Technical Market Report for July 11, 2015

By: Mike Burk | Sat, Jul 11, 2015
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The good news is:
• There may be a few days left in the countertrend rally that began last week.


The negatives

The game is over, the clock has run out.

It was not a very good showing for the 1st half of the 3rd year of the Presidential Cycle (on average the strongest 6 month period in the 4 year cycle). The S&P 500 (SPX) and Dow Jones Industrial average (DJIA) hit their highs in May while the NASDAQ composite (OTC) and Russell 2000 (R2K) peaked in late June.

I was expecting more. The FED discontinuing their QE was an issue, but when the ECB stepped up with their implementation of QE I thought they would save the day, and maybe they did, but the game still ended a little early.

The chart below 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 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 where it finished last week at a very weak 27%. There is a clearly visible 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 continued its fall finishing the week at 37%.

OTC HL Ratio Chart


The positives

The next 2 charts I am showing as positives which is a bit of a stretch, but it is all I have got. New lows declined sharply on Thursday and Friday, but remained at threatening levels.

The next chart below covers the past 6 months 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).

NY NL has turned upward which is good, but, so far, not long enough to be convincing.

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 also turned upward, but it is too early to tell if the rally has legs.

OTC NL Chart

If the recent decline is going to be arrested, new lows must disappear.


Seasonality

Next week includes the 5 trading days prior to the 3rd 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 3rd 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 negative by all measures.

Report for the week before the 3rd Friday of July.
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 -0.21% -0.32% -0.32% -0.59% -0.39% -1.83%
1967-3 -0.03% -0.14% 0.92% 0.19% 0.18% 1.12%
1971-3 0.30% -0.43% -0.38% 0.34% -0.67% -0.84%
 
1975-3 -0.29% -1.21% -1.28% -0.57% -0.64% -3.99%
1979-3 0.27% -0.74% -0.44% 0.23% 0.30% -0.39%
1983-3 0.13% -0.96% -0.74% 0.29% -0.83% -2.11%
1987-3 -0.59% -0.50% -0.02% -0.39% 0.35% -1.14%
1991-3 0.71% -0.52% -0.04% 0.69% 0.15% 0.98%
Avg 0.05% -0.79% -0.50% 0.05% -0.13% -1.33%
 
1995-3 0.60% -1.44% -4.15% 1.14% 0.12% -3.72%
1999-3 -0.10% -0.44% 1.44% 0.76% 0.88% 2.54%
2003-3 -1.59% 1.47% 0.77% -1.03% 1.72% 1.34%
2007-3 -0.36% 0.55% -0.47% 0.76% -1.19% -0.71%
2011-3 -2.00% -0.74% 0.54% -1.22% 0.98% -2.44%
Avg -0.69% -0.12% -0.38% 0.08% 0.50% -0.60%
 
OTC summary for Presidential Year 3 1963 - 2011
Avg -0.24% -0.42% -0.32% 0.04% 0.07% -0.86%
Win% 38% 15% 31% 62% 62% 31%
 
OTC summary for all years 1963 - 2014
Avg -0.12% -0.12% 0.05% 0.04% -0.18% -0.33%
Win% 55% 38% 53% 57% 46% 44%
 
SPX Presidential Year 3
Year Mon Tue Wed Thur Fri Totals
1955-3 0.26% 0.00% -1.19% 0.02% 0.36% -0.56%
1959-3 -0.47% 0.85% 0.34% 0.10% -0.03% 0.78%
1963-3 -0.63% -0.09% -0.30% -0.64% -0.20% -1.86%
1967-3 0.01% 0.81% 0.16% 0.21% 0.20% 1.40%
1971-3 0.13% -1.31% -0.28% 0.06% -0.17% -1.57%
Avg -0.14% 0.07% -0.26% -0.05% 0.03% -0.36%
 
1975-3 -0.82% -1.07% -1.39% -0.12% -0.87% -4.26%
1979-3 0.41% -0.89% -0.14% -0.08% 0.21% -0.48%
1983-3 0.62% -1.53% -0.04% 0.33% -1.04% -1.66%
1987-3 -1.02% -0.91% -0.03% -0.21% 0.47% -1.69%
1991-3 0.56% -0.22% -0.09% 1.10% -0.30% 1.05%
Avg -0.05% -0.93% -0.34% 0.20% -0.30% -1.41%
 
1995-3 0.51% -0.76% -1.34% 0.46% 0.01% -1.11%
1999-3 -0.30% -0.39% 0.33% 0.82% 0.65% 1.11%
2003-3 -1.46% 0.95% 0.05% -0.71% 1.74% 0.57%
2007-3 -0.19% -0.01% -0.21% 0.45% -1.22% -1.18%
2011-3 -1.81% -0.44% 0.31% -0.67% 0.56% -2.06%
Avg -0.65% -0.13% -0.17% 0.07% 0.35% -0.54%
 
SPX summary for Presidential Year 3 1955 - 2011
Avg -0.28% -0.36% -0.25% 0.07% 0.02% -0.77%
Win% 47% 21% 33% 60% 53% 33%
 
SPX summary for all years 1953 - 2014
Avg -0.12% -0.20% 0.04% 0.00% -0.11% -0.39%
Win% 47% 33% 52% 59% 50% 40%


Money supply (M2)

The money supply chart was provided by Gordon Harms. M2 growth is back to its trend line.

S&P500 and M2 Money Supply Chart


Conclusion

The market has been unusually weak for the 3rd year of the Presidential Cycle and, seasonally the next 3 weeks have been, on average weak.

I expect the major averages to be lower on Friday July 17 than they were on Friday July 10.

Last week the DJIA and R2K were up a little while the SPX and OTC were down a little so I am calling last weeks positive forecast a tie.

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Good Luck,

YTD W 9 / L 10 / T 8

 


 

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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