Technical Market Report for October 17, 2015

By: Mike Burk | Sat, Oct 17, 2015
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The good news is:
• New lows remained at non threatening levels last week.


The negatives

Monday will be the 28th anniversary of the October 19, 1987 crash.

Technical conditions are very different now so there is unlikely to be a replay of that event.

New highs are coming up a little short these days, but, more importantly, new lows have disappeared.

About the only suspicious characteristic of this rally has been the secondaries have been underperforming the blue chips.


The positives

It was comforting to see the weakness early last week did not generate a significant increase in new lows.

The first chart shows 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 lost a little ground last week, but remained in comfortably positive territory.

NY HL Ratio

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

OTC HL Ratio has been a little weaker than NY HL Ratio, but managed to remain in positive territory.

OTC HL Ratio


Seasonality

Next week includes the 5 trading days prior to the 4th Friday of October 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 negative by all measures with help from the 1987 crash. However, the past 20 years have been, on average, positive.

Report for the week before the 4th Friday of October.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday through the 4th Friday.

OTC Presidential Year 3
Year Mon Tue Wed Thur Fri Totals
1963-3 0.49% -0.06% -0.14% 0.37% 0.60% 1.25%
1967-3 -0.22% -0.38% -0.40% -0.62% 0.62% -0.99%
1971-3 -0.49% -0.98% -1.31% 0.03% 0.18% -2.57%
 
1975-3 0.64% 0.38% 0.61% 0.19% -0.56% 1.27%
1979-3 -2.51% -0.41% 0.31% -0.22% 0.77% -2.06%
1983-3 -0.96% 0.65% -0.27% -0.13% -0.49% -1.20%
1987-3 -11.35% -9.00% 7.34% -4.47% -2.28% -19.76%
1991-3 -0.36% 0.03% -0.37% -1.20% -0.68% -2.58%
Avg -2.91% -1.67% 1.53% -1.16% -0.65% -4.87%
 
1995-3 -0.25% 0.22% -1.22% -0.87% 0.79% -1.33%
1999-3 -1.56% -0.03% 3.72% 0.49% 0.52% 3.14%
2003-3 0.67% 0.82% -2.21% -0.66% -1.06% -2.44%
2007-3 1.06% 1.65% -0.88% -0.86% 1.94% 2.90%
2011-3 2.35% -2.26% 0.46% 3.32% -0.05% 3.82%
Avg 0.45% 0.08% -0.02% 0.28% 0.43% 1.22%
 
OTC summary for Presidential Year 3 1963 - 2011
Avg -0.96% -0.72% 0.44% -0.36% 0.02% -1.58%
Win% 38% 46% 38% 38% 54% 38%
 
OTC summary for all years 1963 - 2014
Avg 0.08% -0.45% 0.12% -0.03% -0.10% -0.39%
Win% 52% 38% 55% 52% 54% 50%
 
SPX Presidential Year 3
Year Mon Tue Wed Thur Fri Totals
1955-3 0.75% -0.65% -0.80% -0.35% 0.55% -0.51%
Avg 0.75% -0.65% -0.80% -0.35% 0.55% -0.51%
 
1959-3 -0.56% -0.61% -0.19% -0.97% 1.00% -1.34%
1963-3 0.08% -0.57% 0.05% 0.38% 1.00% 0.94%
1967-3 -0.44% -0.57% 0.11% 0.44% 0.02% -0.44%
1971-3 -0.45% -0.36% -1.39% -0.05% -0.09% -2.35%
1975-3 1.08% 0.82% 0.17% 0.58% -1.55% 1.11%
Avg -0.06% -0.26% -0.25% 0.08% 0.08% -0.41%
 
1979-3 -0.88% -0.43% 0.16% -0.44% 0.57% -1.01%
1983-3 0.02% 0.29% -0.65% -0.33% -0.89% -1.56%
1987-3 -20.47% 5.33% 9.10% -3.92% -0.01% -9.97%
1991-3 -0.63% -0.56% 0.03% -0.74% -0.23% -2.13%
1995-3 -0.41% 0.26% -0.70% -0.99% 0.52% -1.32%
Avg -4.47% 0.98% 1.59% -1.28% -0.01% -3.20%
 
1999-3 0.55% 0.57% 2.24% -0.46% 1.41% 4.30%
2003-3 0.52% 0.13% -1.50% 0.33% -0.47% -0.99%
2007-3 0.38% 0.88% -0.24% -0.10% 1.38% 2.30%
2011-3 1.29% -2.00% 1.05% 3.43% 0.04% 3.80%
 
SPX summary for Presidential Year 3 1955 - 2011
Avg -1.28% 0.17% 0.50% -0.21% 0.22% -0.61%
Win% 53% 47% 53% 33% 60% 33%

 
SPX summary for all years 1953 - 2014
Avg -0.12% -0.10% 0.18% -0.15% -0.04% -0.24%
Win% 58% 44% 57% 40% 48% 47%


Money supply (M2)

The money supply chart was provided by Gordon Harms. Money supply growth has fallen off in the past 2 weeks.

S&P500 and M2 Money Supply Charts


Conclusion

The weakness in the secondaries concerns me a little, but, aside from that, the low of 3 weeks ago appears to have been a successful retest of the August low and is unlikely to be challenged in the near future.

I expect the major averages to be higher on Friday October 23 than they were on Friday October 16.

Last weeks blue chips were up a little while the secondaries were down a little so I am calling last weeks negative forecast a tie.

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Good Luck,

YTD W 15 / L 15 / T 11

 


 

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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