Technical Market Report for February 28, 2015

By: Mike Burk | Sat, Feb 28, 2015
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The good news is:
• After a rough start in January the market had a sensational February with the major indices up 5% - 7%.


The negatives

A great February has left the market overbought. A few more days of backing and filling should prepare the market for March which, seasonally, has been one of the best months in the 4 year Presidential Cycle.


The positives

New highs picked up a bit last week while new lows remained dormant.

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

OTC HL Ratio finished the week at a very strong 82%.

There are trading systems that impose a No Sell Filter when variations of this indicator are above 80%.

OTC HL Ratio Chart

The next chart is similar to the one above except it shows the S&P 500 (SPX) in red and NY HL Ratio, in blue, has been calculated from NYSE data.

NY HL Ratio declined a bit last week to a very strong 86%.

NY HL Ratio Chart


Seasonality

Next week includes the first 5 trading days of March 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 March 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. However, in the past 20 years, only 1999 was up during the 3rd year of the Presidential Cycle.

Report for the first 5 days of March.
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 -0.68% 5 -0.23% 1 0.33% 2 0.07% 3 0.29% 4 -0.22%
1967-3 0.48% 3 0.56% 4 0.91% 5 0.44% 1 0.00% 2 2.39%
1971-3 0.43% 1 0.06% 2 0.23% 3 0.70% 4 0.25% 5 1.67%
 
1975-3 1.14% 1 0.51% 2 -0.42% 3 0.16% 4 0.51% 5 1.91%
1979-3 0.63% 4 0.28% 5 0.85% 1 -0.23% 2 0.95% 3 2.47%
1983-3 0.44% 2 0.60% 3 0.69% 4 0.28% 5 -0.21% 1 1.80%
1987-3 -0.25% 1 -0.08% 2 0.75% 3 0.53% 4 0.10% 5 1.05%
1991-3 0.81% 5 0.96% 1 2.58% 2 0.16% 3 0.41% 4 4.93%
Avg 0.55% 0.45% 0.89% 0.18% 0.35% 2.43%
 
1995-3 -0.23% 3 0.23% 4 0.64% 5 -0.13% 1 -0.81% 2 -0.30%
1999-3 0.31% 1 -1.58% 2 0.27% 3 1.22% 4 1.93% 5 2.16%
2003-3 -1.29% 1 -0.95% 2 0.51% 3 -0.88% 4 0.18% 5 -2.42%
2007-3 -0.49% 4 -1.51% 5 -1.15% 1 1.90% 2 -0.44% 3 -1.69%
2011-3 -1.61% 2 0.39% 3 1.84% 4 -0.50% 5 -1.40% 1 -1.28%
Avg -0.66% -0.68% 0.42% 0.32% -0.11% -0.71%
 
OTC summary for Presidential Year 3 1963 - 2011
Averages -0.02% -0.06% 0.62% 0.29% 0.14% 0.96%
% Winners 54% 62% 85% 69% 62% 62%
MDD 3/5/2007 3.12% -- 3/6/2003 2.59% -- 3/7/2011 1.90%
 
OTC summary for all years 1963 - 2014
Averages 0.18% 0.04% 0.35% -0.17% -0.02% 0.36%
% Winners 63% 52% 69% 53% 51% 62%
MDD 3/7/1980 7.49% -- 3/6/2009 6.10% -- 3/6/1968 4.86%
 
SPX Presidential Year 3
  Day1 Day2 Day3 Day4 Day5 Totals
1931-3 -2.29% 1 -0.11% 2 -0.91% 3 2.02% 4 -2.09% 5 -3.39%
 
1935-3 0.57% 5 0.00% 6 -0.80% 1 -2.87% 2 -0.24% 3 -3.33%
1939-3 0.00% 3 -0.16% 4 1.42% 5 0.31% 6 -0.85% 1 0.72%
1943-3 -0.73% 1 -0.73% 2 1.29% 3 0.18% 4 0.45% 5 0.47%
1947-3 0.06% 6 -0.19% 1 0.00% 2 1.17% 3 0.38% 4 1.42%
1951-3 0.23% 4 0.37% 5 0.05% 6 -0.68% 1 0.00% 2 -0.04%
Avg 0.03% -0.14% 0.39% -0.38% -0.05% -0.15%
 
1955-3 0.19% 2 0.87% 3 0.38% 4 0.62% 5 -0.64% 1 1.41%
1959-3 0.58% 1 0.93% 2 0.18% 3 0.14% 4 -0.39% 5 1.44%
1963-3 -0.30% 5 0.97% 1 0.03% 2 0.17% 3 0.63% 4 1.50%
1967-3 1.04% 3 0.55% 4 0.15% 5 -0.22% 1 0.07% 2 1.58%
1971-3 0.26% 1 -0.02% 2 -0.03% 3 1.00% 4 1.06% 5 2.27%
Avg 0.35% 0.66% 0.14% 0.34% 0.15% 1.64%
 
