Technical Market Report for July 4, 2015

By: Mike Burk | Sun, Jul 5, 2015
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The good news is:
• The market is very oversold and due for a bounce.


The negatives

The market appears to have run out of time.

Historically the first 6 months (lasting until mid July) in the 3rd year of the Presidential Cycle are the strongest of the entire 4 year cycle. This year all of the major indices were up less than half of their average gains for the period and most of them were down in 3 of the 6 months.

Over the past year and a half, with interest rates at 0, there has been very little selling i.e. downside volume and new lows have been minimal. That changed last week when, in spite of a holiday (usually a positive), downside volume soared and new lows held at threatening levels all week.

Seasonally the period from mid July through the 1st week of August has been weak so the next month has little to recommend it.

The chart below covers the past 6 months showing the S&P 500 (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 vertical lines have been drawn on the 1st trading day of each month. Dashed horizontal lines have been drawn at 10% levels for the indicator, the line is solid at the 50%, neutral level.

NY HL Ratio finished the week at a very weak 27% and over the past 3 months has established a pattern of lower highs and lower lows.

NY HL Ratio Chart

The next chart is similar to the one above except it shows the NASDAQ composite (OTC) in blue and OTC HL Ratio has been calculated from NASDAQ data.

OTC HL Ratio fell into negative territory as new lows exceeded new highs every day last week.

OTC HL Ratio Chart

The next chart covers the past year showing the SPX in red and a 10% trend (19 day EMA) of NYSE new lows (NY NL), in blue. NY NL has been plotted on an inverted Y axis so decreasing new lows move the indicator upward (up is good).

Moving sharply downward, this is the scariest chart of all.

NY NL Chart

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

OTC NL has been holding up much better than NY NL, but it dropped to its lowest point in several months.

OTC NL Chart

The market is running out of Aces.


The positives

Seasonality for the coming week is positive. Short term breadth indicators and prices are oversold so a bounce is likely.


Seasonality

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

OTC data covers the period from 1963 to 2014 while SPX data runs from 1953 to 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 July.
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 0.21% -0.27% 0.30% 0.29% 0.12% 0.65%
1967-3 0.71% 0.23% 0.70% -0.18% 0.25% 1.72%
1971-3 0.00% 0.42% 0.71% 0.37% 0.44% 1.95%
 
1975-3 0.44% 0.48% -0.69% -0.30% -0.13% -0.20%
1979-3 0.37% -0.13% -0.09% -0.12% -0.12% -0.09%
1983-3 0.00% -1.38% 0.63% -0.04% 0.18% -0.62%
1987-3 0.12% 1.08% 0.02% 0.46% 0.20% 1.89%
1991-3 1.15% 0.86% 0.73% 0.25% 0.89% 3.88%
Avg 0.52% 0.18% 0.12% 0.05% 0.21% 0.97%
 
1995-3 0.71% -0.66% 1.90% 0.56% 0.52% 3.03%
1999-3 0.00% -0.15% 0.23% 1.05% 0.76% 1.89%
2003-3 1.20% -0.09% -0.30% -2.86% 0.62% -1.43%
2007-3 0.13% -1.16% 0.48% 1.88% 0.20% 1.53%
2011-3 0.00% 0.35% 0.29% 1.36% -0.45% 1.55%
Avg 0.68% -0.34% 0.52% 0.40% 0.33% 1.32%
 
OTC summary for Presidential Year 3 1963 - 2011
Avg 0.56% -0.03% 0.38% 0.21% 0.27% 1.21%
Win% 100% 46% 77% 62% 77% 69%
 
OTC summary for all years 1963 - 2014
Avg 0.05% -0.12% 0.35% 0.29% 0.41% 0.96%
Win% 68% 50% 61% 65% 75% 67%
 
Year 2
Year Mon Tue Wed Thur Fri Totals
1954-2 0.00% 1.12% 0.07% 0.00% 0.67% 1.85%
 
