Technical Market Report for October 30, 2015

By: Mike Burk | Sat, Oct 31, 2015
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The good news is:
• The NDX (Big tech index) closed at an all time high Wednesday.


The negatives

The secondaries continue to underperform, new lows remain uncomfortably high, the advance - decline lines (ADL) have been weak and downside volume has remained very high.

ADL's are a running total of declining issues subtracted from advancing issues. Their characteristics vary. We look for changes in those characteristics.

The chart below covers the past 6 months showing the NASDAQ composite (OTC) in blue and an ADL calculated from NASDAQ issues in green. Dashed vertical lines have been drawn on the 1st trading day of each month.

OTC ADL has been a little weak for the past 4 months and has been very weak for the past 3 weeks as the OTC has moved sharply upward.

OTC ADL Chart

The next chart is similar to the one above except is shows the S&P 500 (SPX) in red and NYSE ADL has been calculated from NYSE issues.

The pattern of NYSE ADL is similar to that of OTC ADL except the recent weakness did not show up until about a week ago.

NYSE ADL Chart

I do not talk about downside volume (DV) very often because it is difficult to quantify. The typical pattern is from bottoms DV disappears. Near tops it slowly increases as prices continue to rise. When prices begin to fall DV increases rapidly until a bottom has been reached and then it disappears again.

The chart below covers the past 3 years showing the SPX in red and a 5% trend (39 day EMA) of NYSE downside volume (NY DV) in black. NY DV has been plotted on an inverted Y axis so decreasing NY DV moves the indicator upward (up is good). Dashed vertical lines have been drawn on the 1st trading day of the year.

NY DV has been in a down trend for over a year.

NY DV Chart

The next chart is a complement to the one above. It shows the SPX in red and NY UV, in green is a 5% trend of NYSE upside volume.

The late August and September SPX lows were met with a spectacularly high level of upside volume which has been falling off for the past few weeks.

SPX and NY UV Chart


The positives

There is little reason for exuberance, but the breadth indicators have not fallen out of bed and seasonality will be ok for another week or two.

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 fell, but finished the week at a positive 59%.

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 and slipped to a slightly negative 48% on Friday.

OTC HL Ratio Chart

New highs continued to show signs of 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 continued to move upward.

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 also rose last week.

OTC NH Chart


Seasonality

Next week includes the first 5 trading days of November 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 mostly positive.

Report for the First 5 days of November.
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 0.14% 5 0.06% 1 -0.93% 3 -0.20% 4 0.11% 5 -0.82%
1967-3 -0.63% 3 -1.05% 4 -0.50% 5 -0.42% 1 -0.48% 3 -3.09%
1971-3 -1.34% 1 -0.14% 2 1.42% 3 0.52% 4 -0.09% 5 0.36%
 
1975-3 -0.48% 1 0.31% 2 0.57% 3 0.12% 4 -0.23% 5 0.29%
1979-3 0.66% 4 0.34% 5 -0.56% 1 -0.33% 2 -1.12% 3 -1.02%
1983-3 -0.55% 2 0.78% 3 -0.12% 4 -0.61% 5 -0.75% 1 -1.25%
1987-3 1.56% 1 -2.34% 2 -0.17% 3 1.89% 4 0.06% 5 1.01%
1991-3 -0.38% 5 -0.63% 1 0.25% 2 0.12% 3 1.08% 4 0.43%
Avg 0.16% -0.31% -0.01% 0.24% -0.19% -0.11%
 
1995-3 0.42% 3 1.61% 4 0.79% 5 -0.34% 1 -1.71% 2 0.78%
1999-3 0.04% 1 0.47% 2 1.58% 3 0.90% 4 1.52% 5 4.51%
2003-3 1.84% 1 -0.49% 2 0.07% 3 0.00% 4 0.58% 5 1.99%
2007-3 -2.25% 4 0.56% 5 -0.54% 1 1.07% 2 -2.70% 3 -3.86%
2011-3 -2.89% 2 1.27% 3 2.20% 4 -0.44% 5 0.34% 1 0.48%
Avg -0.57% 0.68% 0.82% 0.24% -0.40% 0.78%
 
OTC summary for Presidential Year 3 1963 - 2011
Averages -0.30% 0.06% 0.31% 0.18% -0.26% -0.01%
% Winners 46% 62% 54% 46% 46% 62%
MDD 11/7/2007 3.86% -- 11/8/1967 3.05% -- 11/1/2011 2.89%
 
OTC summary for all years 1963 - 2014
Averages 0.25% 0.24% 0.26% 0.18% -0.10% 0.82%
% Winners 65% 54% 67% 60% 52% 71%
MDD 11/6/2008 9.63% -- 11/7/2007 3.86% -- 11/4/1993 3.61%
 
SPX Presidential Year 3
  Day1 Day2 Day3 Day4 Day5 Totals
1931-3 -0.28% 1 3.05% 3 -0.37% 4 3.06% 5 2.34% 6 7.79%
 
