Technical Market Report for August 18, 2012

By: Mike Burk | Sat, Aug 18, 2012
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The good news is:
• The Dow Jones Industrial Average (DJIA) closed at a multi year high Friday while the S&P 500 (SPX) fell short of a multi year high by only 0.1%.


The negatives

Typically the small caps lead both up and down. An exception usually occurs near intermediate term highs when the blue chips advance ahead of the small caps and the breadth indicators confirm the small cap under performance. We are beginning to see stronger blue chip performance unconfirmed by the small caps and breadth indicators. The DJIA closed at a multi year high on Friday while the SPX fell 0.1% short, the NASDAQ composite (OTC) missed by 1.5% the S&P mid cap missed by 2.7% and the Russell 2000 (R2K) was 3.1% short of its all time high reached last spring. These short comings may be overcome in the next few weeks, but, otherwise could be signaling a developing top.

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. Dashed vertical lines have been drawn on the 1st trading day of each month.

OTC NH has failed to confirm the sharp upward move of the OTC this month.

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

NY NH has been much stronger than OTC NH probably because of the high percentage of fixed income related issues traded on the NYSE. Fixed income issues have been weak for the past week and a half and it shows on this chart.

The next chart is similar to the one above except it covers the past 5 years.

NY NH has had a series of lower highs over the past 2 years.


The positives

On average the small caps have been weaker than the blue chips in August so the recent under performance of the small caps may be just a seasonal phenomena. Since 1979 the average return of the R2K in August has been 0.1% while the SPX over the same period has been about 0.4%.

Volume and new highs have been weak, but new lows have also been minimal and down side volume is near multi year lows.

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 for the indicator, the line is solid at the neutral 50% level.

NY HL Ratio fell a little last week, but closed above 90% Friday.

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 at 71% is also quite strong.

Over the past decade most of the volume of NYSE listed issues has moved off the exchange floor. Recently only about 1/6 of the total volume of NYSE listed issues has been traded on the exchange. Volume traded on the exchange floor is what I have been following.

The chart below covers the past 6 months showing the SPX in red and a 5% trend (39 day EMA) of downside volume (NY DV) traded on the exchange. NY DV has been plotted on an inverted Y axis so decreasing volume moves the indicator upward (up is good).

NY DV hit its lowest low in about 12 years on Friday.


Seasonality

Next week includes the 5 trading days prior to the 4th 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 4th 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 most measures.

Report for the week before the 4th Friday of August.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday through the 4th Friday.

OTC Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1964-4 0.56% -0.05% -0.51% 0.12% 0.46% 0.59%
1968-4 0.69% 0.69% 0.00% -0.50% 0.06% 0.94%
 
1972-4 -0.11% 0.00% -0.14% -0.53% -0.07% -0.85%
1976-4 -0.65% -0.52% 0.47% -0.39% -0.07% -1.17%
1980-4 -1.47% -0.54% 0.79% 1.26% 0.99% 1.03%
1984-4 -0.06% 1.24% 0.21% 0.10% 0.26% 1.75%
1988-4 -0.98% -0.05% 0.67% -0.53% 0.10% -0.79%
Avg -0.65% 0.03% 0.40% -0.02% 0.24% 0.00%
 
1992-4 -1.47% -0.21% 0.83% 0.80% 0.05% -0.01%
1996-4 -0.25% -0.55% 0.19% 1.53% -0.08% 0.84%
2000-4 0.58% 0.13% 1.33% 1.05% -0.26% 2.84%
2004-4 0.04% -0.10% 1.30% -0.42% 0.49% 1.31%
2008-4 -1.45% -1.35% 0.20% -0.36% 1.44% -1.52%
Avg -0.51% -0.42% 0.77% 0.52% 0.33% 0.69%
 
OTC summary for Presidential Year 4 1964 - 2008
Avg -0.38% -0.12% 0.48% 0.18% 0.28% 0.41%
Win% 33% 27% 82% 50% 67% 58%
 
OTC summary for all years 1963 - 2011
Avg -0.11% 0.01% 0.36% -0.17% 0.20% 0.27%
Win% 41% 55% 68% 51% 61% 59%
 
SPX Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1956-4 -1.17% -0.75% -0.98% 1.22% -0.10% -1.78%
1960-4 0.32% 0.98% 0.55% -0.48% -0.33% 1.04%
1964-4 -0.19% -0.57% -0.15% 0.47% 0.35% -0.09%
1968-4 0.32% -0.04% 0.00% -0.26% -0.01% 0.01%
 
1972-4 -0.04% 0.62% -0.13% -1.10% -0.32% -0.97%
1976-4 -0.40% -0.68% 0.75% -0.70% 0.16% -0.86%
1980-4 -1.85% -0.64% 0.95% 1.37% 0.45% 0.27%
1984-4 0.49% 1.75% -0.46% 0.04% 0.23% 2.05%
1988-4 -1.25% 0.04% 1.57% -0.75% 0.19% -0.19%
Avg -0.61% 0.22% 0.54% -0.23% 0.14% 0.06%
 
1992-4 -1.00% 0.22% 0.46% 0.00% 0.32% 0.00%
1996-4 0.21% -0.14% -0.09% 0.85% -0.55% 0.28%
2000-4 0.52% -0.09% 0.52% 0.16% -0.12% 0.99%
2004-4 -0.24% 0.05% 0.80% 0.01% 0.24% 0.86%
2008-4 -1.51% -0.93% 0.62% 0.25% 1.13% -0.44%
Avg -0.40% -0.18% 0.46% 0.25% 0.20% 0.34%
 
SPX summary for Presidential Year 4 1956 - 2008
Avg -0.41% -0.01% 0.34% 0.08% 0.12% 0.08%
Win% 36% 43% 62% 64% 57% 57%
 
SPX summary for all years 1953 - 2011
Avg -0.14% 0.05% 0.22% -0.19% 0.02% -0.06%
Win% 42% 56% 60% 46% 49% 59%


Money supply (M2)

The money supply chart was provided by Gordon Harms. M2 has leveled off over the past 2 weeks.


Conclusion

It appears the sellers have all gone on vacation.

I expect the major averages to be higher on Friday August 24 than they were on Friday August 17.

Last weeks negative forecast was a miss.

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Good Luck,

YTD W 9 /L13/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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