1975-3 1.76% 1 0.64% 2 -0.79% 3 0.95% 4 0.73% 5 3.30%
1979-3 0.64% 4 0.07% 5 1.12% 1 -0.19% 2 0.58% 3 2.23%
1983-3 1.90% 2 0.94% 3 0.77% 4 0.12% 5 0.00% 1 3.74%
1987-3 -0.42% 1 0.40% 2 1.58% 3 0.66% 4 0.05% 5 2.26%
1991-3 0.93% 5 -0.31% 1 2.00% 2 -0.15% 3 -0.07% 4 2.40%
Avg 0.96% 0.35% 0.94% 0.28% 0.26% 2.79%
 
1995-3 -0.36% 3 -0.11% 4 0.06% 5 0.04% 1 -0.72% 2 -1.08%
1999-3 -0.17% 1 -0.87% 2 0.18% 3 1.54% 4 2.32% 5 3.00%
2003-3 -0.75% 1 -1.54% 2 0.96% 3 -0.93% 4 0.83% 5 -1.44%
2007-3 -0.26% 4 -1.14% 5 0.00% 1 0.59% 2 -0.25% 3 -1.05%
2011-3 -1.57% 2 0.16% 3 1.72% 4 -0.74% 5 -0.83% 1 -1.26%
Avg -0.62% -0.70% 0.58% 0.10% 0.27% -0.37%
 
SPX summary for Presidential Year 3 1931 - 2011
Averages 0.06% 0.03% 0.45% 0.18% 0.05% 0.77%
% Winners 52% 48% 71% 67% 48% 67%
MDD 3/6/1935 3.87% -- 3/6/1931 3.40% -- 3/4/2003 2.28%
 
SPX summary for all years 1928 - 2014
Averages 0.15% 0.18% 0.24% 0.10% 0.02% 0.66%
% Winners 64% 56% 63% 52% 53% 62%
MDD 3/5/2009 7.15% -- 3/7/1980 5.95% -- 3/6/1942 5.12%


Money Supply (M2)

The money supply chart was provided by Gordon Harms. M2 growth held near the trend line last week.

M2 Money Supply and SPX Charts


March

Since 1963, over all years, the OTC in March has been up 63% of the time with an average gain of 0.8%. During the 3rd year of the Presidential Cycle March has been up 92% time with an average gain of 3.8% (The only down March during the 3rd year of the Presidential Cycle was 2011 and it was down by less than 0.1%). The best March ever for the OTC was 2009 (+10.9%), the worst 1980 (-17.1%).

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 March over all years since 1963 in blue, while the black line shows the average during the 3rd year of the Presidential Cycle over the same period.

OTC March, All Year 3 1963-2015

Since 1928 the SPX has been up 62% of the time in March with an average gain of 0.6%. During the 3rd year of the Presidential Cycle the SPX has been up 67% of the time with an average gain of 0.6%. The best March ever for the SPX was 1928 (+10.8%) the worst 1938 (-25.0%).

The chart below is similar to the one above except it shows the average daily performance over all years since 1928 for the SPX in March in red and the average daily performance during the 3rd year of the Presidential Cycle, over the same period, in black. The 3rd year plot turns sharply downward at the end of the month because of a large loss in 1939. The 20 year period from 1939 - 1955 had an average loss of 2.46% during the 3rd year of the Presidential Cycle. Every other 20 year period has had a positive average. The only down year since 1955 was a -0.1% loss in 2011.

SPX March, All Year 3 1928-2015

Since 1979 the Russell 2000 (R2K) has been up 72% of the time in March with an average gain of 1.3%. During the 3rd year of the Presidential Cycle the R2K has been up 100% of the time with an average gain of 3.2%. The best March ever for the R2K 1979 (+9.7%), the worst 1980 (-18.5%).

The chart below is similar to those above except it shows the average daily performance of the R2K, in March, over all years since 1979, in magenta and the average daily performance during the 3rd year of the Presidential Cycle in black.

Russell 2000 March, All Year 3 1979-2015

Since 1885 the Dow Jones Industrial Average (DJIA) has been up 60% of the time in March with an average gain of 0.7%. During the 3rd year of the Presidential Cycle the DJIA has been up 59% of the time in March with an average gain of 1.0%. The best March for the DJIA 1920 (+12.6%), the worst 1938 (-23.7%). The DJIA has not been down in March during the 3rd year of the Presidential Cycle since 1959. During a 40 year period from the early 1920's through the late 1950's, average returns in March during the 3rd year of the Presidential Cycle were negative.

The chart below is similar to those above except it shows the average daily performance over all years for the DJIA in March in magenta and the average performance during the 3rd. year of the Presidential Cycle in black.

DJIA March, All Year 3 1885-2015


Conclusion

There will likely be a few more days of consolidation of February's gains before heading upward again. For the past 50 years, March during the 3rd year of the Presidential Cycle has been very strong.

I expect the major averages to be higher on Friday March 6 than they were on Friday February 27.

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

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Good Luck,

YTD W 4 / L 3 / T 1

 


 

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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