OTC NH was falling sharply until Friday.

The next chart is similar to the one above except is shows the S&P 500 (SPX) in red and NY NH has been calculated from NYSE data.

NY NH has been much stronger than OTC NH and it began turning upward on Thursday.


The positives

The NYSE is heavily populated with fixed income related issues and those issues have been doing very well and have kept the count of new highs on the NYSE up. The NASDAQ has few fixed income related issues and NASDAQ new highs exceeded new lows on Friday for the first time in about 2 weeks.

The chart below covers the past 6 months showing the SPX in red and a 40% trend (4 day EMA) of NYSE new highs divided by new highs + new lows (NY HL Ratio) in black. Dashed horizontal lines have been drawn at 10% levels of the indicator the line is solid at the neutral 50% level.

NY HL Ratio has held well above the neutral level for over a month.

The next chart is similar to the one above except it shows the OTC in blue and OTC HL Ratio, in red, has been calculated from NASDAQ data.

OTC HL Ratio turned upward at the end of last week, but remains below the neutral level.


Seasonality

Next week includes the last 2 trading days of July and the first 3 trading days of August during the 4th year of the Presidential Cycle.

The tables below show the daily return on a percentage basis for the last 2 trading days of July and the first 3 trading days of August 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.

Average performance during the 4th year of the Presidential Cycle has been considerably stronger than other years.

Report for the last 2 days of July and first 3 days of August.
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 0.05% 4 0.10% 5 0.05% 1 -0.29% 2 -1.24% 3 -1.34%
1968-4 0.21% 1 -1.28% 2 -0.32% 4 -0.19% 5 -0.97% 1 -2.55%
 
1972-4 -0.16% 5 -0.31% 1 0.55% 2 0.73% 3 0.71% 4 1.52%
1976-4 -0.18% 4 0.48% 5 -0.02% 1 0.81% 2 -0.15% 3 0.95%
1980-4 0.74% 3 -0.30% 4 0.40% 5 -0.35% 1 0.37% 2 0.86%
1984-4 -0.15% 1 0.33% 2 1.59% 3 2.37% 4 3.09% 5 7.21%
1988-4 0.20% 4 0.85% 5 0.17% 1 -0.05% 2 0.19% 3 1.35%
Avg 0.09% 0.21% 0.54% 0.70% 0.84% 2.38%
 
1992-4 0.23% 4 0.35% 5 0.26% 1 -0.18% 2 -0.77% 3 -0.10%
1996-4 0.52% 2 0.80% 3 1.68% 4 2.38% 5 -0.39% 1 4.99%
2000-4 -4.66% 5 2.84% 1 -2.16% 2 -0.73% 3 2.77% 4 -1.95%
2004-4 1.23% 4 0.33% 5 0.25% 1 -1.73% 2 -0.23% 3 -0.15%
2008-4 0.44% 3 -0.18% 4 -0.63% 5 -1.10% 1 2.81% 2 1.34%
Avg -0.45% 0.83% -0.12% -0.27% 0.84% 0.83%
 
OTC summary for Presidential Year 4 1964 - 2008
Averages -0.13% 0.33% 0.15% 0.14% 0.51% 1.01%
% Winners 67% 67% 67% 33% 50% 58%
MDD 8/2/2000 4.78% -- 8/5/1968 2.74% -- 8/4/2004 1.96%
 
OTC summary for all years 1963 - 2011
Averages -0.01% -0.01% -0.03% -0.19% -0.11% -0.36%
% Winners 61% 51% 54% 39% 49% 53%
MDD 8/5/2002 10.28% -- 8/4/1998 6.98% -- 8/4/1999 6.13%
 
SPX Presidential Year 4
  Day2 Day1 Day1 Day2 Day3 Totals
1928-4 0.00% 1 -0.21% 2 -0.05% 3 -0.46% 4 0.16% 5 -0.57%
 
1932-4 3.08% 5 1.16% 6 0.16% 1 -3.93% 2 8.86% 3 9.33%
1936-4 0.38% 4 -1.06% 5 0.13% 6 0.25% 1 -0.25% 2 -0.56%
1940-4 2.48% 2 -0.39% 3 -0.29% 4 -0.10% 5 0.29% 6 2.00%
1944-4 0.00% 6 0.08% 1 0.55% 2 0.23% 3 -0.62% 4 0.24%
1948-4 -0.80% 4 -1.25% 5 0.00% 1 0.32% 2 1.57% 3 -0.16%
Avg 1.03% -0.29% 0.11% -0.64% 1.97% 2.17%
 
