Technical Market Report for October 24, 2015

By: Mike Burk | Sat, Oct 24, 2015
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The good news is:
• New highs picked up last week.


The negatives

We expect to see the secondaries lead both up and down and they have been the laggards since the recent lows.

Here are the recent performance summaries for the Dow Jones Industrial Average (DJIA) (very large cap), S&P 500 (SPX)(large cap), NASDAQ composite (OTC)(big tech) and the Russell 2000 (R2K)(small cap).

Index Above recent low Below all time high
DJIA 10.3% 0.6%
SPX 11.1% 1.6%
OTC 11.7% 2.1%
R2k 7.6% 5.9%

This is not the pattern we like to see.

We are entering a strong seasonal pattern that is likely to give us new all time highs in the blue chip indices. However, if the secondaries do not improve, this is likely to be a developing top.

New lows also picked up last week (not what you like to see in a strong week for the major indices).


The positives

New highs picked up nicely, finishing the week with 130 on the NYSE and 141 on the NASDAQ.

The first 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 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 comfortable 68%.

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, 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. Same as last week.

OTC HL Ratio Chart

New highs are finally showing some life.

The next chart covers the past 6 months showing the SPX in red and a 10% trend (19 day EMA) of NYSE new highs (NY NH), in green.

NY NH moved sharply upward last week.

NY NH Chart

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

OTC NH is also showing the first signs of life in months.

OTC NH Chart


Seasonality

Next week includes the last 5 trading days 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 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 positive by all measures. Monday has been the worst day of the week.

Report for the last 5 days of October.
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
  Day5 Day4 Day3 Day2 Day1 Totals
1963-3 0.60% 5 1.24% 1 0.14% 2 -0.64% 3 -0.81% 4 0.52%
1967-3 -0.40% 3 -0.62% 4 0.62% 5 -0.24% 1 0.02% 2 -0.61%
1971-3 -0.48% 1 -0.56% 2 -1.33% 3 0.21% 4 0.57% 5 -1.59%
 
1975-3 -0.42% 1 0.56% 2 -1.46% 3 -0.17% 4 -0.59% 5 -2.08%
1979-3 -0.22% 4 0.77% 5 0.12% 1 1.17% 2 0.04% 3 1.88%
1983-3 0.65% 2 -0.27% 3 -0.13% 4 -0.49% 5 -0.58% 1 -0.81%
1987-3 -9.00% 1 -0.86% 2 -1.51% 3 5.20% 4 5.29% 5 -0.87%
1991-3 -0.68% 5 0.82% 1 0.96% 2 1.27% 3 0.31% 4 2.67%
Avg -1.93% 0.20% -0.40% 1.40% 0.89% 0.16%
 
1995-3 -1.22% 3 -0.87% 4 0.79% 5 1.37% 1 -0.35% 2 -0.27%
1999-3 -0.02% 1 -0.16% 2 -0.32% 3 2.59% 4 3.17% 5 5.27%
2003-3 0.93% 1 2.62% 2 0.22% 3 -0.20% 4 -0.02% 5 3.55%
2007-3 -0.86% 4 1.94% 5 0.47% 1 -0.03% 2 1.51% 3 3.03%
2011-3 -2.26% 2 0.46% 3 3.32% 4 -0.05% 5 -1.93% 1 -0.46%
Avg -0.69% 0.80% 0.90% 0.74% 0.48% 2.22%
 
OTC summary for Presidential Year 3 1963 - 2011
Averages -1.03% 0.39% 0.15% 0.77% 0.51% 0.79%
% Winners 23% 54% 62% 46% 54% 46%
MDD 10/28/1987 11.13% -- 10/27/1971 2.36% -- 10/25/2011 2.26%
 
OTC summary for all years 1963 - 2014
Averages -0.53% 0.23% -0.08% 0.26% 0.45% 0.33%
% Winners 39% 44% 62% 56% 67% 52%
MDD 10/28/1987 11.13% -- 10/31/1978 8.29% -- 10/27/1997 7.01%
 
