Technical Market Report for November 1, 2014

By: Mike Burk | Sat, Nov 1, 2014
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The good news is:
• All of the Blue chip indices closed at all time highs on Friday and the NASDAQ composite (OTC) closed at a multi year high.


The negatives

The market bottomed a little over 2 weeks ago and has rallied to new highs on very strong volume (good). There are several items that raise suspicion about this rally. New lows and downside volume have diminished, but they have not disappeared and the secondaries have not hit new highs.

The chart below covers the past 6 months showing the S&P 500 (SPX) in red and a 5% trend (39 day EMA) of NYSE downside volume, (NY DV) in maroon. NY DV has been plotted on an inverted Y axis so decreasing downside volume moves the indicator upward (up is good). Dashed vertical lines have been drawn on the 1st trading day of each month.

The SPX hit an all time high while NY DV has remained at a relatively high level.

SPX

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

The picture on the NASDAQ is similar to the NYSE.

NASDAQ


The positives

New lows have declined significantly, but remain at modestly uncomfortable levels while new highs have increased substantially. The ratios of these data sets are now at comfortable levels.

The chart below covers the past 6 months showing the SPX in red and 40% trend (4 day EMA) of NYSE new highs divided by new highs + new lows (NY HL Ratio), in blue. Dashed horizontal lines have been drawn at 10% levels of the indicator, the line is solid at the neutral 50% level.

NY HL Ratio finished the week at 81%, strong.

NY HL Ratio

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

OTC HL Ratio finished the week at a comfortable 73%.

OTC HL Ratio


Seasonality

Next week includes the first 5 trading days of November 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 first 5 trading days of November during the 2nd year of the Presidential Cycle.

OTC data covers the period from 1963 to 2013 while SPX data runs from 1928 through 2013. There are summaries for both the 2nd year of the Presidential Cycle and all years combined.

Average returns for the coming week have all been positive and strongest during the 2nd year of the Presidential Cycle.

Report for the first 5 days 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 2
  Day1 Day2 Day3 Day4 Day5 Totals
1966-2 -0.30% 2 0.57% 3 0.40% 4 0.02% 5 0.77% 1 1.45%
1970-2 0.15% 1 -0.17% 2 0.71% 3 0.45% 4 0.74% 5 1.87%
 
1974-2 -0.26% 5 -0.68% 1 2.12% 2 0.18% 3 0.80% 4 2.17%
1978-2 3.18% 3 -0.02% 4 0.75% 5 -0.36% 1 -1.96% 2 1.60%
1982-2 0.89% 1 1.46% 2 2.35% 3 1.01% 4 0.90% 5 6.60%
1986-2 0.10% 1 0.21% 2 0.05% 3 -0.23% 4 -0.07% 5 0.06%
1990-2 0.23% 4 1.77% 5 1.28% 1 -0.07% 2 -1.10% 3 2.12%
Avg 0.83% 0.55% 1.31% 0.11% -0.28% 2.51%
 
1994-2 -0.68% 2 -0.05% 3 0.04% 4 -0.78% 5 -0.49% 1 -1.97%
1998-2 1.67% 1 -0.68% 2 1.96% 3 0.74% 4 1.06% 5 4.74%
2002-2 2.33% 5 2.63% 1 0.33% 2 1.27% 3 -2.98% 4 3.59%
2006-2 -1.37% 3 -0.01% 4 -0.14% 5 1.51% 1 0.42% 2 0.41%
2010-2 -0.10% 1 1.14% 2 0.27% 3 1.46% 4 0.06% 5 2.83%
Avg 0.37% 0.61% 0.49% 0.84% -0.39% 1.92%
 
OTC summary for Presidential Year 2 1966 - 2010
Averages 0.49% 0.51% 0.84% 0.43% -0.15% 2.12%
% Winners 58% 50% 92% 67% 58% 92%
MDD 11/7/2002 2.98% -- 11/7/1978 2.30% -- 11/7/1994 1.95%
 
OTC summary for all years 1963 - 2013
Averages 0.25% 0.25% 0.27% 0.17% -0.10% 0.83%
% Winners 65% 55% 69% 59% 53% 71%
MDD 11/6/2008 9.63% -- 11/7/2007 3.86% -- 11/4/1993 3.61%
 
SPX Presidential Year 2
  Day1 Day2 Day3 Day4 Day5 Totals
1930-2 0.89% 6 0.23% 1 -2.98% 3 0.18% 4 -3.36% 5 -5.04%
 
