Technical Market Report for October 4, 2014

By: Mike Burk | Sat, Oct 4, 2014
Print Email

The good news is:
• New lows declined sharply on Friday.


The negatives

It is too early to tell, but new low numbers on Friday were encouraging.

Friday NYSE new lows declined to 80 on Friday from 262 on Thursday and NASDAQ new lows declined to 72 Friday from 252 on Wednesday. This is encouraging, but, you want to see less than 40 on the NYSE and less than 70 on the NASDAQ for 5 consecutive days before considering this period of weakness over.

The chart below covers the past 9 months showing the S&P 500 (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.

NY NL turned upward on Friday, but remains only slightly off its low for the year.

NY NL Chart

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

The pattern of OTC NL is similar to NY NL.

OTC NL Chart

The next chart covers the past 9 months showing the SPX in red and a 40% trend (4 day EMA) of NYSE new highs divided by (new highs + new lows) (NYSE 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 is just off its lowest level of the past several years.

This indicator will recover quickly when a bottom has been reached.

NY HL Ratio Chart

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 is also just off its lowest level of the year.

OTC HL Ratio Chart


The positives

New lows are all that matters and they declined sharply on Friday. If we are near a bottom, new lows will continue to diminish next week.


Seasonality

Next week includes the 5 trading days prior to the 2nd Friday of October 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 2nd Friday of October 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 next week have been positive by all measures.

Report for the week before the 2nd Friday of October.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday to 2nd Friday.

OTC Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1966-2 -1.42% 1.32% 0.22% 2.35% 0.32% 2.79%
1970-2 1.56% 0.69% 0.30% 0.21% -0.13% 2.63%
 
1974-2 2.56% -0.78% 2.57% 2.71% 2.18% 9.24%
1978-2 0.48% 0.22% 0.25% 0.22% 0.01% 1.17%
1982-2 -0.36% 0.40% 1.70% 1.88% 1.69% 5.31%
1986-2 0.13% -0.23% 0.15% 0.05% 0.13% 0.22%
1990-2 0.22% -2.59% -1.73% -2.29% 0.60% -5.79%
Avg 0.61% -0.60% 0.59% 0.51% 0.92% 2.03%
 
1994-2 0.91% 1.16% 0.19% 0.12% -0.11% 2.27%
1998-2 -4.85% -1.68% -3.20% -2.97% 5.17% -7.53%
2002-2 -1.80% 0.88% -1.34% 4.42% 4.05% 6.21%
2006-2 0.51% 0.16% -0.31% 1.64% 0.47% 2.48%
2010-2 -1.11% 2.36% -0.80% 0.13% 0.77% 1.35%
Avg -1.27% 0.57% -1.09% 0.67% 2.07% 0.96%
 
OTC summary for Presidential Year 2 1966 - 2010
Avg -0.26% 0.16% -0.17% 0.70% 1.26% 1.69%
Win% 58% 67% 58% 83% 83% 83%
 
OTC summary for all years 1963 - 2013
Avg -0.05% -0.33% -0.11% 0.25% 0.55% 0.31%
Win% 59% 47% 48% 71% 71% 57%
 
SPX Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1954-2 0.56% 0.49% 0.40% -0.21% -0.06% 1.17%
1958-2 0.62% 0.57% 0.18% -0.02% 0.67% 2.01%
1962-2 0.00% 0.23% 0.07% -0.33% -0.18% -0.21%
1966-2 1.82% 0.51% 2.84% -0.19% -0.38% 4.60%
1970-2 1.54% 0.44% 0.05% -1.08% -1.01% -0.07%
Avg 1.13% 0.45% 0.71% -0.37% -0.19% 1.50%
 
1974-2 4.19% -0.17% 4.60% 2.90% 1.93% 13.45%
1978-2 1.03% -0.12% 0.89% -0.48% -0.21% 1.11%
1982-2 -0.38% 0.39% 3.27% 2.25% 1.75% 7.27%
1986-2 0.46% -0.16% 0.97% -0.35% -0.16% 0.76%
1990-2 0.64% -2.67% -1.54% -1.64% 1.55% -3.68%
Avg 1.19% -0.55% 1.64% 0.54% 0.97% 3.78%
 
1994-2 0.87% 1.47% -0.07% 0.50% 0.28% 3.05%
1998-2 -1.40% -0.40% -1.41% -1.16% 2.59% -1.78%
2002-2 -1.91% 1.69% -2.73% 3.50% 3.91% 4.45%
2006-2 0.08% 0.20% -0.26% 0.95% 0.20% 1.19%
2010-2 -0.80% 2.09% -0.07% -0.16% 0.61% 1.66%
Avg -0.63% 1.01% -0.91% 0.73% 1.52% 1.71%
 
SPX summary for Presidential Year 2 1954 - 2010
Avg 0.52% 0.30% 0.48% 0.30% 0.77% 2.33%
Win% 71% 67% 60% 33% 60% 73%
 
SPX summary for all years 1953 - 2013
Avg 0.09% -0.24% 0.10% -0.06% 0.18% 0.07%
Win% 55% 37% 47% 44% 56% 57%


Money Supply (M2)

The money supply chart was provided by Gordon Harms. M2 growth dropped below the trend last week.

M2 Money Supply and SPX Charts


Conclusion

New lows are all that matters and they declined sharply on Friday.

Seasonality turns positive next week.

We may see another low early next week, but, if new lows continue to decline a bottom will be in place.

I expect the major averages to be higher on Friday October 10 than they were on Friday October 3.

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

These reports are archived at: http://www.safehaven.com/

Good Luck,

YTD W 12 / 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.

Copyright © 2003-2017 Mike Burk

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com