1952-4 0.44% 3 0.12% 4 0.20% 5 -0.08% 1 0.12% 2 0.79%
1956-4 -0.16% 1 0.80% 2 0.06% 3 0.65% 4 -0.20% 5 1.14%
1960-4 0.74% 4 1.72% 5 0.04% 1 -0.88% 2 -0.58% 3 1.03%
1964-4 0.21% 4 0.11% 5 -0.22% 1 -1.25% 2 0.16% 3 -1.00%
1968-4 -0.70% 1 0.09% 2 -0.47% 4 -0.67% 5 0.23% 1 -1.52%
Avg 0.10% 0.57% -0.08% -0.45% -0.06% 0.09%
 
1972-4 0.09% 5 0.01% 1 0.94% 2 0.82% 3 0.78% 4 2.64%
1976-4 -0.12% 4 0.50% 5 -0.24% 1 0.92% 2 0.28% 3 1.34%
1980-4 -0.14% 3 -0.46% 4 -0.38% 5 -0.19% 1 -0.20% 2 -1.36%
1984-4 -0.66% 1 0.31% 2 2.27% 3 2.54% 4 2.76% 5 7.22%
1988-4 1.34% 4 2.26% 5 0.07% 1 -0.06% 2 0.34% 3 3.95%
Avg 0.10% 0.52% 0.53% 0.81% 0.79% 2.76%
 
1992-4 0.40% 4 0.07% 5 0.21% 1 -0.17% 2 -0.51% 3 -0.01%
1996-4 0.69% 2 0.74% 3 1.58% 4 1.92% 5 -0.34% 1 4.58%
2000-4 -2.05% 5 0.77% 1 0.51% 2 0.04% 3 0.96% 4 0.23%
2004-4 0.46% 4 0.12% 5 0.44% 1 -0.63% 2 -0.10% 3 0.30%
2008-4 1.67% 3 -1.31% 4 -0.56% 5 -0.90% 1 2.87% 2 1.77%
Avg 0.23% 0.08% 0.44% 0.05% 0.58% 1.37%
 
SPX summary for Presidential Year 4 1928 - 2008
Averages 0.35% 0.20% 0.24% -0.08% 0.79% 1.49%
% Winners 57% 71% 62% 43% 62% 67%
MDD 8/2/1932 3.93% -- 8/4/2008 2.74% -- 7/28/2000 2.05%
 
SPX summary for all years 1928 - 2011
Averages 0.15% 0.08% 0.11% -0.03% 0.11% 0.41%
% Winners 62% 63% 54% 49% 52% 61%
MDD 8/5/2002 8.45% -- 7/31/1933 6.84% -- 8/4/1998 6.19%


Money Supply (M2)

The money supply chart was supplied by Gordon Harms. M2 growth increased last week.


August

As measured by most of the indices, during the 4th year of the Presidential Cycle, August has been the strongest month of the year.

Since 1963, over all years, the OTC in August has been up 61% of the time with an average gain of 0.3%. During the 4th year of the Presidential Cycle August has been up 67% time with an average gain of 2.3% (helped by a 14.1% gain in 2000). The best August ever for the OTC was 2000 (+14.1%), the worst 1998 (-19.0%).

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 August 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 61% of the time in August with an average gain of 0.6%. During the 4th year of the Presidential Cycle the SPX has been up 67% of the time with an average gain of 2.8% (helped considerably by a 37.3% gain in 1932). The best August for the SPX was 1932 (+37.3%) the worst 1998 (-13.9%).

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

Since 1979 the Russell 2000 (R2K) has been up 61% of the time in August with an average gain of 0.2%. During the 4th year of the Presidential Cycle the R2K has been up 63% of the time with an average gain of 3.0%. The best August ever for the R2K, 1984 (+9.9%), the worst 1998 (-18.2%)

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

Since 1885 the DJIA has been up 66% of the time in August with an average gain of 1.1%. During the 4th year of the Presidential Cycle the DJIA has been up 74% of the time in August with an average gain of 2.4%. The best August ever for the DJIA 1932 (+33.2%), the worst 1998 (-14.2%)

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


Conclusion

The next 6 weeks have historically been the strongest part of the 4th year of the Presidential Cycle.

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

Last weeks negative forecast was a miss.

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Good Luck,

YTD W 8 /L12/T 10

 


 

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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