1935-3 1.20% 5 -0.24% 6 0.32% 1 1.90% 3 -0.39% 4 2.80%
1939-3 -0.08% 3 0.16% 4 0.86% 5 -0.31% 6 -0.70% 1 -0.07%
1943-3 0.00% 1 -1.17% 3 -0.85% 4 -0.77% 5 0.09% 6 -2.71%
1947-3 0.32% 6 -0.13% 1 -0.78% 3 0.00% 4 -0.20% 5 -0.78%
1951-3 0.70% 4 -0.74% 5 -0.83% 6 0.35% 1 -1.45% 3 -1.96%
Avg 0.43% -0.42% -0.26% 0.23% -0.53% -0.54%
 
1955-3 -0.14% 2 0.17% 3 2.10% 4 1.67% 5 0.43% 1 4.22%
1959-3 -0.19% 1 -0.26% 3 0.10% 4 0.49% 5 -0.17% 1 -0.03%
1963-3 -0.24% 5 -0.51% 1 -0.87% 3 0.34% 4 0.41% 5 -0.88%
1967-3 -1.27% 3 -0.40% 4 -0.61% 5 -0.33% 1 -0.37% 3 -2.97%
1971-3 -1.52% 1 0.41% 2 1.86% 3 -0.13% 4 -0.35% 5 0.27%
Avg -0.67% -0.12% 0.52% 0.41% -0.01% 0.12%
 
1975-3 -1.07% 1 0.48% 2 0.72% 3 0.45% 4 -0.25% 5 0.34%
1979-3 0.74% 4 -0.06% 5 -0.67% 1 -0.61% 2 -1.31% 3 -1.92%
1983-3 0.06% 2 0.73% 3 -0.84% 4 -0.62% 5 -0.33% 1 -1.00%
1987-3 1.57% 1 -1.93% 2 -0.74% 3 2.22% 4 -1.60% 5 -0.48%
1991-3 -0.29% 5 -0.27% 1 -0.40% 2 0.32% 3 0.96% 4 0.33%
Avg 0.20% -0.21% -0.39% 0.35% -0.50% -0.55%
 
1995-3 0.47% 3 0.94% 4 0.14% 5 -0.36% 1 -0.36% 2 0.83%
1999-3 -0.65% 1 -0.47% 2 0.53% 3 0.57% 4 0.56% 5 0.54%
2003-3 0.79% 1 -0.54% 2 -0.14% 3 0.59% 4 -0.46% 5 0.25%
2007-3 -2.64% 4 0.08% 5 -0.50% 1 1.20% 2 -2.94% 3 -4.79%
2011-3 -2.79% 2 1.61% 3 1.88% 4 -0.63% 5 0.63% 1 0.70%
Avg -0.97% 0.32% 0.38% 0.28% -0.51% -0.49%
 
SPX summary for Presidential Year 3 1931 - 2011
Averages -0.25% 0.04% 0.04% 0.45% -0.26% 0.02%
% Winners 38% 43% 43% 57% 33% 48%
MDD 11/7/2007 4.76% -- 11/8/1967 2.94% -- 11/1/2011 2.79%
 
SPX summary for all years 1928 - 2014
Averages 0.22% -0.01% 0.27% 0.05% -0.11% 0.42%
% Winners 62% 57% 67% 54% 51% 66%
MDD 11/11/1929 17.76% -- 11/6/2008 10.03% -- 11/6/1937 9.95%


Money supply (M2)

The money supply chart was provided by Gordon Harms. Money supply growth has been falling sharply for the past few weeks.

S&P500 and M2 Money Supply Charts


November

Since 1963, over all years, the OTC in November has been up 69% of the time with an average gain of 1.6%. During the 3rd year of the Presidential Cycle November has been up 54% time with an average gain of 0.7%. The best November for the OTC was 2001 (+14.2%), the worst 2000 (-22.9%).

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 November over all years since 1963 while the black line shows the average during the 3rd year of the Presidential Cycle over the same period.

OTC November, All, Year 3 1963-2015 Chart

Since 1928 the SPX has been up 59% of the time in November with an average gain of 0.6%. During the 3rd year of the Presidential Cycle the SPX has been up 48% of the time with an average loss (-0.8%). The best November for the SPX was 1928 (+12.0%) the worst 1929 (-13.4%).

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

SPX November, All, Year 3 1928-2015 Chart

Since 1979 the Russell 2000 (R2K) has been up 64% of the time in November with an average gain of 1.8%. During the 3rd year of the Presidential Cycle the R2K has been up 56% of the time with an average gain of 1.0%. The best November for the R2K both 1982 and 2002 (+8.8%), the worst 2008 (-12.0%)

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

R2K November, All, Year 3 1979-2015 Chart

Since 1885 the Dow Jones Industrial Average (DJIA) has been up 59% of the time in November with an average gain of 0.8%. During the 3rd year of the Presidential Cycle the DJIA has been up 47% of the time in November with an average loss of -0.2%. The best November for the DJIA, 1928 (+16.3%), the worst 1973 (-14.0%).

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

DJIA November, All, Year 3 1885-2015 Chart


Conclusion

The market has been following the 3rd year seasonal pattern with a negative bias. The seasonal pattern calls for another week or two of strength.

I expect the major averages to be higher on Friday November 6 than they were on Friday October 30.

Last week the blue chips were up slightly while the secondaries were down slightly so I am calling last weeks positive forecast a tie.

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Good Luck,

YTD W 16 / L 15 / T 12

 


 

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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