Technical Market Report for October 26, 2013

By: Mike Burk | Sat, Oct 26, 2013
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The good news is:
• The NASDAQ composite (OTC) closed at a multi year high on Friday while most of the other broad based indices closed at all time highs.


The negatives

Negatives are hard to find.

New highs, which have been lagging for months, picked up nicely last week.

Volume also picked up.


The positives

New highs picked up, new lows remained dormant, volume picked up and most of the indices closed at new highs. This is about as good as it gets.

The chart below covers the past 6 months showing the NASDAQ composite (OTC) in blue and a 40% trend (4 day EMA) of NASDAQ new highs divided by (new highs + new lows), (OTC HL Ratio) in red. Dashed vertical lines have been drawn on the 1st trading day of each month. Dashed horizontal lines have been drawn at 10% levels for the indicator, the line is solid at the neutral 50% level.

OTC HL Ratio finished the week above 90% again.

There are trading systems that impose a NO SELL filter when variations of this indicator are above 80%.

OTC versus OTC HiLo Ratio Chart

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

NY HL Ratio is also above 90%.

SPX versus NYSE HL Ratio Chart


Seasonality

Next week includes the last 4 trading days of October and the 1st trading day of November during the 1st year of the Presidential Cycle.

The tables below show the daily percentage return for the last 4 trading days of October and the 1st trading day of November during the 1st year of the Presidential Cycle.

OTC data covers the period from 1963 - 2012 while SPX data runs from 1928 - 2012. There are summaries for both the 1st year of the Presidential Cycle and all years combined.

Average returns for the coming week have been modestly positive over all periods.

Report for the last 4 days of October and first day of November.
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 1
  Day4 Day3 Day2 Day1 Day1 Totals
1965-1 -0.56% 2 0.24% 3 -0.26% 4 0.55% 5 0.29% 1 0.26%
1969-1 0.29% 2 0.08% 3 0.06% 4 0.79% 5 0.08% 1 1.29%
 
1973-1 0.43% 5 -0.62% 1 -1.30% 2 -0.42% 3 -0.50% 4 -2.41%
1977-1 0.03% 3 0.22% 4 0.43% 5 0.03% 1 -0.80% 2 -0.09%
1981-1 0.84% 2 0.59% 3 -0.35% 4 1.12% 5 1.03% 1 3.23%
1985-1 -0.11% 1 0.67% 2 0.39% 3 0.10% 4 0.54% 5 1.59%
1989-1 -1.02% 4 -1.18% 5 -0.31% 1 0.94% 2 0.22% 3 -1.34%
Avg 0.03% -0.06% -0.23% 0.35% 0.10% 0.20%
 
1993-1 -0.56% 2 0.84% 3 0.21% 4 0.75% 5 0.58% 1 1.81%
1997-1 2.00% 2 0.16% 3 -2.00% 4 1.48% 5 2.00% 1 3.64%
2001-1 -0.37% 5 -2.00% 1 -1.89% 2 1.37% 3 2.00% 4 -0.89%
2005-1 -0.45% 3 -1.73% 4 1.26% 5 1.46% 1 -0.29% 2 0.25%
2009-1 -1.20% 2 -2.00% 3 1.84% 4 -2.00% 5 0.20% 1 -3.16%
Avg -0.11% -0.94% -0.12% 0.61% 0.90% 0.33%
 
OTC summary for Presidential Year 1 1965 - 2009
Averages -0.06% -0.39% -0.16% 0.51% 0.45% 0.35%
% Winners 42% 58% 50% 83% 75% 58%
MDD 10/30/2001 4.20% -- 10/30/2009 3.37% -- 11/1/1973 2.81%
 
OTC summary for all years 1963 - 2012
Averages 0.01% -0.06% 0.21% 0.29% 0.21% 0.67%
% Winners 44% 62% 56% 68% 64% 62%
MDD 10/31/1978 6.95% -- 10/30/2001 4.20% -- 11/1/2011 3.94%
 
SPX Presidential Year 1
  Day4 Day3 Day2 Day1 Day1 Totals
1929-1 -2.00% 1 -2.00% 2 2.00% 3 2.00% 4 -2.00% 1 -2.00%
 
1933-1 1.06% 5 -1.36% 6 -2.00% 1 -0.88% 2 1.79% 3 -1.40%
1937-1 0.17% 3 2.00% 4 2.00% 5 0.08% 6 -2.00% 1 2.25%
1941-1 -0.10% 2 -0.31% 3 0.00% 4 -1.25% 5 0.42% 6 -1.24%
1945-1 0.49% 5 -0.79% 1 0.12% 2 1.65% 3 1.32% 4 2.79%
1949-1 0.56% 4 -0.43% 5 0.31% 6 -0.56% 1 1.00% 2 0.88%
Avg 0.43% -0.18% 0.09% -0.19% 0.51% 0.66%
 
