Technical Market Report for September 20, 2014

By: Mike Burk | Sat, Sep 20, 2014
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The good news is:
• The Dow Jones Industrial Average (DJIA) and S&P 500 (SPX) closed at all time highs on Friday.


The negatives

A Hindenburg Omen was triggered on both Thursday and Friday. This signal has not been prophetic in recent years, but it means some conditions are similar to those that preceded previous significant declines.

New lows were at threatening levels every day last week on the NYSE and Monday, Tuesday and Friday on the NASDAQ.

The chart below covers the past 6 months showing the SPX in red and a 10% trend (19 day EMA) of NYSE new lows (NY NL) in blue. NY NL has been plotted on an inverted Y axis so decreasing new lows move the indicator upward (up is good). Dashed vertical lines have been drawn on the 1st trading day of the month.

This is an easy chart to read. The averages usually follow NY NL pretty closely. The divergence at this time is spectacular.

NY NL

The next chart is similar to the one above except it shows the NASDAQ composite (OTC) in blue and OTC NL, in red, has been calculated from NASDAQ data.

The decline in OTC NL, although not as spectacular as that of NY NL, has also been significant.

OTC NL

Advance decline lines (ADL) are a running total of declining issues subtracted from advancing issues. Their behavior varies, but technicians are interested in changes in that behavior and recently there have been some changes, all negative.

The chart below covers the past 6 months showing the OTC in blue and an ADL calculated from NASDAQ data (OTC ADL) in green.

The OTC closed less than 1% off its multi year high on Friday while OTC ADL has been falling sharply in a pattern of progressively lower highs and lower lows.

OTC ADL

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

For more than a decade the NYSE ADL has had a wildly positive bias, it failed to confirm Friday's all time highs in the DJIA and SPX.

NYSE ADL


The positives

New highs picked up a bit last week

The chart below covers the past 6 months showing the SPX in red and a 40% trend (4 day EMA) of NYSE new highs / (new highs + new lows) (NY HL Ratio), in blue. 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 below the neutral line than recovered last week.

NY HL

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

This chart is not really positive, but not seriously negative either. OTC HL Ratio finished the week slightly below the neutral line.

OTC HL


Seasonality

Next week includes the 5 trading days prior to the 4th Friday of September during the 2nd year of the Presidential Cycle.

The tables below show the change, on a percentage basis, of the OTC and SPX for the 5 trading days prior to the 4th Friday of September during the 2nd year of the Presidential Cycle.

OTC data covers the period from 1963 to 2013 while SPX data runs from 1953 through 2013. There are summaries for both the 2nd 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 negative by all measures.

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

OTC Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1966-2 0.34% -0.15% 0.13% -1.18% 0.54% -0.31%
1970-2 -0.01% -0.71% -0.14% 1.10% 2.26% 2.50%
 
1974-2 -0.40% -1.36% -0.15% -1.51% -1.30% -4.72%
1978-2 -1.24% -1.17% -1.04% -0.42% 0.15% -3.73%
1982-2 -0.33% 1.03% 0.38% -0.25% 0.24% 1.07%
1986-2 0.89% 0.23% 0.33% -0.85% 0.03% 0.63%
1990-2 -2.79% 0.74% -1.34% -2.53% 0.97% -4.93%
Avg -0.77% -0.11% -0.37% -1.11% 0.02% -2.34%
 
1994-2 -0.15% -1.28% -0.79% -0.04% -0.39% -2.65%
1998-2 1.00% 1.04% 3.68% -2.27% 1.35% 4.80%
2002-2 -2.96% -0.23% 3.39% -0.06% -1.84% -1.69%
2006-2 0.01% -0.60% 1.37% -0.67% -0.84% -0.73%
2010-2 1.74% -0.28% -0.63% -0.32% 2.33% 2.84%
Avg -0.07% -0.27% 1.41% -0.67% 0.12% 0.51%
 
OTC summary for Presidential Year 2 1966 - 2010
Avg -0.33% -0.23% 0.43% -0.75% 0.29% -0.58%
Win% 42% 33% 50% 08% 67% 42%
 
OTC summary for all years 1963 - 2013
Avg -0.27% -0.06% 0.03% -0.34% -0.14% -0.78%
Win% 39% 51% 54% 39% 47% 43%
 
SPX Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1954-2 -0.44% 0.70% 0.66% 0.56% 0.68% 2.16%
Avg -0.44% 0.70% 0.66% 0.56% 0.68% 2.16%
 
1958-2 -0.40% 0.73% 0.44% -0.42% 0.18% 0.53%
1962-2 -1.84% 0.58% -1.42% -0.68% 0.90% -2.46%
1966-2 -0.50% -0.69% -1.68% 0.30% -0.35% -2.92%
1970-2 -0.86% -0.31% 1.43% 1.30% 0.07% 1.64%
1974-2 -1.03% -2.02% -0.66% -1.64% -2.29% -7.63%
Avg -0.93% -0.34% -0.38% -0.23% -0.30% -2.17%
 
1978-2 -0.87% -0.66% -0.78% 0.17% -0.06% -2.20%
1982-2 -0.03% 1.93% -0.71% -0.15% -0.40% 0.65%
1986-2 1.17% 0.31% 0.26% -1.88% 0.17% 0.03%
1990-2 -2.16% 1.20% -1.04% -1.34% 1.69% -1.65%
1994-2 -0.07% -1.59% -0.41% -0.04% -0.35% -2.46%
Avg -0.39% 0.24% -0.54% -0.65% 0.21% -1.13%
 
1998-2 0.37% 0.58% 3.52% -2.19% 0.19% 2.47%
2002-2 -1.38% -1.73% 2.49% 1.82% -3.23% -2.03%
2006-2 0.10% -0.22% 0.52% -0.54% -0.25% -0.38%
2010-2 1.52% -0.26% -0.48% -0.83% 2.12% 2.07%
 
SPX summary for Presidential Year 2 1958 - 2010
Avg -0.43% -0.09% 0.14% -0.37% -0.06% -0.81%
Win% 27% 47% 47% 33% 53% 47%
 
SPX summary for all years 1953 - 2013
Avg -0.43% -0.02% -0.07% -0.21% -0.15% -0.89%
Win% 31% 47% 50% 40% 41% 36%


Money Supply (M2)

The money supply chart was provided by Gordon Harms. M2 growth took a dive last week.

M2 Money Supply and SPX


Conclusion

The breadth indicators are overwhelmingly negative and Seasonality for the next 2 weeks is negative. All of the conditions are in place for a cycle top.

I expect the major averages to be lower on Friday September 26 than they were on Friday September 19.

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

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Good Luck,

YTD W 10 / L 15 / T 13

 


 

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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