Technical Market Report for November 22, 2014

By: Mike Burk | Sat, Nov 22, 2014
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The good news is:
• All of the blue chip indices closed at an all time high and the NASDAQ composite (OTC) closed at a multi year high on Friday.


The negatives

Bonds had a bad week, the secondaries underperformed the blue chips and new highs continue to come up short of what we would like to see when many of the major indices are hitting new highs.

Advance - Decline lines (ADL) are a running total of declining issues subtracted from advancing issues.

The chart below covers the past 6 months showing the NASDAQ composite (OTC) in blue and an ADL calculated from NASDAQ issues (OTC ADL) in green. Dashed vertical lines have been drawn on the 1st trading day of each month.

The OTC ADL has had a pattern of lower highs and lower lows since early July.

The next chart 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.

This chart looks pretty good with OTC NH hitting a 6 month high about a week ago.

The next chart is similar to the one above except it covers the past year.

While the OTC was hitting a multi year high OTC NH was at less than half of its high earlier in the year and falling.


The positives

New lows have remained at non threatening levels

The chart below covers the past 6 months showing the 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 horizontal lines have been drawn at 10% levels of the indicator, the line is solid at the neutral 50% level.

OTC HL ratio fell a little last week, but remains at a positive 62%.

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

NY HL Ratio finished the week at a comfortably positive 80%.


Seasonality

Next week includes Thanksgiving during the 2nd year of the Presidential Cycle.

The tables below show the daily change, on a percentage basis, of the OTC and SPX for the week of Thanksgiving 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 modestly positive by all measures.

Report for the 3 days before Thanksgiving and 1 day after. Day1 = the day after
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
  Day4 Day3 Day2 Day1 Totals
1966-2 -0.31% 1 -1.00% 2 -0.42% 3 0.18% 5 -1.54%
1970-2 0.47% 1 0.28% 2 0.31% 3 0.25% 5 1.32%
 
1974-2 -0.63% 1 1.57% 2 0.24% 3 0.24% 5 1.42%
1978-2 0.72% 1 0.04% 2 0.71% 3 0.69% 5 2.17%
1982-2 -1.58% 1 -0.27% 2 0.76% 3 0.78% 5 -0.32%
1986-2 0.41% 1 0.24% 2 0.34% 3 0.40% 5 1.38%
1990-2 0.54% 1 -1.26% 2 0.14% 3 0.08% 5 -0.51%
Avg -0.11% 0.06% 0.44% 0.44% 0.83%
 
1994-2 -0.91% 1 -2.18% 2 -0.61% 3 0.79% 5 -2.91%
1998-2 2.57% 1 -0.58% 2 0.88% 3 1.65% 5 4.52%
2002-2 0.90% 1 -2.53% 2 3.01% 3 -0.62% 5 0.76%
2006-2 0.28% 1 0.09% 2 0.45% 3 -0.23% 5 0.59%
2010-2 0.55% 1 -1.46% 2 1.93% 3 -0.34% 5 0.68%
Avg 0.68% -1.33% 1.13% 0.25% 0.73%
 
OTC summary for Presidential Year 2 1966 - 2010
Averages 0.25% -0.59% 0.65% 0.32% 0.63%
%Winners 67% 42% 83% 75% 67%
MDD 11/23/1994 3.66% -- 11/26/2002 2.53% -- 11/23/1982 1.85%
 
OTC summary for all years 1963 - 2013
Averages -0.06% -0.19% 0.35% 0.47% 0.58%
%Winners 49% 52% 76% 80% 65%
 
SPX Presidential Year 2
  Day4 Day3 Day2 Day1 Totals
1954-2 0.39% 1 1.34% 2 0.56% 3 0.96% 5 3.25%
1958-2 -2.60% 1 -0.60% 2 1.72% 3 1.12% 5 -0.36%
1962-2 -0.57% 1 1.05% 2 0.60% 3 1.20% 5 2.28%
1966-2 -1.44% 1 -0.52% 2 0.68% 3 0.80% 5 -0.49%
1970-2 0.62% 1 0.64% 2 0.37% 3 0.99% 5 2.61%
Avg -0.72% 0.38% 0.78% 1.01% 1.46%
 
1974-2 -0.10% 1 0.93% 2 0.68% 3 0.04% 5 1.55%
1978-2 0.88% 1 -0.25% 2 0.49% 3 0.32% 5 1.45%
1982-2 -2.04% 1 -0.96% 2 0.71% 3 0.75% 5 -1.54%
1986-2 0.65% 1 0.29% 2 0.24% 3 0.18% 5 1.36%
1990-2 0.70% 1 -1.26% 2 0.23% 3 -0.29% 5 -0.63%
Avg 0.02% -0.25% 0.47% 0.20% 0.44%
 
1994-2 -0.69% 1 -1.79% 2 -0.03% 3 0.52% 5 -1.99%
1998-2 2.12% 1 -0.44% 2 0.33% 3 0.45% 5 2.47%
2002-2 0.25% 1 -2.10% 2 2.80% 3 -0.27% 5 0.68%
2006-2 -0.05% 1 0.16% 2 0.23% 3 -0.37% 5 -0.02%
2010-2 -0.16% 1 -1.43% 2 1.49% 3 -0.75% 5 -0.84%
Avg 0.30% -1.12% 0.96% -0.08% 0.06%
 
SPX summary for Presidential Year 2 1954 - 2010
Averages -0.14% -0.33% 0.74% 0.38% 0.65%
%Winners 47% 40% 93% 73% 53%
MDD 11/25/1958 3.19% -- 11/23/1982 2.98% -- 11/23/1994 2.50%
 
SPX summary for all years 1953 - 2013
Averages -0.11% 0.09% 0.35% 0.37% 0.70%
%Winners 44% 60% 79% 74% 68%


Money Supply (M2)

The money supply chart was provided by Gordon Harms. M2 growth remained below its long term trend.


Conclusion

New highs for the blue chips with only modest support from the breadth indicators is a recipe for a developing top. Seasonality is positive for the next 2 weeks so we should expect modest gains to continue.

I expect the major averages to be higher on Friday November 28 than they were on Friday November 21.

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

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Good Luck,

YTD W 15 / L 16 / T 16

 


 

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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