1958-2 -1.27% -0.07% 0.31% 0.66% 0.48% 0.12%
1962-2 0.68% 1.15% 0.93% 0.52% -0.34% 2.93%
1966-2 0.00% 0.25% 1.44% 0.37% 0.26% 2.32%
1970-2 -0.12% -0.08% 1.09% 1.48% 1.77% 4.13%
1974-2 -3.07% 0.48% -1.83% -0.13% 4.08% -0.46%
Avg -0.95% 0.35% 0.39% 0.58% 1.25% 1.81%
 
1978-2 0.40% 0.69% 0.32% 0.01% 1.38% 2.81%
1982-2 0.00% -0.33% -0.07% 0.29% 1.21% 1.10%
1986-2 -1.70% -1.87% 0.58% 0.45% 0.12% -2.41%
1990-2 0.31% -0.84% 1.33% 1.17% 0.51% 2.47%
1994-2 0.00% 0.04% -0.05% 0.50% 0.26% 0.75%
Avg -0.33% -0.46% 0.42% 0.48% 0.70% 0.94%
 
1998-2 0.08% 1.06% -0.24% 0.78% 0.23% 1.91%
2002-2 -1.22% -2.47% -3.40% 0.75% -0.64% -6.98%
2006-2 0.15% 0.41% -1.09% -1.30% -0.49% -2.32%
2010-2 0.00% 0.54% 3.13% 0.94% 0.72% 5.33%
2014-2 0.48% -0.19% 0.42% -1.18% 1.03% 0.55%
Avg -0.13% -0.13% -0.23% 0.00% 0.17% -0.30%
 
Avg -0.48% -0.01% 0.18% 0.35% 0.70% 0.88%
Win% 55% 56% 63% 80% 81% 75%
 
SPX Presidential Year 3
Year Mon Tue Wed Thur Fri Totals
1955-3 0.00% 1.21% 3.57% -1.39% 0.14% 3.54%
1959-3 -0.83% 0.24% 0.07% -0.30% -0.37% -1.20%
1963-3 -0.68% 0.43% -0.21% -0.19% -0.17% -0.83%
1967-3 0.39% 0.47% -0.09% 0.02% 0.35% 1.14%
1971-3 0.00% -0.02% 0.28% 0.30% 0.35% 0.91%
Avg -0.38% 0.47% 0.72% -0.31% 0.06% 0.71%
 
1975-3 0.56% 0.44% -1.05% -1.04% -0.46% -1.54%
1979-3 0.82% -0.26% -0.54% -0.92% -0.36% -1.25%
1983-3 0.00% -1.37% 1.13% -0.55% -0.29% -1.07%
1987-3 -0.24% 0.99% -0.08% 0.73% 0.60% 2.01%
1991-3 1.03% -0.48% -0.10% 0.33% 0.87% 1.65%
Avg 0.54% -0.14% -0.13% -0.29% 0.07% -0.04%
 
1995-3 0.15% -0.43% 1.10% 0.02% -0.20% 0.64%
1999-3 0.00% -0.22% 0.56% -0.11% 0.64% 0.87%
2003-3 0.57% -0.34% -0.64% -1.23% 1.18% -0.47%
2007-3 0.09% -1.42% 0.57% 1.91% 0.31% 1.46%
2011-3 0.00% -0.13% 0.10% 1.05% -0.70% 0.32%
Avg 0.27% -0.51% 0.34% 0.33% 0.25% 0.56%
 
SPX summary for Presidential Year 3 1955 - 2011
Avg 0.19% -0.06% 0.31% -0.09% 0.13% 0.41%
Win% 70% 40% 53% 47% 53% 60%
 
SPX summary for all years 1953 - 2014
Avg 0.03% -0.03% 0.27% 0.16% 0.29% 0.70%
Win% 59% 45% 59% 61% 68% 68%


Money supply (M2)

The money supply chart was provided by Gordon Harms. M2 growth had a bump last week.

S&P500 and M2 Money Supply Chart


Conclusion

The market is oversold and due for a bounce, but the breadth indicators have all gone south. Risk is high.

I expect the major averages to be higher on Friday July 10 than they were on Thursday July 2.

Last weeks positive forecast was a miss.

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Good Luck,

YTD W 9 / L 10 / T 7

 


 

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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