Technical Market Report for August 25, 2012

By: Mike Burk | Sat, Aug 25, 2012
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The good news is:
• Most of the major indices were down for 4 consecutive days last week and, during that time, there was no build up of new lows.


The negatives

Typically new highs expand as the major indices rise. Failure of new highs to rise with increasing prices often an indicator of a developing top.

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 has failed to confirm this months rally.

The next chart is similar to the one above except it covers the past 2 years.

A pattern of declining new highs is visible both long and short term.

The next chart is similar to the first one except it 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, but it has taken a sharp dive this month.

The next chart is similar to the one above except it covers the past 2 years.

The longer term patterns of NY NH have been similar to OTC NH.


The positives

It is the counter trend days that offer insight into the strength of a move. We had 4 of them last week and the rally looks intact.

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 at a very strong 85%.

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 also fell last week, but held above neutral.


Seasonality

Next week includes the last 5 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 5 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 returns for the coming week have been modestly positive by most measures and a little stronger during the 4th year of the Presidential Cycle than other years.

Report for last 5 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
  Day5 Day4 Day3 Day2 Day1 Totals
1964-4 -0.05% 2 -0.51% 3 0.12% 4 0.46% 5 0.00% 1 0.03%
1968-4 0.06% 5 0.50% 1 0.22% 2 -0.58% 4 0.28% 5 0.48%
 
1972-4 -0.07% 5 -0.41% 1 -0.25% 2 0.26% 3 0.13% 4 -0.34%
1976-4 0.47% 3 -0.39% 4 -0.07% 5 0.16% 1 0.47% 2 0.64%
1980-4 -0.07% 1 0.45% 2 -0.13% 3 -0.64% 4 0.29% 5 -0.10%
1984-4 -0.58% 1 0.43% 2 0.17% 3 -0.10% 4 0.03% 5 -0.05%
1988-4 -0.53% 4 0.10% 5 0.48% 1 0.07% 2 0.02% 3 0.14%
Avg -0.16% 0.03% 0.04% -0.05% 0.19% 0.06%
 
1992-4 -0.21% 2 0.83% 3 0.80% 4 0.05% 5 -0.08% 1 1.39%
1996-4 -0.34% 1 0.86% 2 0.43% 3 -0.77% 4 -0.31% 5 -0.13%
2000-4 -0.26% 5 0.69% 1 0.28% 2 0.53% 3 2.50% 4 3.74%
2004-4 1.30% 3 -0.42% 4 0.49% 5 -1.37% 1 0.09% 2 0.09%
2008-4 -2.03% 1 -0.15% 2 0.87% 3 1.22% 4 -1.83% 5 -1.92%
Avg -0.31% 0.36% 0.57% -0.07% 0.07% 0.63%
 
OTC summary for Presidential Year 4 1964 - 2008
Averages -0.19% 0.16% 0.28% -0.06% 0.13% 0.33%
% Winners 25% 58% 75% 58% 67% 58%
MDD 8/26/2008 2.18% -- 8/30/2004 1.37% -- 8/30/1996 1.07%
 
OTC summary for all years 1963 - 2011
Averages 0.16% -0.16% 0.06% -0.14% 0.12% 0.04%
% Winners 57% 51% 61% 63% 73% 59%
MDD 8/31/1998 16.63% -- 8/30/2001 6.53% -- 8/30/1966 6.30%
 
SPX Presidential Year 4
  Day5 Day4 Day3 Day2 Day1 Totals
1928-4 -0.34% 1 0.79% 2 0.19% 3 0.15% 4 1.26% 5 2.04%
 
1932-4 1.57% 5 2.15% 6 0.12% 1 -1.28% 2 -0.94% 3 1.61%
1936-4 -0.77% 3 2.19% 4 0.19% 5 0.25% 6 0.19% 1 2.05%
1940-4 0.00% 2 1.37% 3 -0.48% 4 1.74% 5 0.57% 6 3.20%
1944-4 -0.23% 5 0.00% 1 0.31% 2 0.23% 3 -0.39% 4 -0.08%
1948-4 -0.19% 3 0.31% 4 0.44% 5 -0.81% 1 -0.06% 2 -0.31%
Avg 0.08% 1.20% 0.11% 0.03% -0.13% 1.30%
 
1952-4 -0.48% 1 -0.16% 2 0.44% 3 0.12% 4 0.24% 5 0.16%
1956-4 -0.60% 1 -0.19% 2 -0.44% 3 -0.89% 4 1.21% 5 -0.91%
1960-4 -0.48% 4 -0.33% 5 -0.28% 1 -1.04% 2 0.21% 3 -1.92%
1964-4 -0.57% 2 -0.15% 3 0.47% 4 0.35% 5 -0.20% 1 -0.09%
1968-4 -0.01% 5 0.25% 1 -0.13% 2 -0.07% 4 0.12% 5 0.16%
Avg -0.43% -0.11% 0.01% -0.31% 0.32% -0.52%
 
1972-4 -0.32% 5 -0.40% 1 0.16% 2 0.14% 3 0.47% 4 0.07%
1976-4 0.75% 3 -0.70% 4 0.16% 5 0.58% 1 0.82% 2 1.62%
1980-4 -0.68% 1 -0.26% 2 -1.06% 3 -1.17% 4 0.25% 5 -2.92%
1984-4 -0.64% 1 0.58% 2 -0.18% 3 -0.30% 4 0.05% 5 -0.49%
1988-4 -0.75% 4 0.19% 5 1.02% 1 0.07% 2 -0.38% 3 0.16%
Avg -0.33% -0.12% 0.02% -0.13% 0.24% -0.31%
 
1992-4 0.22% 2 0.46% 3 0.00% 4 0.32% 5 -0.20% 1 0.80%
1996-4 -0.47% 1 0.38% 2 -0.24% 3 -1.11% 4 -0.82% 5 -2.27%
2000-4 -0.12% 5 0.51% 1 -0.28% 2 -0.48% 3 1.00% 4 0.63%
2004-4 0.80% 3 0.01% 4 0.24% 5 -0.78% 1 0.46% 2 0.74%
2008-4 -1.96% 1 0.37% 2 0.80% 3 1.48% 4 -1.37% 5 -0.68%
Avg -0.31% 0.35% 0.10% -0.11% -0.18% -0.16%
 
SPX summary for Presidential Year 4 1928 - 2008
Averages -0.25% 0.35% 0.07% -0.12% 0.12% 0.17%
% Winners 19% 62% 62% 52% 62% 57%
MDD 8/28/1980 3.13% -- 8/30/1996 2.25% -- 8/31/1932 2.21%
 
SPX summary for all years 1928 - 2011
Averages -0.07% -0.10% 0.00% -0.08% 0.13% -0.11%
% Winners 43% 46% 61% 49% 63% 57%
MDD 8/31/1998 12.39% -- 8/29/1938 6.10% -- 8/29/1966 5.74%


Money supply (M2)

The money supply chart was provided by Gordon Harms. M2 rose quickly last week.

M2


Conclusion

4 consecutive down days with no build up in new lows suggests the rally is still alive.

I expect the major averages to be higher on Friday August 31 than they were on Friday August 24.

Last weeks positive forecast was a miss.

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Good Luck,

YTD W 9 /L14/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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