Technical Market Report for January 17, 2015

By: Mike Burk | Sat, Jan 17, 2015
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The good news is:
• In the next week the market will be entering a period of seasonal strength.


The negatives

The original parameters for Jim Miekka's Hindenburg Omen were: The omen was triggered when both NYSE new highs and new lows exceeding 2.6% of issues traded. Those parameters were met every day last week.

The first chart 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. 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 into negative territory closing the week at 40%.

OTC HL Ratio Chart


The positives

In a bull market we look for expanding numbers of new highs, minimal numbers of new lows and the secondaries stronger than the blue chips.

What we have right now are the secondaries stronger than the blue chips, new highs strong on the NYSE and weak on the NASDAQ and a lot of new lows on both exchanges.

The chart below is from FastTrack (http://investorsfasttrack.com/), it coves the past 6 months showing the Russell 2000 in red, the S&P 500 (SPX) in green and a relative strength indicator called Accutrack as a histogram in yellow.

The secondaries are stronger than the blue chips when Accutrack is above the neutral line which it has been for over a month.

OT Return Chart

The chart below covers the past 6 months showing the SPX in red and a 40% trend of NYSE new highs divided by new highs + new lows (NY HL Ratio), in blue.

NY HL Ratio has held above the neutral level through the recent decline.

NY HL Ratio Chart

US treasuries finished the week at their lowest yield ever. About half of the issues traded on the NYSE are fixed income and the NYSE new high list is crowded with fixed income issues.

The chart below covers the past 6 months showing the SPX in red and a 10% trend (19 day EMA) of NYSE new highs (NY NH) in green.

This is an odd looking chart. Last week NY NH rose while the SPX was falling.

SPX and NY NH Chart


Seasonality

Next week includes the 4 trading days prior to the 4th Friday of January during the 3rd year of the Presidential Cycle. The market is closed Monday in observance of the Martin Luther King holiday.

The tables below show the daily change, on a percentage basis for the 5 trading days prior to the 4th 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.

Average returns for the coming week have been positive by all measures.

Report for the week before the 4th Friday of January.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday through the 4th Friday.

OTC Presidential Year 3
Year Mon Tue Wed Thur Fri Totals
1963-3 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
1967-3 0.62% -0.34% -0.11% -0.10% 0.02% 0.08%
1971-3 0.50% 0.09% -0.29% -0.47% 0.91% 0.75%
 
1975-3 0.53% -0.40% -0.09% 0.58% 1.38% 1.99%
1979-3 0.01% 0.64% -0.10% 0.86% 0.49% 1.91%
1983-3 -2.97% 1.04% 0.94% 1.66% 0.61% 1.28%
1987-3 0.70% -0.14% -0.64% 0.93% -0.25% 0.60%
1991-3 0.72% -0.18% 1.29% 1.93% 0.75% 4.52%
Avg -0.20% 0.19% 0.28% 1.19% 0.60% 2.06%
 
1995-3 -0.33% 0.49% -0.29% -0.45% 0.18% -0.41%
1999-3 1.30% 2.71% -1.10% 2.93% 1.15% 7.00%
2003-3 0.00% -0.87% -0.35% 2.12% -3.32% -2.42%
2007-3 -0.83% 0.01% 1.43% -1.30% 0.05% -0.63%
2011-3 1.04% 0.06% 0.74% 0.58% -2.48% -0.06%
Avg 0.30% 0.48% 0.09% 0.77% -0.88% 0.70%
 
OTC summary for Presidential Year 3 1963 - 2011
Avg 0.12% 0.26% 0.12% 0.77% -0.04% 1.22%
Win% 73% 58% 33% 67% 75% 67%
 
OTC summary for Presidential all years 1963 - 2014
Avg -0.15% -0.08% 0.28% 0.05% -0.03% 0.08%
Win% 54% 49% 58% 46% 67% 57%
 
SPX Presidential Year 3
Year Mon Tue Wed Thur Fri Totals
1955-3 0.23% -0.03% 1.24% 0.11% 0.56% 2.10%
Avg 0.23% -0.03% 1.24% 0.11% 0.56% 2.10%
 
1959-3 -0.23% 0.07% 0.57% -0.12% 0.05% 0.34%
1963-3 0.15% 0.25% 0.28% 0.20% 0.26% 1.13%
1967-3 0.37% 0.14% -0.76% -0.05% 0.41% 0.11%
1971-3 0.42% 0.33% -0.73% 0.34% 0.70% 1.06%
1975-3 0.17% -0.53% 1.47% 0.46% 1.26% 2.83%
Avg 0.18% 0.05% 0.17% 0.16% 0.54% 1.09%
 
1979-3 0.15% 0.70% -0.44% 1.03% 0.66% 2.10%
1983-3 -2.70% 1.27% -0.15% 1.93% 0.17% 0.52%
1987-3 1.15% -0.11% -0.45% 2.27% -1.39% 1.47%
1991-3 -0.35% -0.83% 0.58% 1.38% 0.39% 1.17%
1995-3 0.22% 0.01% 0.34% 0.19% 0.44% 1.20%
Avg -0.31% 0.21% -0.02% 1.36% 0.05% 1.29%
 
1999-3 0.72% 1.48% -0.73% 1.79% 1.12% 4.38%
2003-3 0.00% -1.57% -1.04% 1.02% -2.92% -4.51%
2007-3 -0.53% 0.35% 0.85% -1.13% -0.12% -0.57%
2011-3 0.58% 0.03% 0.42% 0.22% -1.79% -0.53%
 
SPX summary for Presidential Year 3 1955 - 2011
Avg 0.03% 0.10% 0.10% 0.64% -0.01% 0.85%
Win% 71% 67% 53% 80% 73% 80%
 
SPX summary for all years 1953 - 2014
Avg -0.10% 0.01% 0.21% 0.11% -0.03% 0.21%
Win% 52% 60% 58% 57% 54% 65%


Money Supply (M2)

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

SPX and M2 Money Supply Charts


Conclusion

The market is oversold and seasonally the period of weakness we have been experiencing should end some time next week.

I expect the major averages to be higher on Friday January 23 than they were on Friday January 16.

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Good Luck,

YTD W 1 / 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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