Technical Market Report for August 1, 2015

By: Mike Burk | Sat, Aug 1, 2015
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The good news is:
• New lows declined significantly last week.


The negatives

After hitting extreme levels on Monday, new lows declined sharply the rest of the week. This is a critical point. If new lows continue to decline, the recent hiccup in prices will be over. Seasonally the first week of August, during the 3rd year of the Presidential Cycle, has not been pleasant.

The first chart covers the past 6 months showing the S&P 500 (SPX) in red and a 10% trend (19 day EMA) of NYSE new lows (NY NL), in blue. Dashed vertical lines have been drawn on the 1st trading day of each month. NY NL has been plotted on an inverted Y axis so decreasing new lows move the indicator upward (up is good).

NY NL moved sharply upward last week. It will take more than 195 NYSE new lows to turn the indicator downward. Last Friday their were only 72.

NY NL Chart

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

OTC NL also turned upward last week. It will require more than 125 NASDAQ new lows to turn OTC NL downward. On Friday their were 83.

OTC NL Chart

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 the 50%, neutral level.

NY HL Ratio moved upward finishing the week at 46%. If it continues upward the pattern of lower highs and lower lows will be broken.

NY HL Ratio Chart

The next chart 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 rose to 42%. OTC HL Ratio has further to rise before its pattern of lower highs and lower lows has been broken.

OTC HL Ratio Chart

Advance - Decline Lines (ADL) are running totals of declining issues subtracted from advancing issues. We look for changes in character of this indicator.

The chart below covers the past year showing the SPX in red and an ADL calculated from NYSE issues in blue.

You can see how this indicator peaked out near the end of April and has been trending downward since then. The bull market will not resume until the trend of this indicator changes.

SPX and NYSE ADL Chart

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

In general OTC ADL has a more negative bias than NY ADL. It is easy to see how the bias changed from modestly positive to negative around late April.

OTC and OTC ADL Chart


The positives

New lows declined significantly last week, but levels are still uncomfortably high. Next week will be critical. We had a bounce from oversold levels last week. If new lows continue to decline regardless of what prices do the market should be ok.


Seasonality

Next week includes the first 5 trading days of August 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 of August during the 3rd year of the Presidential Cycle.

OTC data covers the period from 1963 to 2014 while SPX data runs from 1928 to 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 negative by most measures.

Report for the first 5 days of August.
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 -0.27% 4 -0.12% 5 0.24% 1 0.33% 2 0.41% 3 0.59%
1967-3 0.44% 2 0.50% 3 0.69% 4 0.04% 5 0.05% 1 1.71%
1971-3 0.30% 1 -1.12% 2 -1.10% 3 -0.15% 4 0.65% 5 -1.41%
 
1975-3 -1.65% 5 -1.03% 1 -1.00% 2 0.09% 3 -0.81% 4 -4.40%
1979-3 0.40% 3 0.45% 4 0.06% 5 -0.15% 1 0.62% 2 1.39%
1983-3 -0.53% 1 0.36% 2 0.22% 3 -1.37% 4 0.17% 5 -1.14%
1987-3 -0.41% 1 -0.08% 2 0.81% 3 1.04% 4 0.63% 5 1.98%
1991-3 0.42% 4 0.30% 5 -0.61% 1 0.52% 2 0.45% 3 1.08%
Avg -0.35% 0.00% -0.10% 0.02% 0.21% -0.22%
 
1995-3 -1.01% 2 -0.74% 3 -0.11% 4 0.85% 5 0.42% 1 -0.59%
1999-3 -0.56% 1 -1.36% 2 -1.85% 3 1.02% 4 -0.69% 5 -3.45%
2003-3 -1.12% 5 -0.09% 1 -2.37% 2 -1.24% 3 -0.03% 4 -4.85%
2007-3 0.30% 3 0.87% 4 -2.51% 5 1.44% 1 0.56% 2 0.65%
2011-3 -0.43% 1 -2.75% 2 0.89% 3 -5.08% 4 -0.94% 5 -8.29%
Avg -0.56% -0.81% -1.19% -0.60% -0.14% -3.31%
 
OTC summary for Presidential Year 3 1963 - 2011
Averages -0.32% -0.37% -0.51% -0.21% 0.11% -1.29%
% Winners 38% 38% 46% 62% 69% 46%
MDD 8/5/2011 8.13% -- 8/7/2003 4.77% -- 8/7/1975 4.33%
 
OTC summary for all years 1963 - 2014
Averages -0.02% -0.17% -0.08% 0.01% 0.13% -0.13%
% Winners 53% 40% 50% 63% 58% 52%
MDD 8/5/2002 9.20% -- 8/6/1990 8.72% -- 8/5/2011 8.13%
 
SPX Presidential Year 3
  Day1 Day2 Day3 Day4 Day5 Totals
1931-3 0.80% 6 0.65% 1 -0.65% 2 -1.45% 3 -0.66% 4 -1.30%
 
1935-3 -0.36% 4 -0.82% 5 1.55% 6 0.72% 1 -0.09% 2 1.01%
1939-3 0.00% 2 1.00% 3 -0.33% 4 -1.82% 5 0.59% 6 -0.56%
1943-3 -1.80% 1 2.18% 2 0.60% 3 -0.34% 4 -1.02% 5 -0.38%
1947-3 0.25% 5 -1.14% 1 0.32% 2 -0.32% 3 0.13% 4 -0.76%
1951-3 0.49% 3 1.38% 4 0.13% 5 0.70% 1 0.09% 2 2.79%
Avg -0.28% 0.52% 0.45% -0.21% -0.06% 0.42%
 