SPX Presidential Year 3
  Day5 Day4 Day3 Day2 Day1 Totals
1931-3 -2.16% 2 -3.27% 3 0.40% 4 3.17% 5 0.96% 6 -0.91%
 
1935-3 0.97% 6 -0.72% 1 -0.08% 2 -0.72% 3 0.81% 4 0.25%
1939-3 -0.98% 4 -0.46% 5 -0.31% 6 -0.15% 1 -1.00% 2 -2.91%
1943-3 0.34% 2 0.59% 3 -0.25% 4 -0.42% 5 0.08% 6 0.34%
1947-3 0.06% 1 0.06% 2 -0.32% 3 -1.03% 4 0.65% 5 -0.57%
1951-3 -0.65% 5 -1.58% 6 1.07% 1 -0.13% 2 1.24% 3 -0.06%
Avg -0.05% -0.42% 0.02% -0.49% 0.36% -0.59%
 
1955-3 -0.65% 2 -0.80% 3 -0.35% 4 0.55% 5 -0.07% 1 -1.33%
1959-3 0.67% 1 0.84% 2 0.07% 3 -0.09% 4 0.19% 5 1.69%
1963-3 1.00% 5 0.64% 1 -0.03% 2 -0.89% 3 0.28% 4 1.00%
1967-3 0.11% 3 0.44% 4 0.02% 5 -0.18% 1 -0.94% 2 -0.55%
1971-3 -0.43% 1 -0.38% 2 -1.00% 3 0.18% 4 0.29% 5 -1.34%
Avg 0.14% 0.15% -0.26% -0.09% -0.05% -0.11%
 
1975-3 -0.11% 1 0.87% 2 -1.24% 3 -0.09% 4 -0.30% 5 -0.87%
1979-3 -0.44% 4 0.57% 5 0.14% 1 1.95% 2 -0.83% 3 1.39%
1983-3 0.29% 2 -0.65% 3 -0.33% 4 -0.89% 5 0.11% 1 -1.47%
1987-3 -8.28% 1 2.42% 2 0.04% 3 4.93% 4 2.87% 5 1.98%
1991-3 -0.23% 5 1.38% 1 0.50% 2 0.38% 3 -0.13% 4 1.91%
Avg -1.75% 0.92% -0.18% 1.25% 0.34% 0.59%
 
1995-3 -0.70% 3 -0.99% 4 0.52% 5 0.61% 1 -0.30% 2 -0.86%
1999-3 -0.61% 1 -0.91% 2 1.15% 3 3.53% 4 1.53% 5 4.69%
2003-3 0.22% 1 1.52% 2 0.13% 3 -0.11% 4 0.36% 5 2.11%
2007-3 -0.10% 4 1.38% 5 0.37% 1 -0.65% 2 1.20% 3 2.21%
2011-3 -2.00% 2 1.05% 3 3.43% 4 0.04% 5 -2.47% 1 0.04%
Avg -0.64% 0.41% 1.12% 0.69% 0.06% 1.64%
 
SPX summary for Presidential Year 3 1931 - 2011
Averages -0.65% 0.10% 0.19% 0.47% 0.22% 0.32%
% Winners 38% 57% 57% 43% 62% 52%
MDD 10/26/1987 8.28% -- 10/28/1931 5.36% -- 10/31/1939 2.88%
 
SPX summary for all years 1928 - 2014
Averages -0.50% 0.15% -0.04% 0.39% 0.22% 0.20%
% Winners 36% 60% 53% 58% 57% 55%
MDD 10/29/1929 21.78% -- 10/26/1987 8.28% -- 10/31/1933 6.96%


Money supply (M2)

The money supply chart was provided by Gordon Harms. Money supply growth has had an inverse relationship to the stock market recently.

S&P500 and M2 Money Supply Chart


Conclusion

The weakness in the secondaries is troublesome, however, new highs are coming to life and the next 2 weeks are seasonally strong.

I expect the major averages to be higher on Friday October 30 than they were on Friday October 23.

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Good Luck,

YTD W 16 / 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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