Technical Market Report for May 9, 2015

By: Mike Burk | Sat, May 9, 2015
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The good news is:
• The S&P 100 (OEX) closed at a all time high Friday while the Dow Jones Industrial Average (DJIA) and S&P 500 (SPX) closed less than 1% from their all time highs.


The negatives

Last week new lows outnumbered new highs for 3 of the 5 trading days and the secondaries continue to lag.

The chart below covers the past month showing the broad based indices on Log scales to illustrate their relative performance. Dashed vertical lines have been drawn on the first trading day of the week.

The chart shows the SPX, in red and NASDAQ composite (OTC), in blue, the S&P Mid cap (MID), in green and the small cap Russell 2000 (R2K) , in magenta is at the bottom. The small caps usually lead both up and down and they have been underperforming the large caps.

SPX, NASDAQ, S&P Mid-Cap and R2K Chart

The next chart 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. Dashed vertical lines have been drawn on the 1st trading day of each month.

NY NH continued falling as the SPX neared its all time high.

NY NH Chart

The next chart is similar to the one above except is shows the OTC in blue and OTC NH, in green, has been calculated from NASDAQ data.

OTC NH also fell sharply last week.

OTC NH Chart

Diminishing new highs near all time index highs indicate narrowing leadership.


The positives

Positives are coming up a bit short, but, on Friday, new highs outnumbered new lows so the rally might continue for a few more days.

The next chart covers the past 6 months showing the SPX in red and a 40% trend (4 day EMA) 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 50%, neutral level.

NY HL Ratio rallied to finish the week at a positive 53%.

NY HL Ratio Chart

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

OTC HL Ratio also rallied on Friday, but finished a little below the neutral level at 49%.

OTC HL Ratio Chart


Seasonality

Next week includes the 5 trading days prior to the 3rd Friday of May 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 3rd Friday of May 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 modestly negative by all measures and weaker during the 3rd year of the Presidential Cycle than other years.

Report for the week before the 3rd Friday of May.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday through 3rd Friday.

OTC Presidential Year 3
Year Mon Tue Wed Thur Fri Totals
1963-3 -0.06% 0.09% 0.06% 0.18% -0.06% 0.21%
1967-3 -0.35% -0.52% 0.78% 0.23% 0.03% 0.16%
1971-3 -1.44% -0.69% -0.06% 0.36% 0.12% -1.71%
 
1975-3 -0.63% 1.28% -0.53% -0.14% -0.42% -0.45%
1979-3 -0.54% 0.02% 0.26% 0.84% 0.44% 1.02%
1983-3 -1.43% 0.47% 0.83% -0.23% 0.24% -0.11%
1987-3 -0.24% -0.39% 0.33% 0.18% -0.89% -1.01%
1991-3 0.10% -1.04% -2.19% 0.77% -0.08% -2.44%
Avg -0.55% 0.07% -0.26% 0.28% -0.14% -0.60%
 
1995-3 0.48% 0.60% 0.42% -0.90% 0.06% 0.66%
1999-3 1.34% -0.13% 0.74% -1.37% -0.87% -0.28%
2003-3 1.40% -0.11% -0.31% 1.07% -0.83% 1.22%
2007-3 -0.62% -0.83% 0.88% -0.32% 0.75% -0.13%
2011-3 -1.63% 0.03% 1.14% 0.30% -0.71% -0.87%
Avg 0.19% -0.09% 0.57% -0.24% -0.32% 0.12%
 
OTC summary for Presidential Year 3 1963 - 2011
Avg -0.28% -0.09% 0.18% 0.07% -0.17% -0.29%
Win% 31% 46% 69% 62% 46% 38%
 
OTC summary for all years 1963 - 2014
Avg -0.03% 0.02% 0.02% -0.05% -0.21% -0.24%
Win% 48% 46% 58% 50% 43% 48%
 
SPX Presidential Year 3
Year Mon Tue Wed Thur Fri Totals
1955-3 -1.12% -0.14% 0.84% 0.56% 0.67% 0.81%
1959-3 0.42% 0.16% 0.56% 0.69% -0.36% 1.46%
1963-3 -0.06% -0.38% 0.31% -0.26% 0.06% -0.33%
1967-3 -0.82% 0.46% -0.39% -0.27% -0.50% -1.51%
1971-3 -1.49% 0.14% 0.24% 0.24% -0.32% -1.19%
Avg -0.61% 0.05% 0.31% 0.19% -0.09% -0.15%
 
1975-3 0.09% 1.07% 0.75% -0.93% -1.07% -0.09%
1979-3 -0.47% 0.08% 0.29% 1.54% -0.01% 1.43%
1983-3 -0.91% 0.19% -0.27% -0.78% 0.09% -1.68%
1987-3 -0.61% 0.59% 0.23% 0.09% -2.31% -2.01%
1991-3 0.27% -1.36% -0.82% 0.98% 0.05% -0.88%
Avg -0.33% 0.11% 0.04% 0.18% -0.65% -0.65%
 
1995-3 0.42% 0.09% -0.21% -1.42% -0.08% -1.21%
1999-3 0.13% -0.46% 0.82% -0.39% -0.64% -0.55%
2003-3 1.25% -0.30% -0.32% 0.79% -0.25% 1.17%
2007-3 -0.18% -0.13% 0.86% -0.09% 0.66% 1.12%
2011-3 -0.62% -0.04% 0.88% 0.22% -0.77% -0.33%
Avg 0.20% -0.17% 0.41% -0.18% -0.22% 0.04%
 
SPX summary for Presidential Year 3 1955 - 2011
Avg -0.25% 0.00% 0.25% 0.06% -0.32% -0.25%
Win% 40% 53% 67% 53% 33% 33%
 
SPX summary for all years 1953 - 2014
Avg -0.03% 0.07% 0.05% -0.08% -0.11% -0.11%
Win% 51% 53% 50% 50% 50% 48%


Money supply (M2)

The money supply chart was provided by Gordon Harms. Money supply growth has been falling at the fastest rate in the past 2 years.

SPX and M2 Money Supply


Conclusion

Breadth deterioration is accelerating. Seasonality indicates a final top is still 2 months away.

I expect the major averages to be lower on Friday May 15 than they were on Friday May 8.

Last week the OTC was down a little while the other major indices were up a little so I am calling last weeks negative forecast a tie.

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Good Luck,

YTD W 8 / L 6 / T 4

 


 

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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