Technical Market Report for December 6, 2014

By: Mike Burk | Sat, Dec 6, 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

Last week an alert reader suggested the elevated number of new lows were likely to be from energy related issues. They are. Energy, natural resource and fixed income issues are all well represented on the new low lists. The persistently high levels of new lows along with relatively high levels of new highs has triggered a Hindenburg Omen for the past 6 consecutive trading sessions.

The Hindenburg Omen, developed by the late Jim Miekka has been unreliable at predicting tops, however it has been triggered prior to every major top. It tells you that some conditions are in place for a top.


The positives

The ratio of new highs to new lows is still positive, but deteriorating.

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 and 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 below the neutral level briefly last week before recovering to a modestly positive 55%.

OTC HL ratio

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 also declined finishing the week at a modestly positive 60%.

NY HL Ratio


Seasonality

Next week includes the 5 trading days prior to the 2nd Friday of December 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 5 trading days prior to the 2nd Friday of December 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 mixed, but mostly positive.

Report for the week before the 2nd Friday of December.
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 0.13% -0.38% 0.13% 0.67% -0.24% 0.31%
1970-2 1.07% 0.16% -0.83% 0.73% 0.67% 1.80%
 
1974-2 -0.52% 1.47% 0.87% 0.15% -0.24% 1.74%
1978-2 0.33% 0.94% 0.66% 0.08% 0.19% 2.20%
1982-2 0.90% 0.57% 0.02% -1.44% -1.43% -1.38%
1986-2 -0.54% -0.55% 0.01% -0.37% -0.50% -1.95%
1990-2 -0.02% -0.94% 0.66% 0.29% -0.72% -0.72%
Avg 0.03% 0.30% 0.44% -0.26% -0.54% -0.02%
 
1994-2 0.09% -0.60% -0.94% -2.06% -0.01% -3.52%
1998-2 1.87% -0.28% 0.77% -1.68% 0.66% 1.33%
2002-2 -3.89% 1.73% 0.42% 0.21% -2.65% -4.18%
2006-2 1.46% 0.16% -0.27% -0.74% 0.40% 1.01%
2010-2 0.13% 0.14% 0.41% 0.29% 0.80% 1.77%
Avg -0.07% 0.23% 0.08% -0.80% -0.16% -0.72%
 
OTC summary for Presidential Year 2 1966 - 2010
Avg 0.08% 0.20% 0.16% -0.32% -0.26% -0.13%
Win% 67% 58% 75% 58% 42% 58%
 
OTC summary for all years 1963 - 2013
Avg 0.17% 0.04% -0.01% -0.38% 0.26% 0.07%
Win% 63% 49% 52% 45% 57% 51%
 
SPX Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1954-2 0.78% 0.46% -0.17% -0.49% -0.37% 0.21%
1958-2 0.11% 0.57% 1.21% -0.21% -0.24% 1.45%
1962-2 -1.25% 0.08% 0.50% -0.34% 0.24% -0.77%
1966-2 0.14% 0.75% 1.09% 0.40% 0.11% 2.49%
1970-2 0.54% -0.52% 0.08% 0.42% 0.38% 0.89%
Avg 0.06% 0.27% 0.54% -0.04% 0.02% 0.85%
 
1974-2 0.91% 2.56% 0.58% -0.33% -0.56% 3.16%
1978-2 -0.14% 1.34% 0.05% -0.42% -0.46% 0.37%
1982-2 2.22% 0.67% -0.64% -1.28% -0.31% 0.67%
1986-2 0.00% -0.75% 0.67% -1.11% -0.33% -1.52%
1990-2 0.35% -0.74% 1.15% -0.26% -0.77% -0.27%
Avg 0.67% 0.62% 0.36% -0.68% -0.49% 0.48%
 
1994-2 0.01% -0.05% -0.41% -1.28% 0.34% -1.40%
1998-2 0.93% -0.53% 0.18% -1.56% 0.13% -0.85%
2002-2 -2.22% 1.40% 0.06% -0.37% -1.34% -2.48%
2006-2 0.89% 0.40% -0.13% -0.40% 0.18% 0.94%
2010-2 -0.13% 0.05% 0.37% 0.38% 0.60% 1.28%
Avg -0.10% 0.25% 0.01% -0.65% -0.02% -0.50%
 
SPX summary for Presidential Year 2 1954 - 2010
Avg 0.21% 0.38% 0.31% -0.45% -0.16% 0.28%
Win% 67% 67% 73% 20% 47% 60%
 
SPX summary for all years 1953 - 2013
Avg 0.19% 0.00% 0.02% -0.31% 0.22% 0.12%
Win% 59% 47% 53% 39% 66% 54%


Money Supply (M2)

The money supply chart was provided by Gordon Harms. M2 growth declined a bit last week remaining below its long term trend.

SPX and M2 Money Supply Charts


Conclusion

The breadth indicators have been deteriorating and seasonally next week is, on average, the weakest week of December.

I expect the major averages to be lower on Friday December 12 than they were on Friday December 5.

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

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Good Luck,

YTD W 16 / L 16 / T 17

 


 

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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