Technical Market Report for September 1, 2012

By: Mike Burk | Sat, Sep 1, 2012
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The good news is:
• Last week the secondaries outperformed the blue chips for the first time in a while.


The negatives

August was a good month for the market. The NASDAQ composite (OTC) led the way, up over 4%, while the S&P 500 (SPX) added nearly 2%, but there was no expansion of new highs.

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 August's rally.

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

NY NH continued its sharp dive last week.


The positives

Real trouble begins when new lows expand and, so far, that has not happened.

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 83%.

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 continued to hold up last week.


Seasonality

Next week includes the first 4 trading days of September during the 4th year of the Presidential Cycle.

The tables below show the daily return on a percentage basis for the first 4 trading days of September 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 all measures.

Report for the first 4 days of September.
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
  Day1 Day2 Day3 Day4 Totals
1964-4 -0.12% 2 0.07% 3 0.39% 4 0.58% 5 0.92%
1968-4 0.34% 2 0.24% 3 -0.06% 4 0.55% 5 1.07%
 
1972-4 0.58% 5 -0.28% 2 -0.54% 3 -0.32% 4 -0.57%
1976-4 0.99% 3 0.10% 4 0.37% 5 0.21% 2 1.68%
1980-4 0.45% 2 1.20% 3 0.28% 4 0.30% 5 2.24%
1984-4 -1.28% 2 -0.31% 3 0.64% 4 -0.21% 5 -1.16%
1988-4 -0.95% 4 0.95% 5 0.22% 2 0.17% 3 0.38%
Avg -0.04% 0.33% 0.20% 0.03% 0.51%
 
1992-4 0.44% 2 1.00% 3 0.64% 4 -0.25% 5 1.82%
1996-4 0.07% 2 0.13% 3 -1.58% 4 1.22% 5 -0.16%
2000-4 0.66% 5 -2.15% 2 -3.14% 3 2.12% 4 -2.50%
2004-4 0.67% 3 1.24% 4 -1.55% 5 0.76% 2 1.13%
2008-4 -0.77% 2 -0.66% 3 -3.20% 4 -0.14% 5 -4.77%
Avg 0.21% -0.09% -1.77% 0.74% -0.90%
 
OTC summary for Presidential Year 4 1964 - 2008
Averages 0.09% 0.13% -0.63% 0.42% 0.01%
% Winners 67% 67% 50% 67% 58%
MDD 9/6/2000 5.22% -- 9/5/2008 4.72% -- 9/5/1984 1.58%
 
OTC summary for all years 1963 - 2011
Averages 0.06% 0.05% -0.05% 0.22% 0.28%
% Winners 58% 63% 59% 59% 55%
MDD 9/7/2001 6.52% -- 9/4/1974 5.48% -- 9/6/2000 5.22%
 
SPX Presidential Year 4
  Day1 Day2 Day3 Day4 Totals
1928-4 0.00% 6 0.48% 2 0.48% 3 -0.62% 4 0.34%
 
1932-4 0.95% 4 4.37% 5 2.49% 6 -1.66% 2 6.15%
1936-4 -0.25% 2 0.38% 3 -0.37% 4 0.44% 5 0.19%
1940-4 0.00% 2 2.08% 3 1.39% 4 -0.73% 5 2.74%
1944-4 0.31% 5 -0.62% 2 -2.43% 3 -0.32% 4 -3.06%
1948-4 1.19% 3 0.50% 4 0.18% 5 0.49% 2 2.36%
Avg 0.44% 1.34% 0.25% -0.36% 1.68%
 
1952-4 0.48% 2 0.40% 3 -0.04% 4 -0.12% 5 0.72%
1956-4 0.80% 2 0.27% 3 0.17% 4 -0.60% 5 0.63%
1960-4 0.23% 4 -0.16% 5 -0.89% 2 -1.24% 3 -2.06%
1964-4 0.43% 2 0.16% 3 0.30% 4 0.24% 5 1.13%
1968-4 0.47% 2 0.70% 3 0.72% 4 0.46% 5 2.35%
Avg 0.48% 0.27% 0.05% -0.25% 0.55%
 
1972-4 0.38% 5 -0.25% 2 -0.61% 3 -0.24% 4 -0.72%
1976-4 1.12% 3 -0.13% 4 0.37% 5 0.70% 2 2.05%
1980-4 1.10% 2 1.93% 3 -0.56% 4 -0.43% 5 2.05%
1984-4 -1.08% 2 -0.36% 3 0.83% 4 -0.77% 5 -1.38%
1988-4 -1.21% 4 2.37% 5 0.42% 2 0.11% 3 1.69%
Avg 0.06% 0.71% 0.09% -0.13% 0.74%
 
1992-4 0.49% 2 0.46% 3 0.00% 4 -0.22% 5 0.74%
1996-4 0.42% 2 0.13% 3 -0.94% 4 0.96% 5 0.58%
2000-4 0.20% 5 -0.90% 2 -0.98% 3 0.69% 4 -0.99%
2004-4 0.15% 3 1.12% 4 -0.42% 5 0.69% 2 1.54%
2008-4 -0.41% 2 -0.20% 3 -2.99% 4 0.44% 5 -3.16%
Avg 0.17% 0.12% -1.07% 0.51% -0.26%
 
SPX summary for Presidential Year 4 1928 - 2008
Averages 0.27% 0.61% -0.14% -0.08% 0.66%
% Winners 71% 67% 48% 48% 71%
MDD 9/4/2008 3.59% -- 9/7/1944 3.34% -- 9/7/1960 2.28%
 
SPX summary for all years 1928 - 2011
Averages -0.04% 0.11% 0.22% -0.06% 0.22%
% Winners 65% 54% 57% 44% 56%
MDD 9/4/1946 7.15% -- 9/4/1974 4.80% -- 9/7/1933 4.72%


September

As measured by the major indices, September, over all years, has been the weakest month of the year, but not during the 4th year of the Presidential Cycle.

Since 1963, over all years, the OTC in September has been up 61% of the time with an average loss of -0.1%. During the 4th year of the Presidential Cycle September has been up 67% time with an average gain of 0.1%. The best September ever for the OTC was 2010 (+8.8%), the worst 2001 (-15.4%).

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 September 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 45% of the time in September with an average loss of -1.1%. During the 4th year of the Presidential Cycle the SPX has been up 57% of the time with an average loss of -0.7%. The best September for the SPX was 1939 +15.2% the worst 1931 -30.2%.

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

Since 1979 the Russell 2000 (R2K) has been up 55% of the time in September with an average loss of -0.6%. During the 4th year of the Presidential Cycle the R2K has been up 63% of the time with an average gain of 0.3%. The best September ever for the R2K, 2009 +8.3%, the worst 2001 (-13.3%)

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

Since 1885 the DJIA has been up 45% of the time in September with an average loss of -1.0%. During the 4th year of the Presidential Cycle the DJIA has been up 42% of the time in September with no average gain or loss. The best September ever for the DJIA, there were 2 of them, 1916 and 1939, both up +12.8%, the worst 1930 -31.1%.

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


Conclusion

The market followed the average seasonal pattern for the 4th year of the Presidential Cycle pretty closely in August. That pattern calls for modest strength for the next 2+ weeks before deteriorating sharply.

I expect the major averages to be higher on Friday September 5 than they were on Friday August 31.

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

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Good Luck,

YTD W 9 /L14/T 12

 


 

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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