1934-2 -0.45% 4 1.14% 5 0.90% 6 0.78% 1 1.88% 3 4.25%
1938-2 -0.53% 2 0.38% 3 0.30% 4 -0.15% 5 0.30% 6 0.31%
1942-2 0.64% 1 -0.42% 3 0.21% 4 1.27% 5 0.73% 6 2.43%
1946-2 1.55% 5 0.73% 6 0.99% 1 -4.31% 3 0.82% 4 -0.22%
1950-2 0.15% 3 0.87% 4 0.61% 5 -0.35% 6 -2.12% 1 -0.85%
Avg 0.27% 0.54% 0.60% -0.55% 0.32% 1.18%
 
1954-2 0.35% 1 2.04% 3 1.17% 4 -0.34% 5 0.95% 1 4.18%
1958-2 0.45% 1 0.91% 3 0.81% 4 -0.36% 5 0.59% 1 2.40%
1962-2 1.06% 4 1.10% 5 1.04% 1 0.62% 3 -0.66% 4 3.16%
1966-2 0.76% 2 0.09% 3 -0.40% 4 0.31% 5 -0.10% 1 0.66%
1970-2 0.31% 1 0.85% 2 0.20% 3 -0.34% 4 0.14% 5 1.16%
Avg 0.59% 1.00% 0.56% -0.02% 0.18% 2.31%
 
1974-2 -0.03% 5 -1.08% 1 2.78% 2 -0.48% 3 0.62% 4 1.80%
1978-2 3.97% 3 -1.28% 4 0.60% 5 -1.03% 1 -1.41% 2 0.85%
1982-2 1.32% 1 1.49% 2 3.91% 3 -0.71% 4 0.22% 5 6.23%
1986-2 0.75% 1 0.16% 2 0.15% 3 -0.29% 4 -0.04% 5 0.73%
1990-2 0.99% 4 1.57% 5 0.88% 1 -0.94% 2 -1.80% 3 0.70%
Avg 1.40% 0.17% 1.66% -0.69% -0.48% 2.06%
 
1994-2 -0.83% 2 -0.41% 3 0.30% 4 -1.20% 5 0.17% 1 -1.97%
1998-2 1.17% 1 -0.07% 2 0.71% 3 1.34% 4 0.64% 5 3.80%
2002-2 1.71% 5 0.82% 1 0.78% 2 0.91% 3 -2.29% 4 1.94%
2006-2 -0.74% 3 -0.03% 4 -0.22% 5 1.13% 1 0.22% 2 0.36%
2010-2 0.09% 1 0.78% 2 0.37% 3 1.93% 4 0.39% 5 3.56%
Avg 0.28% 0.22% 0.39% 0.82% -0.17% 1.54%
 
SPX summary for Presidential Year 2 1930 - 2010
Averages 0.65% 0.47% 0.62% -0.10% -0.20% 1.45%
% Winners 76% 71% 86% 43% 62% 81%
MDD 11/7/1930 6.07% -- 11/6/1946 4.31% -- 11/7/1978 3.10%
 
SPX summary for all years 1928 - 2013
Averages 0.22% -0.01% 0.27% 0.05% -0.11% 0.41%
% Winners 63% 58% 66% 54% 50% 65%
MDD 11/11/1929 17.76% -- 11/6/2008 10.03% -- 11/6/1937 9.95%


Money Supply (M2)

The money supply chart was provided by Gordon Harms. M2 growth recovered last week.

M2 Money Supply and SPX Charts


November

Since 1963, over all years, the OTC in November has been up 69% of the time with an average gain of 1.6%. During the 2nd year of the Presidential Cycle November has been up 67% time with an average gain of 3.7% 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 2nd year of the Presidential Cycle over the same period.

OTC in November 1963-2014

Since 1928 the SPX has been up 58% of the time in November with an average gain of 0.6%. During the 2nd year of the Presidential Cycle the SPX has been up 62% of the time with an average gain of 2.0%. 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 2nd year of the Presidential Cycle in green.

SPX in November 1928-2014

Since 1979 the Russell 2000 (R2K) has been up 66% of the time in November with an average gain of 1.8%. During the 2nd year of the Presidential Cycle the R2K has been up 75% of the time in November with an average gain of 3.9%. 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 2nd year of the Presidential Cycle in green.

R2K in November 1979-2014

Since 1885 the DJIA has been up 59% of the time in November with an average gain of 0.8%. During the 2nd year of the Presidential Cycle the DJIA has been up 65% of the time in November with an average gain of 1.3%. 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 2nd year of the Presidential Cycle in green.

DJIA in November 1885-2014


Conclusion

For the past 2+ weeks the market has made a moon shot, up about 10%. Strong seasonality suggests it should last at least another week.

I expect the major averages to be higher on Friday November 7 than they were on Friday October 31.

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Good Luck,

YTD W 14 / L 16 / T 14

 


 

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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