Technical Market Report for March 5, 2016

By: Mike Burk | Sat, Mar 5, 2016
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The good news is:
• The market has had 3 consecutive winning weeks with the secondaries outperforming the blue chips.


The Negatives

The market is overbought.

The Dow Jones Industrial Average (DJIA) has been the worst performer of the major indices and it has been up 8.6% in the past 3 weeks.

The Russell 2000 (R2K) has been the best performer of the major indices, up 13.4% in the past 3 weeks.

There are no visible negatives, it is all seashells and balloons.


The positives

New lows declined to benign levels last week.

The first chart covers the past 6 months showing the NASDAQ composite (OTC) in blue and a 40% trend (4 day EMA) of NASDAQ new highs divided by new highs + new lows (OTC HL Ratio), in red. 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.

OTC HL Ratio hit positive territory for the 1st time in 3 months.

OTC and OTC HL ratio Chart

The chart below is similar to the one above except it shows the S&P 500 (SPX) in red and NY HL Ratio, in blue, has been calculated from NYSE data.

NY HL Ratio hit a very comfortable 83% Friday, its highest level in nearly a year.

SPX and NY HL Ratio Chart

The next chart covers the past 6 months showing the SPX in red and a 10% trend (19 day EMA) 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 continued its sharp move upward.

SPX and NY NL Chart

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

OTC NL is showing a similar pattern to NY NL.

OTC and OTC NL Chart


Seasonality

Next week includes the 5 trading days prior to the 2nd Friday of March during the 4th 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 2015 while SPX data runs from 1953 to 2015. There are summaries for both the 4th 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.

The coming week has, on average had modest gains over all years and modest losses during the 4th year of the Presidential Cycle. Also, neither index has had more than 2 consecutive up periods over the time measured.

Report for the week before the 2nd Friday of March.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday to 2nd Friday.

OTC Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1964-4 0.61% -0.05% 0.32% -0.24% 0.24% 0.88%
1968-4 -0.63% 0.59% -3.92% 1.27% -0.15% -2.84%
1972-4 0.54% -0.04% 0.45% 0.35% -0.23% 1.07%
 
1976-4 0.56% 0.01% 0.24% 1.12% -0.24% 1.69%
1980-4 -1.67% 0.56% 0.05% 0.24% -0.37% -1.19%
1984-4 -0.66% -0.64% -1.22% 0.20% -0.26% -2.58%
1988-4 0.32% 0.64% 0.89% -0.93% -0.34% 0.58%
1992-4 -0.02% 1.24% -1.01% -0.20% 0.44% 0.45%
Avg -0.29% 0.36% -0.21% 0.09% -0.15% -0.21%
 
1996-4 -0.11% 1.10% -0.46% 0.12% -2.69% -2.04%
2000-4 -0.20% -1.16% 1.02% 3.06% 0.03% 2.74%
2004-4 -1.90% -0.68% -1.55% -1.03% 2.10% -3.06%
2008-4 -1.95% 3.98% -0.53% 0.88% -2.26% 0.13%
2012-4 -0.86% -1.36% 0.87% 1.18% 0.60% 0.43%
Avg -1.00% 0.38% -0.13% 0.84% -0.44% -0.36%
 
OTC summary for Presidential Year 4 1964 - 2012
Avg -0.46% 0.32% -0.37% 0.46% -0.24% -0.29%
Win% 31% 54% 54% 69% 38% 62%
 
OTC summary for all years 1963 - 2015
Avg -0.05% 0.35% 0.02% 0.31% -0.08% 0.55%
Win% 47% 58% 60% 66% 51% 68%
 
SPX Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1956-4 0.55% -0.04% -0.07% 0.24% 1.26% 1.93%
1960-4 -1.01% -1.02% 1.07% -0.39% 0.76% -0.59%
1964-4 0.03% 0.33% 0.46% 0.16% 0.08% 1.06%
1968-4 -1.34% -0.23% 1.76% -0.18% -0.08% -0.07%
1972-4 0.77% 0.09% 0.08% -0.02% -0.52% 0.40%
Avg -0.20% -0.17% 0.66% -0.04% 0.30% 0.55%
 
1976-4 1.09% 0.39% 0.36% 0.94% -1.01% 1.77%
1980-4 -0.36% 1.19% -0.84% -1.17% -0.18% -1.37%
1984-4 -0.85% -1.04% -1.08% 0.40% -0.54% -3.10%
1988-4 0.03% 0.77% -0.14% -1.94% 0.42% -0.86%
1992-4 0.19% 0.41% -0.70% -0.03% 0.48% 0.35%
Avg 0.02% 0.34% -0.48% -0.36% -0.17% -0.64%
 
1996-4 1.00% 0.77% -0.58% 0.25% -3.08% -1.64%
2000-4 -1.27% -2.57% 0.82% 2.56% -0.47% -0.93%
2004-4 -0.84% -0.58% -1.46% -1.52% 1.25% -3.15%
2008-4 -1.55% 3.71% -0.90% 0.51% -2.08% -0.30%
2012-4 -0.39% -1.54% 0.69% 0.98% 0.36% 0.11%
Avg -0.61% -0.04% -0.29% 0.56% -0.80% -1.18%
 
SPX summary for Presidential Year 4 1956 - 2012
Avg -0.26% 0.04% -0.04% 0.05% -0.22% -0.43%
Win% 47% 53% 47% 53% 47% 40%
 
SPX summary for all years 1953 - 2015
Avg -0.04% 0.21% 0.06% 0.18% -0.06% 0.35%
Win% 52% 56% 56% 61% 45% 59%


Money supply (M2)

The charts were provided by Gordon Harms. Money supply growth picked up a little last week.

S&P500 and M2 Money Supply Charts


Conclusion

Over the past 3 weeks the market has gained on average about 10% and is overbought. Seasonally next week has been mixed and never up for more than 2 consecutive periods and the OTC was up the last 2 periods so, by that measure, is due for a down week.

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

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Good Luck,

YTD W 6 / L 3 / T 0

 


 

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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