Technical Market Report for September 5, 2015

By: Mike Burk | Sat, Sep 5, 2015
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The good news is:
• Hard to find.


The negatives

Over the past 2 weeks new lows have practically disappeared. This usually indicates a bottom for prices, but that appears not to be the case this time. There are precedents and I will show you how the indicators worked in 2008 - 2009. Not that I expect a 2008 - 2009 like bear market, but we may be in for a worse than average correction.

The first chart shows the NASDAQ composite (OTC) in blue and a 10% trend (19 day EMA) of NASDAQ new highs (OTC NH), in green. Dashed vertical lines have been drawn on the 1st trading day of each month.

OTC NH has continued falling despite prices moving upwards.

OTC NH Chart

The next chart is similar to the one above except it covers the period from April 2008 - April 2009.

There was a false start at the end of 2008 (the dotted red vertical line), but the rally did not really get going until new highs began increasing steadily.

OTC NH 2008-2009 Chart

The next chart is similar to the first one except it shows the S&P 500 (SPX) in red and NY NH has been calculated from NYSE data.

No new highs here.

NY NH Chart

Here is how it worked in 2008 - 2009. Like the current period, indicators on the NYSE were weaker than those on the NASDAQ.

NY NH 2008-2009 Chart

The next chart shows 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.

This indicator and the one derived from NASDAQ data will be the those to watch. It will remain below the neutral line as long as there have been more new lows than new highs.

Prices have risen over the past 2 weeks, but this indicator has been unresponsive.

NY HL Ratio Chart

The next chart is similar to the one above except it covers the 2008-2009 period.

NY HL Ratio did as good a job as anything at defining the 2008 - 2009 bear market.

NY HL Ratio 2008-2009 Chart

The next chart is similar to those immediately above except is shows the OTC in blue and OTC HL Ratio has been calculated from NASDAQ data.

OTC HL Ratio has been stronger than NY HL Ratio, but it has remained in negative territory for nearly 2 months.

OTC HL Ratio Chart

Here is how the indicator worked in the 2008 - 2009 period.

OTC HL Ratio 2008-2009 Chart


The positives

My best bottom indicator is derived from new lows and it is not working properly.

The chart below covers the past 6 months showing the SPX in red and a 10% trend 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 began moving sharply upward nearly 2 weeks ago, but prices have been faltering.

NY NL Chart

The next chart is similar to the one above except it covers the past year.

You can see how NY NL has been a good indicator of short term bottoms.

NY NL Chart 2

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

OTC NL has also been moving sharply upward while prices have been faltering.

OTC NL Chart


Seasonality

Next week includes the 4 trading days prior to the 2nd Friday of September during the 3rd year of the Presidential Cycle. The tables below show the daily change, on a percentage basis for that period.

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 mixed and slightly stronger during the 3rd year of the Presidential Cycle than other years.

Report for the week before the 2nd Friday of September.
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 -0.06% -0.17% 0.39% -0.06% -0.14% -0.03%
1967-3 0.00% 0.51% 0.12% 0.30% 0.15% 1.08%
1971-3 0.00% 0.50% 0.05% -0.03% -0.12% 0.40%
 
1975-3 -0.41% -1.11% -1.78% -0.52% -0.17% -3.99%
1979-3 0.57% -0.35% 0.18% 0.45% 0.82% 1.67%
1983-3 0.00% 1.13% -0.16% 0.34% 0.15% 1.47%
1987-3 0.00% -1.99% 0.36% 0.98% 0.61% -0.04%
1991-3 0.22% -1.31% 0.68% 1.24% -0.85% -0.02%
Avg 0.12% -0.72% -0.14% 0.50% 0.11% -0.18%
 
1995-3 0.00% 1.94% 0.48% 0.65% 0.85% 3.92%
1999-3 0.00% -0.12% -1.10% 1.54% 1.23% 1.56%
2003-3 1.63% -0.80% -2.65% 1.22% 0.48% -0.11%
2007-3 -0.26% 1.50% -0.21% 0.35% 0.04% 1.42%
2011-3 0.00% -0.26% 3.04% -0.78% -2.42% -0.42%
Avg 0.69% 0.45% -0.09% 0.60% 0.04% 1.27%
 
OTC summary for Presidential Year 3 1963 - 2011
Avg 0.28% -0.04% -0.04% 0.44% 0.05% 0.53%
Win% 50% 38% 62% 69% 62% 54%
 
OTC summary for all years 1963 - 2014
Avg -0.32% -0.03% -0.10% 0.08% 0.09% -0.10%
Win% 48% 50% 55% 63% 60% 60%
 
SPX Presidential Year 3
Year Mon Tue Wed Thur Fri Totals
1955-3 0.00% 0.60% -0.02% 0.07% 0.02% 0.66%
1959-3 0.00% -1.43% -0.71% -0.52% 0.74% -1.93%
1963-3 -0.36% 0.56% 0.29% -0.07% 0.03% 0.45%
1967-3 0.00% 0.57% 0.19% -0.06% 0.03% 0.73%
1971-3 0.00% 0.46% 0.19% -0.53% -0.38% -0.27%
Avg -0.36% 0.15% -0.01% -0.22% 0.09% -0.07%
 
1975-3 0.32% -1.50% -0.96% -0.41% -0.18% -2.73%
1979-3 0.47% -0.61% 0.29% 0.03% 0.84% 1.02%
1983-3 0.00% 1.75% 0.04% -0.11% -0.51% 1.17%
1987-3 0.00% -0.99% 0.11% 1.02% 1.53% 1.68%
1991-3 -0.14% -1.03% 0.14% 0.58% -0.97% -1.41%
Avg 0.22% -0.48% -0.07% 0.22% 0.14% -0.05%
 
1995-3 0.00% 0.95% 0.18% 0.02% 0.42% 1.56%
1999-3 0.00% -0.50% -0.47% 0.26% 0.30% -0.41%
2003-3 1.00% -0.82% -1.20% 0.54% 0.22% -0.25%
2007-3 -0.13% 1.36% 0.00% 0.84% 0.02% 2.10%
2011-3 0.00% -0.74% 2.86% -1.06% -2.67% -1.61%
Avg 0.44% 0.05% 0.28% 0.12% -0.34% 0.28%
 
SPX summary for Presidential Year 3 1955 - 2011
Avg 0.20% -0.09% 0.06% 0.04% -0.04% 0.05%
Win% 50% 47% 67% 53% 67% 53%
 
SPX summary for all years 1953 - 2014
Avg -0.26% -0.04% -0.04% -0.16% 0.07% -0.28%
Win% 44% 52% 57% 48% 63% 52%


Money supply (M3)

The money supply chart was provided by Gordon Harms. Money supply has been growing rapidly over the past 2 weeks.

d M2 Money Supply Chart


Conclusion

The markets lack of responsiveness to the sharp decrease in new lows leads me to think we may be in for a real bear market not a short term correction.

I expect the major averages to be lower on Friday September 11 than they were on Friday September 4.

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Good Luck,

YTD W 14 / L 13 / 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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