Technical Market Report for August 11, 2012

By: Mike Burk | Sat, Aug 11, 2012
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The good news is:
• Most of the blue chip indices closed at multi month highs on Friday.


The negatives

The market is overbought. The S&P 500 (SPX) was up for the sixth consecutive days as of last Friday, an event not seen in nearly 2 years.

Advance - Decline lines (ADL) are running totals of declining issues subtracted from advancing issues. The NYSE ADL was also up for 6 consecutive days and closed at an all time high last Friday.

The chart below covers the past 6 months showing the SPX in red and an indicator showing the percentage of the previous 6 days the NYSE ADL has been up (NY ADL %UP) in blue. NY ADL %UP touches the top of the chart when the NY ADL has been up for 6 consecutive days and it touches the bottom of the chart when the NY ADL has been down for 6 consecutive days. Dashed vertical lines have been drawn on the 1st trading day of each month.

The NY ADL has a more positive bias than the SPX. In the past 6 months it has had 2 other occurrences of 6 consecutive up days which were each followed by short, but sharp price declines.

The next chart shows the NASDAQ composite (OTC) in blue and a 10% trend (19 day EMA) of NASDAQ new highs (OTC NH) in green.

OTC NH failed to confirm the rally of the past 2 weeks.


The positives

New highs and new lows both declined on both the NYSE and NASDAQ last week. Declining new highs are a negative, but, as long as new lows do not increase significantly, any price decline is likely to be short term.

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.

NY HL Ratio closed Friday at an extremely high 93%.

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

OTC HL Ratio is not nearly as strong as NY HL Ratio, but it held above the neutral level.


Seasonality

Next week includes the 5 trading days prior to the 3rd Friday of August 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 August 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 modestly positive by all measures.

Report for the week before the 3rd Friday of August.
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 0.22% 0.05% 0.17% 0.00% -0.22% 0.22%
1968-4 0.21% 0.46% 0.00% 0.65% 0.46% 1.78%
 
1972-4 0.02% -0.17% -0.01% -0.50% 0.48% -0.19%
1976-4 -0.04% 0.26% -0.17% -1.21% -0.61% -1.77%
1980-4 0.70% -0.28% 0.23% 0.98% 0.63% 2.26%
1984-4 -0.43% -0.29% -0.37% 0.25% 0.02% -0.82%
1988-4 -1.29% 0.43% 0.15% 0.27% 0.05% -0.39%
Avg -0.21% -0.01% -0.04% -0.04% 0.12% -0.18%
 
1992-4 -0.12% -0.28% -0.57% 0.04% -0.73% -1.66%
1996-4 0.09% -1.06% 0.65% 0.11% -0.09% -0.31%
2000-4 1.59% 0.05% 0.25% 2.06% -0.27% 3.68%
2004-4 1.46% 0.70% 2.01% -0.63% 1.00% 4.54%
2008-4 1.07% -0.38% -0.08% 1.03% -0.05% 1.59%
Avg 0.82% -0.20% 0.45% 0.52% -0.03% 1.57%
 
OTC summary for Presidential Year 4 1964 - 2008
Avg 0.29% -0.04% 0.20% 0.28% 0.06% 0.74%
Win% 67% 50% 55% 73% 50% 50%
 
OTC summary for all years 1963 - 2011
Avg 0.22% -0.01% 0.24% -0.11% -0.08% 0.25%
Win% 65% 50% 62% 52% 55% 55%
 
SPX Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1956-4 -1.04% 0.66% 0.18% -0.22% -0.12% -0.54%
1960-4 -0.09% 0.19% 0.21% -0.05% 0.35% 0.62%
1964-4 0.01% 0.05% -0.10% -0.46% 0.16% -0.34%
1968-4 1.03% 0.53% 0.00% -0.47% 0.62% 1.72%
 
1972-4 0.54% -0.44% -0.36% -0.29% 0.38% -0.17%
1976-4 0.17% 0.35% -0.23% -1.12% -0.99% -1.81%
1980-4 0.95% -0.79% -0.41% 1.60% 0.38% 1.71%
1984-4 0.01% -0.61% -0.99% 0.60% 0.23% -0.77%
1988-4 -0.88% 0.12% 0.08% 0.10% -0.30% -0.88%
Avg 0.16% -0.27% -0.38% 0.18% -0.06% -0.38%
 
1992-4 0.20% 0.14% -0.75% 0.02% -0.82% -1.21%
1996-4 0.55% -0.84% 0.28% 0.04% 0.44% 0.47%
2000-4 1.34% -0.48% -0.31% 1.10% -0.29% 1.36%
2004-4 1.37% 0.22% 1.24% -0.36% 0.65% 3.12%
2008-4 0.69% -1.21% -0.29% 0.55% 0.41% 0.16%
Avg 0.83% -0.43% 0.03% 0.27% 0.08% 0.78%
 
SPX summary for Presidential Year 4 1956 - 2008
Avg 0.35% -0.15% -0.11% 0.07% 0.08% 0.25%
Win% 79% 57% 38% 50% 64% 50%
 
SPX summary for all years 1953 - 2011
Avg 0.18% 0.00% 0.00% -0.06% 0.06% 0.18%
Win% 66% 51% 57% 49% 61% 53%


Conclusion

The market is overbought and some of the breadth indicators weakened last week.

I expect the major averages to be lower on Friday August 17 than they were on Friday August 10.

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Good Luck,

YTD W 9 /L12/T 11

 


 

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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