1955-3 -1.36% 1 0.23% 2 0.14% 3 -1.69% 4 0.47% 5 -2.21%
1959-3 0.33% 1 -0.16% 2 -0.51% 3 -0.10% 4 -0.61% 5 -1.06%
1963-3 -0.09% 4 0.33% 5 0.59% 1 0.66% 2 -0.30% 3 1.20%
1967-3 0.65% 2 0.43% 3 -0.13% 4 0.18% 5 -0.26% 1 0.88%
1971-3 0.40% 1 -1.51% 2 -0.66% 3 0.21% 4 0.17% 5 -1.39%
Avg -0.01% -0.14% -0.11% -0.15% -0.11% -0.52%
 
1975-3 -0.86% 5 -0.95% 1 -1.06% 2 0.02% 3 0.06% 4 -2.79%
1979-3 0.35% 3 -0.07% 4 -0.06% 5 0.25% 1 1.29% 2 1.77%
1983-3 -0.32% 1 -0.02% 2 0.88% 3 -1.29% 4 0.25% 5 -0.49%
1987-3 -0.34% 1 -0.42% 2 0.70% 3 1.14% 4 0.28% 5 1.36%
1991-3 -0.18% 4 0.02% 5 -0.55% 1 1.44% 2 -0.02% 3 0.72%
Avg -0.27% -0.29% -0.02% 0.31% 0.37% 0.11%
 
1995-3 -0.43% 2 -0.15% 3 -0.01% 4 0.03% 5 0.20% 1 -0.36%
1999-3 -0.05% 1 -0.44% 2 -1.27% 3 0.64% 4 -1.02% 5 -2.14%
2003-3 -1.03% 5 0.27% 1 -1.77% 2 0.17% 3 0.73% 4 -1.62%
2007-3 0.72% 3 0.44% 4 -2.66% 5 2.42% 1 0.62% 2 1.53%
2011-3 -0.41% 1 -2.56% 2 0.50% 3 -4.78% 4 -0.06% 5 -7.31%
Avg -0.24% -0.49% -1.04% -0.31% 0.09% -1.98%
 
SPX summary for Presidential Year 3 1931 - 2011
Averages -0.15% -0.06% -0.20% -0.15% 0.04% -0.53%
% Winners 38% 48% 43% 62% 57% 38%
MDD 8/5/2011 7.19% -- 8/5/1975 2.84% -- 8/6/1931 2.73%
 
SPX summary for all years 1928 - 2014
Averages 0.11% -0.03% 0.12% -0.16% 0.13% 0.17%
% Winners 54% 49% 52% 47% 53% 48%
MDD 8/5/2002 8.45% -- 8/5/2011 7.19% -- 8/6/1990 6.10%


Money supply (M2)

The money supply chart was provided by Gordon Harms. M2 growth has been holding at its trend.

SPX and M2 Money Supply Chart


August

Since 1963, over all years, the OTC in August has been up 60% of the time with an average gain of 0.4%. During the 3rd year of the Presidential Cycle August has been up 77% time with an average gain of 1.6%. The worst August ever, 1998 (-19.9%), the best 2000 (+11.7%)

The average month has 21 trading days. The chart below has been calculated by averaging the daily percentage change of the OTC 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 of the OTC in August over all years since 1963 while the black line shows the average during the 3rd year of the Presidential Cycle.

OTC August, All, Year 3 1963-2015

Since 1928 the SPX has been up 60% of the time in August with an average gain of 0.7%. During the 3rd year of the Presidential Cycle the SPX has been up 57% of the time with an average gain of 0.5%. The best ever August for the SPX was 1932 (+37.5%) the worst 1998 (-14.6%).

The chart below is similar to the one above except it shows the daily performance over all years for the SPX in August in red and the performance during the 3rd year of the Presidential Cycle in black.

SPX August, All, Year 3 1928-2015

Since 1979 the Russell 2000 (R2K) has been up 58% of the time in August with an average gain of 0.4%. During the 3rd year of the Presidential Cycle the R2K has been up 67% of the time with an average gain of 0.7%. The best ever August for the R2K, 1984 (+11.5%), the worst 1998 (-19.5%)

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

R2K August, All, Year 3 1979-2015

Since 1885 the Dow Jones Industrial Average (DJIA) has been up 65% of the time in August with an average gain of 1.3%. During the 3rd year of the Presidential Cycle the DJIA has been up 72% of the time with an average gain of 1.2%. The best August ever for the DJIA 1932 (+34.8%), the worst 1998 (-15.1%)

The chart below is similar to those above except it shows the daily performance over all years of the DJIA in August in Magenta and the performance during the 3rd year of the Presidential Cycle in green.

DJIA August, All, Year 3 1885-2015


Conclusion

Last weeks rally brought a nice decline in the number of new lows.

Although there was a big decline in the number of new lows the levels remain uncomfortably high and Seasonally next week has been weak.

I expect the major averages to be lower on Friday August 7 than they were on Friday July 31.

Last weeks negative forecast was a miss.

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Good Luck,

YTD W 10 / L 12 / 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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