Technical Market Report for January 31, 2015

By: Mike Burk | Sun, Feb 1, 2015
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The good news is:
• Seasonality is for the next few weeks extraordinarily strong.


The negatives

The pattern of weak NASDAQ data and strong NYSE data continued last week. It's the bonds. About half of the issues traded on the NYSE are fixed income and with 10 year treasuries yields dropping well under 2%, fixed income funds are populating the soaring NYSE new high list. New lows are also soaring, there were over 100 on the NYSE each of the last 3 days of last week. There were also threatening levels of new lows on the NASDAQ.

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 declined all month.

OTC NH Chart

The next chart covers the past 6 months showing the OTC in blue and a 40% trend of NASDAQ new highs divided by new highs + new lows (OTC HL Ratio), in red. Dashed horizontal lines have been drawn at 10% levels for the indicator, the line is solid at the neutral 50% level.

OTC HL Ratio fell below the neutral line last week.

OTC HL Ratio Chart


The positives

While NASDAQ breadth data has been lousy, fixed income saturated NYSE breadth data has been great.

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

NY HL Ratio fell last week, but closed the week at a comfortable 70%.

NY HL Ratio Chart

The next chart is similar to the first one except is shows the SPX in red and NY NH, in green has been calculated from NYSE data.

NY NH is at its highest level in over a year. It's the bonds.

NY NH Chart


Seasonality

Next week includes the first 5 trading days of February during the 3rd year of the Presidential Cycle.

The tables below show the daily change, on a percentage basis for the first 5 trading days of February 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 first 5 days of February.
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
  Day1 Day2 Day3 Day4 Day5 Totals
1963-3 0.45% 5 -0.42% 1 -0.03% 2 -0.03% 3 0.42% 4 0.39%
1967-3 0.26% 3 0.19% 4 0.31% 5 0.21% 1 0.31% 2 1.28%
1971-3 -0.06% 1 0.93% 2 0.20% 3 0.63% 4 -0.03% 5 1.67%
 
1975-3 1.36% 1 -0.85% 2 1.34% 3 0.55% 4 -0.48% 5 1.93%
1979-3 -0.05% 4 0.05% 5 -1.18% 1 -0.02% 2 -1.21% 3 -2.42%
1983-3 -0.08% 2 0.05% 3 0.47% 4 0.89% 5 0.15% 1 1.47%
1987-3 0.54% 1 0.55% 2 0.94% 3 0.64% 4 0.30% 5 2.97%
1991-3 0.84% 5 1.70% 1 1.74% 2 1.63% 3 -0.96% 4 4.95%
Avg 0.52% 0.30% 0.66% 0.74% -0.44% 1.78%
 
1995-3 0.41% 3 0.70% 4 1.10% 5 0.88% 1 0.02% 2 3.11%
1999-3 0.17% 1 -1.86% 2 1.06% 3 -3.19% 4 -1.52% 5 -5.34%
2003-3 0.22% 1 -1.33% 2 -0.36% 3 0.02% 4 -1.48% 5 -2.93%
2007-3 0.18% 4 0.30% 5 -0.21% 1 0.04% 2 0.77% 3 1.08%
2011-3 1.89% 2 -0.06% 3 0.16% 4 0.56% 5 0.53% 1 3.08%
Avg 0.57% -0.45% 0.35% -0.34% -0.34% -0.20%
 
OTC summary for Presidential Year 3 1963 - 2011
Averages 0.47% 0.00% 0.43% 0.21% -0.25% 0.86%
% Winners 77% 62% 69% 77% 54% 77%
MDD 2/5/1999 5.44% -- 2/7/2003 3.12% -- 2/7/1979 2.40%
 
OTC summary for all years 1963 - 2014
Averages 0.26% -0.05% 0.13% 0.03% 0.16% 0.53%
% Winners 69% 67% 59% 58% 65% 65%
MDD 2/7/2002 7.86% -- 2/7/2001 6.29% -- 2/6/2008 5.58%
 
SPX Presidential Year 3
  Day1 Day2 Day3 Day4 Day5 Totals
1931-3 0.44% 1 0.50% 2 0.55% 3 -0.67% 4 0.31% 5 1.12%
 
1935-3 -0.55% 5 0.44% 6 -1.10% 1 -1.11% 2 -0.90% 3 -3.22%
1939-3 -1.46% 3 2.15% 4 -0.65% 5 0.81% 6 0.56% 1 1.41%
1943-3 0.48% 1 0.00% 2 -0.76% 3 -0.10% 4 0.77% 5 0.39%
1947-3 0.51% 6 0.38% 1 0.19% 2 0.57% 3 -0.38% 4 1.27%
1951-3 0.51% 4 0.87% 5 0.55% 6 0.54% 1 -0.36% 2 2.11%
Avg -0.10% 0.77% -0.35% 0.14% -0.06% 0.39%
 
1955-3 0.25% 2 -0.30% 3 -0.46% 4 1.43% 5 0.00% 1 0.91%
1959-3 -0.38% 1 0.13% 2 -0.40% 3 -0.45% 4 -0.80% 5 -1.91%
1963-3 0.17% 5 -0.21% 1 -0.09% 2 0.44% 3 -0.35% 4 -0.04%
1967-3 -0.21% 3 0.35% 4 0.73% 5 -0.21% 1 -0.26% 2 0.40%
1971-3 0.56% 1 0.01% 2 0.21% 3 -0.01% 4 0.32% 5 1.09%
Avg 0.08% -0.01% 0.00% 0.24% -0.22% 0.09%
 
