Technical Market Report for March 19, 2016

By: Mike Burk | Sat, Mar 19, 2016
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The good news is:
• The market has had 5 consecutive winning weeks.


The Negatives

The market is overbought.

In the past 5 weeks the Dow Jones Industrial Average (DJIA) , and NASDAQ composite (OTC) have both been up 12.4%, the S&P 500 (SPX) has been up 12.1% and the Russell 2000 (R2K), up 15.5%.

The NYSE and NASDAQ markets continue to performing differently internally with the NASDAQ weaker than the NYSE.

The first chart covers the past 6 months showing the 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 was again, for all practical purposes, unchanged last week at a slightly above neutral 56.9%.

OTC and OTC HL Ratio Chart


The positives

New lows remained benign on the NYSE and a little worse on the NASDAQ. New highs got into triple digits on the NYSE for the 1st time in 3 months (a lot of utilities on the new high list).

The chart below is similar to the 1st chart except it shows the SPX in red and NY HL Ratio, in blue, has been calculated from NYSE data.

NY HL Ratio finished the week at a very strong 90.8%.

SPX and NY HL Ratio Chart

The next chart covers the past 6 months showing the OTC in blue and a 10% trend (19 day EMA) of NASDAQ new highs (OTC NH) in green.

OTC NH turned up sharply at the end of last week.

OTC and OTC NH Chart

The next chart is similar to the one above except it shows the SPX in red and NY NH, in green, has been calculated from NYSE data.

NY NH is at its highest level since last summer.

SPX and NY NH 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).

NYSE new lows have, for all practical purposes, disappeared.

SPX and NY NL Chart

The next chart is similar to the one above except it 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, but the numbers are not quite as good.


Seasonality

Next week includes the 4 trading days prior to the Good Friday 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 Tuesday prior to Good Friday in 1968 appears to be missing from my database.

The 4 trading days prior to Good Friday have been, on average, positive by all measures.

Report for the 4 days before Good Friday
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 4
  Day4 Day3 Day2 Day1 Totals
1964-4 -0.24% 1 -0.13% 2 -0.37% 3 0.27% 4 -0.48%
1968-4 0.19% 5 -0.43% 1 1.23% 3 1.04% 4 2.03%
1972-4 0.01% 1 0.13% 2 -0.15% 3 0.48% 4 0.46%
 
1976-4 -0.33% 1 0.07% 2 0.10% 3 0.47% 4 0.32%
1980-4 1.35% 1 1.63% 2 2.00% 3 0.15% 4 5.14%
1984-4 -0.05% 1 0.70% 2 -0.04% 3 0.01% 4 0.62%
1988-4 -0.57% 1 0.69% 2 -0.32% 3 0.77% 4 0.57%
1992-4 0.67% 1 1.13% 2 0.88% 3 -1.37% 4 1.31%
Avg 0.21% 0.84% 0.52% 0.01% 1.59%
 
1996-4 0.47% 1 0.42% 2 0.41% 3 0.21% 4 1.52%
2000-4 6.56% 1 7.19% 2 -2.30% 3 -1.69% 4 9.76%
2004-4 1.07% 1 -0.92% 2 -0.47% 3 0.13% 4 -0.20%
2008-4 -1.60% 1 4.19% 2 -2.57% 3 2.18% 4 2.20%
2012-4 0.91% 1 -0.20% 2 -1.46% 3 0.40% 4 -0.34%
Avg 1.48% 2.14% -1.28% 0.25% 2.59%
 
OTC summary for Presidential Year 4 1964 - 2012
Averages 0.65% 1.11% -0.24% 0.24% 1.76%
% Winners 62% 69% 38% 85% 77%
MDD 4/20/2000 3.95% -- 3/19/2008 2.57% -- 4/4/2012 1.65%
 
OTC summary for all years 1963 - 2015
Averages 0.11% 0.29% 0.23% 0.47% 1.09%
% Winners 51% 60% 66% 79% 62%
 
SPX Presidential Year 4
  Day4 Day3 Day2 Day1 Totals
1960-4 -0.39% 1 0.23% 2 0.00% 3 0.23% 4 0.07%
1964-4 0.01% 1 -0.18% 2 0.23% 3 0.28% 4 0.34%
1968-4 -0.59% 5 1.78% 1 0.76% 3 0.90% 4 2.85%
1972-4 -0.20% 1 -0.12% 2 -0.63% 3 0.67% 4 -0.29%
 
1976-4 -0.15% 1 0.85% 2 -0.73% 3 0.36% 4 0.33%
1980-4 1.40% 1 0.09% 2 0.49% 3 -0.52% 4 1.46%
1984-4 0.64% 1 0.41% 2 -0.67% 3 0.08% 4 0.46%
1988-4 -0.17% 1 0.78% 2 -0.77% 3 0.32% 4 0.15%
1992-4 0.44% 1 1.55% 2 0.94% 3 -0.06% 4 2.88%
Avg 0.43% 0.74% -0.15% 0.04% 1.06%
 
1996-4 1.27% 1 0.24% 2 0.09% 3 0.00% 4 1.60%
2000-4 3.25% 1 2.87% 2 -0.98% 3 0.49% 4 5.63%
2004-4 0.77% 1 -0.21% 2 -0.66% 3 -0.11% 4 -0.21%
2008-4 -0.90% 1 4.24% 2 -2.43% 3 2.64% 4 3.56%
2012-4 0.75% 1 -0.40% 2 -1.02% 3 -0.06% 4 -0.73%
Avg 1.03% 1.35% -1.00% 0.59% 1.97%
 
SPX summary for Presidential Year 4 1960 - 2012
Averages 0.44% 0.87% -0.38% 0.37% 1.29%
% Winners 57% 71% 36% 64% 79%
MDD 3/19/2008 2.43% -- 4/5/2012 1.48% -- 4/19/2000 .98%
 
SPX summary for all years 1953 - 2015
Averages 0.05% 0.18% 0.05% 0.34% 0.62%
% Winners 49% 56% 53% 69% 69%


Money Supply and yield curve

The money supply and yield curve charts were provided by Gordon Harms. Money supply growth has declined a bit to slightly above its long term trend.

SPX and M2 Money Supply Charts

An inverted yield curve (short term rates higher than long term rates) has been the best predictor of a recession.

These days with the Fed holding short term rates at 0 it will be difficult for the yield curve to invert. However, the chart below, which covers the past 15 years, shows yields of the 2yr, 5yr, 10yr and 20yr treasuries coming closer together.

Yield Curve


Conclusion

After 5 consecutive up weeks the market is overdue for a rest, but seasonally the 4 days prior to Good Friday have been pretty strong.

I expect the major averages to be higher on Thursday March 24 than they were on Friday March 18.

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Good Luck,

YTD W 7 / L 4 / 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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