Technical Market Report for March 7, 2015

By: Mike Burk | Sat, Mar 7, 2015
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The good news is:
• The market has worked off its overbought condition will be ready to rally when this sell off ends.


The negatives

Strength of the breadth indicators peaked about a year ago. Either they will recover or prices will tumble. If the breadth indicators recover, that recovery should begin soon because, seasonally, we are in the strongest period of the 4 year Presidential Cycle. If prices tumble, that is likely to happen sometime after July 1st, because that is the end of the seasonally strong period.

The chart below covers the past 3 years showing the Russell 2000 (R2K) in red and an Advance - Decline line (AD ADL) calculated from the component issues of the R2K in blue. This Advance - Decline line is a running total of daily declining issues subtracted from advancing issues.

Dashed vertical lines have been drawn on the 1st trading day of each month, those lines are red on the 1st trading day of the year.

The AD line peaked around the 1st of March last year and did not confirm the recent all time highs in the R2K.

R2K and ADL Chart


The positives

New highs declined a bit last week, but new lows remained at non threatening levels.

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 fell last week, but finished the week at a comfortably positive 65%.

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 also declined last week, closing at 67%.

NY HL Ratio Chart


Seasonality

Next week includes the first 5 trading days prior to the 2nd Friday of March 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 2nd Friday of March during the 3rd year of the Presidential Cycle.

OTC data covers the period from 1963 to 2014 while SPX data runs from 1953 through 2014. There are summaries for both the 3rd 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 2nd Friday of March.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday to 2nd Friday.

OTC Presidential Year 3
Year Mon Tue Wed Thur Fri Totals
1963-3 -0.23% 0.33% 0.07% 0.29% 0.52% 0.98%
1967-3 0.44% 0.00% 0.49% 0.33% 1.16% 2.42%
1971-3 1.15% 0.17% -0.26% 0.12% 0.23% 1.41%
 
1975-3 0.65% 0.21% -1.21% 0.74% 1.86% 2.25%
1979-3 0.85% -0.23% 0.95% 1.15% 0.16% 2.87%
1983-3 -0.21% -0.84% 0.72% 0.38% 0.04% 0.10%
1987-3 -0.62% 0.61% 0.48% 0.24% -0.12% 0.59%
1991-3 0.96% 2.58% 0.16% 0.41% -0.13% 3.98%
Avg 0.33% 0.47% 0.22% 0.59% 0.36% 1.96%
 
1995-3 -0.13% -0.81% 0.57% 0.05% 0.75% 0.44%
1999-3 2.59% -0.20% 0.55% 0.26% -1.28% 1.93%
2003-3 -2.06% -0.54% 0.61% 4.81% -0.03% 2.79%
2007-3 -1.15% 1.90% -0.44% 0.55% -0.01% 0.85%
2011-3 -1.40% 0.73% -0.51% -1.84% 0.54% -2.48%
Avg -0.43% 0.22% 0.16% 0.77% -0.01% 0.70%
 
OTC summary for Presidential Year 3 1963 - 2011
Avg 0.06% 0.33% 0.17% 0.58% 0.28% 1.39%
Win% 46% 58% 69% 92% 62% 92%
 
OTC summary for all years 1963 - 2014
Avg -0.06% 0.39% 0.03% 0.30% -0.07% 0.58%
Win% 46% 59% 62% 65% 52% 69%
 
SPX Presidential Year 3
Year Mon Tue Wed Thur Fri Totals
1955-3 -0.64% -1.88% -0.98% 0.64% -1.73% -4.59%
1959-3 -0.11% 0.28% 0.07% 0.44% 0.12% 0.82%
1963-3 0.97% 0.03% 0.17% 0.63% 0.11% 1.91%
1967-3 -0.22% 0.07% 0.12% 0.29% 0.41% 0.68%
1971-3 0.42% 0.08% -0.16% 0.09% 0.18% 0.62%
Avg 0.09% -0.28% -0.16% 0.42% -0.18% -0.12%
 
1975-3 0.77% -0.69% -0.91% 0.18% 1.22% 0.56%
1979-3 1.12% -0.19% 0.58% 1.16% -0.04% 2.63%
1983-3 0.00% -1.57% 1.06% -0.70% -0.37% -1.57%
1987-3 -0.81% 0.89% -0.19% 0.31% -0.46% -0.26%
1991-3 -0.31% 2.00% -0.15% -0.07% -0.26% 1.22%
Avg 0.19% 0.09% 0.08% 0.18% 0.02% 0.52%
 
1995-3 0.04% -0.72% 0.21% 0.00% 1.33% 0.86%
1999-3 0.56% -0.23% 0.55% 0.85% -0.24% 1.49%
2003-3 -2.58% -0.84% 0.43% 3.45% 0.16% 0.62%
2007-3 0.00% 0.59% -0.25% 0.71% 0.07% 1.13%
2011-3 -0.83% 0.89% -0.14% -1.89% 0.71% -1.26%
Avg -0.70% -0.06% 0.16% 0.62% 0.41% 0.57%
 
SPX sumamry for Presidential Year 3 1955 - 2011
Avg -0.12% -0.09% 0.03% 0.41% 0.08% 0.32%
Win% 46% 53% 53% 80% 60% 73%
 
SPX summary for all years 1953 - 2014
Avg -0.05% 0.24% 0.06% 0.16% -0.05% 0.37%
Win% 51% 56% 56% 61% 46% 60%


Money Supply (M2)

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

M2 Money Supply and SPX Charts


Conclusion

There could be a few more days of consolidation. The market will be ready to rally when this period of consolidation ends.

I expect the major averages to be higher on Friday March 13 than they were on Friday March 6.

Last weeks positive forecast was a miss.

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Good Luck,

YTD W 4 / L 4 / 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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