Technical Market Report for January 10, 2015

By: Mike Burk | Sat, Jan 10, 2015
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The good news is:
• The market had a rough week, but there was no build up of new lows.


The negatives

Leadership is narrowing. Although the market averages have been hitting new highs they have been doing it with fewer individual issues hitting new highs. This narrowing of leadership is symptomatic of a developing top, but it can go on for a long time.

The first chart covers the past 6 months showing the NASDAQ composite (OTC) in blue and a 10% trend (19 day EMA) of NASDAQ new highs (OTC NH) in green. Dashed vertical lines have been drawn of the 1st trading day of each month.

This chart looks pretty good with OTC NH hitting a high for the period a day or two after prices.

OTC NH Chart

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

Over the past year the number of new highs has declined by about 50% as the index has moved higher.

OTC NH Chart 2

The next chart is similar to the 1st one except is shows the S&P 500 (SPX) in red and NY NH has been calculated from NYSE data.

This chart is nearly identical to the 1st one.

SPX Chart

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

Relatively NY NH has been stronger than OTC NH, however both have been declining as the indices have been rising.

NY NH Chart


The positives

Although new highs have been declining, new lows have remained at non threatening levels and nothing really bad happens without a significant increase in the number of new lows.

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 Chart

OTC HL ratio declined a bit last week, but closed on the plus side at 60%.

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, but finished the week at a comfortable 75%.

NY HL Ratio Chart


Seasonality

Next week includes the 5 trading days prior to the 3rd Friday of January during the 3rd year of the Presidential Cycle.

The tables below show the daily change, on a percentage basis for the 5 trading days prior to the 3rd Friday of January during the 3rd 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. Since the 1st trading day of the year was a Friday, measuring the month by Fridays pushes the average time frame as measured by overall trading days up a little.

Average returns for the coming week have been mostly positive, but the coming week, during the 3rd year of the Presidential Cycle, has not been up since 1991.

Report for the week before the 3rd Friday of January
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday through 3rd Friday.

OTC Presidential Year 3
Year Mon Tue Wed Thur Fri Totals
1963-3 0.13% -0.23% 0.26% 0.68% 0.65% 1.49%
1967-3 1.01% -0.25% 0.75% 0.08% 0.96% 2.55%
1971-3 0.07% 0.44% 0.20% 1.26% 2.13% 4.11%
 
1975-3 -0.55% -0.36% 1.20% 1.46% -1.08% 0.67%
1979-3 0.59% -0.59% -0.12% 0.58% 0.27% 0.74%
1983-3 0.61% -0.20% -0.59% 0.32% -0.82% -0.67%
1987-3 1.26% 0.24% 0.92% 0.67% -0.69% 2.41%
1991-3 -1.67% 0.44% 2.21% 2.91% 0.31% 4.19%
Avg 0.05% -0.09% 0.72% 1.19% -0.40% 1.47%
 
1995-3 0.79% 0.52% 0.03% -0.50% -0.85% -0.01%
1999-3 0.00% 2.53% 0.32% -2.93% -0.25% -0.32%
2003-3 -0.12% 1.03% -1.52% -1.05% -3.34% -4.99%
2007-3 0.00% -0.20% -0.74% -1.46% 0.33% -2.07%
2011-3 0.00% 0.38% -1.46% -0.77% -0.55% -2.40%
Avg 0.34% 0.85% -0.67% -1.34% -0.93% -1.96%
 
OTC summary for Presidential Year 3 1963 - 2011
Avg 0.21% 0.29% 0.11% 0.10% -0.22% 0.44%
Win% 70% 54% 62% 62% 46% 54%
 
OTC summary for all years 1963 - 2014
Avg -0.01% 0.26% 0.04% 0.25% -0.02% 0.52%
Win% 60% 62% 60% 67% 56% 69%
 
SPX Presidential Year 3
Year Mon Tue Wed Thur Fri Totals
1955-3 -1.98% 0.64% 0.46% 0.49% 0.88% 0.48%
1959-3 0.02% -0.56% 0.27% 0.38% -0.04% 0.07%
1963-3 0.54% -0.14% -0.68% 0.71% 0.08% 0.51%
1967-3 -0.26% 1.10% 0.65% 0.03% 0.29% 1.81%
1971-3 0.41% 0.37% 0.02% 0.44% 0.73% 1.97%
Avg -0.26% 0.28% 0.14% 0.41% 0.39% 0.97%
 
1975-3 -0.41% -0.87% 0.64% -0.12% -1.51% -2.28%
1979-3 0.76% -1.22% 0.02% 0.24% 0.03% -0.17%
1983-3 0.04% -0.21% -0.77% 0.70% -1.67% -1.91%
1987-3 0.61% -0.13% 1.03% 1.09% 0.30% 2.89%
1991-3 -0.87% 0.40% 0.78% 3.73% 1.30% 5.34%
Avg 0.03% -0.41% 0.34% 1.13% -0.31% 0.77%
 
1995-3 0.73% 0.14% -0.07% -0.59% -0.46% -0.25%
1999-3 0.00% 0.61% 0.46% -1.70% -0.81% -1.45%
2003-3 -0.14% 0.58% -1.44% -0.39% -1.40% -2.80%
2007-3 0.00% 0.08% -0.09% -0.30% 0.29% -0.02%
2011-3 0.00% 0.14% -1.01% -0.13% 0.24% -0.76%
Avg 0.30% 0.31% -0.43% -0.62% -0.43% -1.05%
 
SPX summary for Presidential Year 3 1955 - 2011
Avg -0.05% 0.06% 0.02% 0.30% -0.12% 0.23%
Win% 58% 60% 60% 60% 60% 47%
 
SPX summary for all years 1953 - 2014
Avg -0.08% 0.12% -0.04% 0.06% -0.11% -0.04%
Win% 44% 61% 55% 59% 53% 50%


Money Supply (M2)

The money supply chart was provided by Gordon Harms. M2 growth picked up a little last week, but is still running below its long term trend.

SPX and M2 Money Supply Charts


Conclusion

Last week was weaker than the seasonal average and seasonally, next week has not been up for over 20 years.

I expect the major averages to be lower on Friday January 16 than they were on Friday January 9.

Last weeks positive forecast was a miss.

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Good Luck,

YTD W 0 / L 1 / T 0

 


 

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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