1953-1 -0.21% 2 0.12% 3 1.19% 4 -0.16% 5 0.49% 1 1.44%
1957-1 -0.42% 1 0.67% 2 0.81% 3 0.10% 4 -1.51% 5 -0.35%
1961-1 0.18% 4 -0.18% 5 0.12% 1 0.29% 2 0.16% 3 0.57%
1965-1 0.58% 2 0.34% 3 -0.32% 4 0.23% 5 -0.21% 1 0.61%
1969-1 -0.29% 2 -0.87% 3 0.12% 4 0.32% 5 -0.09% 1 -0.81%
Avg -0.03% 0.02% 0.38% 0.15% -0.23% 0.29%
 
1973-1 0.80% 5 -0.21% 1 -1.64% 2 -0.95% 3 -0.55% 4 -2.55%
1977-1 1.21% 3 0.26% 4 0.29% 5 -0.29% 1 -1.07% 2 0.40%
1981-1 0.96% 2 0.13% 3 -0.33% 4 2.00% 5 1.90% 1 4.66%
1985-1 0.13% 1 0.78% 2 0.44% 3 -0.13% 4 0.90% 5 2.12%
1989-1 -1.33% 4 -0.85% 5 0.00% 1 1.58% 2 0.25% 3 -0.36%
Avg 0.35% 0.02% -0.24% 0.44% 0.28% 0.85%
 
1993-1 0.02% 2 0.07% 3 0.67% 4 0.02% 5 0.27% 1 1.05%
1997-1 2.00% 2 -0.23% 3 -1.68% 4 1.21% 5 2.00% 1 3.30%
2001-1 0.41% 5 -2.00% 1 -1.72% 2 0.00% 3 2.00% 4 -1.31%
2005-1 -0.43% 3 -1.05% 4 1.65% 5 0.72% 1 -0.35% 2 0.54%
2009-1 -0.33% 2 -1.95% 3 2.00% 4 -2.00% 5 0.65% 1 -1.64%
Avg 0.33% -1.03% 0.19% -0.01% 0.91% 0.39%
 
SPX summary for Presidential Year 1 1929 - 2009
Averages 0.16% -0.37% 0.19% 0.19% 0.25% 0.43%
% Winners 62% 38% 67% 57% 62% 57%
MDD 10/31/1933 4.19% -- 10/29/1929 3.96% -- 10/31/2001 3.68%
 
SPX summary for all years 1928 - 2012
Averages 0.13% 0.00% 0.21% 0.16% 0.26% 0.75%
% Winners 60% 53% 58% 58% 63% 65%
MDD 10/31/1930 4.85% -- 10/31/1978 4.27% -- 10/31/1933 4.19%


Money Supply (M2)

The money supply chart was provided by Gordon Harms. Money supply growth is a little above its long term trend.

M2 Money Supply versus SPX Chart


November

Since 1963, over all years, the OTC in November has been up 68% of the time with an average gain of 1.5%. During the 1st year of the Presidential Cycle November has been up 83% time with an average gain of 2.1% The best November ever for the OTC was 2001 (+14.2%), the worst 2000 (-22.9%).

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 November over all years since 1963 while the green line shows the average during the 1st year of the Presidential Cycle over the same period.

OTC November Chart 1963-2013

Since 1928 the SPX has been up 58% of the time in November with an average gain of 0.6%. During the 1st year of the Presidential Cycle the SPX has been up 67% of the time with an average gain of 0.5%. The best November ever for the SPX was 1928 +12.0% the worst 1929 -13.4%.

The chart below is similar to the one above except it shows the average daily performance over all years for the SPX in November in red and the performance during the 1st year of the Presidential Cycle in green.

SPX November Chart 1928-2013

Since 1979 the Russell 2000 (R2K) has been up 65% of the time in November with an average gain of 1.8%. During the 1st year of the Presidential Cycle the R2K has been up 75% of the time in November with an average gain of 2.7%. The best November ever for the R2K, 2002 +8.8%, the worst 2008 -12.0%.

The chart below is similar to those above except it shows the daily performance over all years of the R2K in November in magenta and the performance during the 1st year of the Presidential Cycle in green.

Russell 2000 November Chart 1979-2013

Since 1885 the DJIA has been up 58% of the time in November with an average gain of 0.8%. During the 1st year of the Presidential Cycle the DJIA has been up 63% of the time in November with an average gain of 0.5%. The best November ever for the DJIA, 1928 +16.3%, the worst 1973 -14.0%.

The chart below is similar to those above except it shows the daily performance over all years of the DJIA in November in cyan and the performance during the 1st year of the Presidential Cycle in green.

Dow Jones Industrial Average November Chart 1885-2013


Conclusion

The market has everything going for it right now. It can only get worse, but, there is no evidence of that now.

I expect the major averages to be higher on Friday November 1 than they were on Friday October 25.

This report is free to anyone who wants it, so please tell your friends. They can sign up at: http://www.alphaim.net/signup.html. If it is not for you, reply with REMOVE in the subject line.

Good Luck,

YTD W 20/L 13/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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