Technical Market Report for January 24, 2015

By: Mike Burk | Sun, Jan 25, 2015
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The good news is:
• The European Central Bank promised a massive injection of liquidity that will last nearly 2 years.


The negatives

One of the breadth patterns we look for in a bull market is expanding new highs and diminishing new lows. The market is split on that score. The NYSE is looking pretty good while the NASDAQ is not.

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 on the 1st trading day of each month.

OTC NH did not respond during last weeks rally.

OTC NH Chart 1

The longer term picture is even worse.

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

OTC NH has been weakening for quite a while.

OTC NH Chart 2


The positives

Last week new lows declined significantly from the week before.

The numbers of new lows are still a bit discomforting, however their direction is positive.

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. Dashed horizontal lines have been drawn at 10% levels for the indicator, the line is solid at the neutral 50% level.

NY HL Ratio rose to a comfortable 81% on Friday.

NY HL Ratio

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

OTC HL Ratio at 47% is still a little below the neutral level, but it turned sharply upward last week.

OTC HL Ratio


Seasonality

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

The tables below show the daily change, on a percentage basis for the last 5 trading days of January during the 3rd year of the Presidential Cycle.

OTC data covers the period from 1963 to 2014 while SPX data runs from 1928 through 2014. There are summaries for both the 3rd year of the Presidential Cycle and all years combined.

Average returns for the coming week have been positive by all measures and stronger during the 3rd year of the Presidential Cycle than other years.

Report for the last 5 days of January.
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 3
  Day5 Day4 Day3 Day2 Day1 Totals
1963-3 -0.03% 3 -0.48% 4 0.00% 0 0.00% 0 0.00% 0 -0.52%
1967-3 -0.11% 3 -0.10% 4 0.02% 5 0.49% 1 0.37% 2 0.67%
1971-3 0.50% 1 0.09% 2 -0.29% 3 -0.47% 4 0.91% 5 0.75%
 
1975-3 2.54% 1 1.31% 2 1.71% 3 -0.13% 4 1.15% 5 6.57%
1979-3 0.86% 4 0.49% 5 -0.21% 1 -0.21% 2 -0.55% 3 0.39%
1983-3 1.04% 2 0.94% 3 1.66% 4 0.61% 5 0.58% 1 4.82%
1987-3 -1.07% 1 0.71% 2 0.33% 3 -0.27% 4 1.04% 5 0.74%
1991-3 0.75% 5 0.64% 1 0.96% 2 1.98% 3 1.39% 4 5.72%
Avg 0.82% 0.82% 0.89% 0.40% 0.72% 3.65%
 
1995-3 -0.29% 3 -0.45% 4 0.18% 5 -0.93% 1 0.45% 2 -1.05%
1999-3 1.30% 1 2.71% 2 -1.10% 3 2.93% 4 1.15% 5 7.00%
2003-3 -1.26% 1 1.28% 2 1.18% 3 -2.63% 4 -0.11% 5 -1.54%
2007-3 -1.30% 4 0.05% 5 0.23% 1 0.31% 2 0.62% 3 -0.08%
2011-3 0.06% 2 0.74% 3 0.58% 4 -2.48% 5 0.49% 1 -0.61%
Avg -0.30% 0.87% 0.21% -0.56% 0.52% 0.74%
 
OTC summary for Presidential Year 3 1963 - 2011
Averages 0.23% 0.61% 0.40% -0.06% 0.58% 1.76%
% Winners 54% 77% 69% 38% 77% 62%
MDD 1/31/2003 2.74% -- 1/28/2011 2.48% -- 1/30/1995 1.49%
 
OTC summary for all years 1963 - 2014
Averages -0.04% 0.19% 0.15% -0.04% 0.23% 0.47%
% Winners 45% 62% 62% 55% 63% 58%
MDD 1/28/2000 6.73% -- 1/30/2009 5.26% -- 1/30/1970 4.76%
 