1975-3 1.09% 1 -0.27% 2 1.73% 3 -0.49% 4 0.09% 5 2.14%
1979-3 0.03% 4 -0.46% 5 -1.42% 1 -0.04% 2 -0.91% 3 -2.80%
1983-3 -1.61% 2 0.19% 3 0.72% 4 1.30% 5 0.54% 1 1.14%
1987-3 0.86% 1 -0.17% 2 1.32% 3 0.54% 4 -0.40% 5 2.17%
1991-3 -0.26% 5 1.54% 1 0.84% 2 1.94% 3 -0.43% 4 3.63%
Avg 0.02% 0.17% 0.64% 0.65% -0.22% 1.26%
 
1995-3 0.00% 3 0.51% 4 1.24% 5 0.52% 1 -0.07% 2 2.19%
1999-3 -0.52% 1 -0.86% 2 0.80% 3 -1.86% 4 -0.73% 5 -3.16%
2003-3 0.54% 1 -1.41% 2 -0.54% 3 -0.64% 4 -1.01% 5 -3.07%
2007-3 0.54% 4 0.17% 5 -0.10% 1 0.07% 2 0.14% 3 0.82%
2011-3 1.67% 2 -0.27% 3 0.24% 4 0.29% 5 0.62% 1 2.54%
Avg 0.44% -0.37% 0.33% -0.32% -0.21% -0.13%
 
SPX summary for Presidential Year 3 1930 - 2011
Averages 0.13% 0.16% 0.17% 0.14% -0.15% 0.44%
% Winners 62% 57% 57% 52% 38% 71%
MDD 2/7/2003 3.56% -- 2/6/1935 3.19% -- 2/5/1999 3.14%
 
SPX summary for all years 1928 - 2014
Averages 0.18% 0.07% -0.12% 0.02% 0.01% 0.15%
% Winners 64% 59% 47% 51% 52% 64%
MDD 2/4/1933 7.06% -- 2/5/1932 5.47% -- 2/3/1938 5.05%


Money Supply (M2)

The money supply chart was provided by Gordon Harms. M2 growth rose a bit last week.

S&P500 and M2 Money Supply Charts


February

Since 1963, over all years, the OTC in February has been up 56% of the time with an average gain of 0.5%. During the 3rd year of the Presidential Cycle February has been up 69% time with an average gain of 2.3%. The best February ever for the OTC was 2000 (+19.2%), the worst 2001 (-22.4%).

The average month has 21 trading days. The chart below has been calculated by averaging the daily percentage change for each of the 1st 11 trading days and each of the last 10. In months when there were more than 21 trading days some of the days in the middle were not counted. In months when there were less than 21 trading days some of the days in the middle of the month were counted twice. Dashed vertical lines have been drawn after the 1st trading day and at 5 trading day intervals after that. The line is solid on the 11th trading day, the dividing point.

In the chart below the blue line shows the average daily performance of the OTC in February over all years since 1963 in blue, while the gray line shows the average during the 3rd year of the Presidential Cycle over the same period.

OTC in February Presidential Year 3 1963-2015

Since 1928 the SPX has been up 53% of the time in February with an average loss of -0.1%. During the 3rd year of the Presidential Cycle the SPX has been up 62% of the time with an average gain of 1.3%. The best February for the SPX was 1931 (+11.4%) the worst 1933 (-18.4%).

The chart below is similar to the one above except it shows the average daily average performance over all years since 1928 for the SPX in February in red and the average daily performance during the 3rd year of the Presidential Cycle, over the same period, in gray.

S&P500 in February Presidential Year 3 1928-2015

Since 1979 the Russell 2000 (R2K) has been up 58% of the time in February with an average gain of 1.1%. During the 3rd year of the Presidential Cycle the R2K has been up 56% of the time with an average gain of 2.1%. The best February for the R2K 2000 (+16.4%), the worst 2009 (-12.3%)

The chart below is similar to those above except it shows the average daily performance of the R2K, over all years since 1979, in February in magenta and the average daily performance during the 1st year of the Presidential Cycle in gray.

Russell 2000 in February Presidential Year 3 1979-2015

Since 1885 the Dow Jones Industrial Average (DJIA) has been up 52% of the time in February with an average loss of -0.2%. During the 3rd year of the Presidential Cycle the DJIA has been up 69% of the time in February with an average gain of 1.6%. The best February for the DJIA 1931 (+13.2%), the worst 1933 (-15.6%)

The chart below is similar to those above except it shows the average daily performance over all years for the DJIA in February in black and the average performance during the 1st year of the Presidential Cycle in gray.

Dow in February Presidential Year 3 1885-2015


Conclusion

The OTC was down in January for only the 2nd time in its history, during the 3rd year of the Presidential Cycle, since 1963. The other down 3rd year January was 2003 when it went on to finish the year up 50%.

The breadth indicators took a turn for the worse last week with new lows reaching threatening levels on both exchanges.

I expect the major averages to be lower on Friday February 6 than they were on Friday January 30.

Last weeks positive forecast was a miss.

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Good Luck,

YTD W 2 / L 2 / 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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