SPX Presidential Year 3
  Day5 Day4 Day3 Day2 Day1 Totals
1931-3 -0.49% 2 -1.84% 3 0.94% 4 0.12% 5 -0.62% 6 -1.88%
 
1935-3 -0.33% 6 -1.41% 1 -0.99% 2 0.56% 3 0.78% 4 -1.40%
1939-3 -3.19% 4 2.86% 5 -0.42% 6 2.96% 1 1.15% 2 3.36%
1943-3 0.49% 2 -0.10% 3 0.10% 4 0.87% 5 0.29% 6 1.64%
1947-3 1.05% 1 0.85% 2 1.16% 3 -0.32% 4 0.38% 5 3.13%
1951-3 1.09% 5 1.27% 6 0.65% 1 0.32% 2 -0.37% 3 2.97%
Avg -0.18% 0.69% 0.10% 0.88% 0.45% 1.94%
 
1955-3 -0.03% 2 1.24% 3 0.11% 4 0.56% 5 1.22% 1 3.09%
1959-3 -0.41% 1 0.02% 2 -1.11% 3 0.07% 4 0.40% 5 -1.03%
1963-3 0.26% 5 0.49% 1 -0.02% 2 -0.57% 3 0.53% 4 0.69%
1967-3 -0.76% 3 -0.05% 4 0.41% 5 0.58% 1 -0.06% 2 0.12%
1971-3 0.42% 1 0.33% 2 -0.73% 3 0.34% 4 0.70% 5 1.06%
Avg -0.10% 0.40% -0.27% 0.19% 0.56% 0.78%
 
1975-3 3.27% 1 0.88% 2 1.62% 3 -1.36% 4 1.01% 5 5.42%
1979-3 1.03% 4 0.66% 5 -0.30% 1 -0.49% 2 -1.11% 3 -0.21%
1983-3 1.27% 2 -0.15% 3 1.93% 4 0.17% 5 0.55% 1 3.77%
1987-3 -0.18% 1 1.54% 2 0.60% 3 -0.42% 4 -0.06% 5 1.48%
1991-3 0.39% 5 -0.01% 1 -0.06% 2 1.51% 3 0.89% 4 2.71%
Avg 1.16% 0.58% 0.76% -0.12% 0.26% 2.63%
 
1995-3 0.34% 3 0.19% 4 0.44% 5 -0.40% 1 0.41% 2 0.98%
1999-3 0.72% 1 1.48% 2 -0.73% 3 1.79% 4 1.12% 5 4.38%
2003-3 -1.62% 1 1.31% 2 0.68% 3 -2.28% 4 1.31% 5 -0.60%
2007-3 -1.13% 4 -0.12% 5 -0.11% 1 0.58% 2 0.66% 3 -0.12%
2011-3 0.03% 2 0.42% 3 0.22% 4 -1.79% 5 0.77% 1 -0.35%
Avg -0.33% 0.66% 0.10% -0.42% 0.85% 0.86%
 
SPX summary for Presidential Year 3 1931 - 2011
Averages 0.11% 0.47% 0.21% 0.13% 0.47% 1.39%
% Winners 57% 67% 57% 62% 76% 67%
MDD 1/26/1939 3.19% -- 1/29/1935 2.71% -- 1/28/1931 2.32%
 
SPX summary for all years 1928 - 2014
Averages -0.04% 0.15% 0.06% 0.08% 0.25% 0.49%
% Winners 51% 52% 49% 59% 62% 57%
MDD 1/29/1938 6.33% -- 1/30/2009 5.52% -- 1/30/1932 5.05%


Money Supply (M2)

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

S&P500 and M2 Money Supply Charts


Conclusion

The ECB came to the rescue last week promising a gush of liquidity for the next 2 years. That action may allow our own FED to proceed with their announced intention of raising rates later this year. Liquidity no matter where it comes from is a positive for the market. Seasonally we have several strong weeks to look forward to.

I expect the major averages to be higher on Friday January 30 than they were on Friday January 23.

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Good Luck,

YTD W 2 / 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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