Technical Market Report for July 2, 2016

By: Mike Burk | Sat, Jul 2, 2016
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The good news is:
• The market has recovered from its BREXIT calamity.


The Negatives

The market is overbought.

Over the last 4 trading days of last week the major indices were up 5% - 6%.

After hitting record low yields earlier in the week, 10 year treasuries finished the week yielding 1.44%.


The positives

New highs reached significant numbers by the end of last week while new lows disappeared.

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 finished the week at a strong 69%.

OTC and OTC HL Ratio Chart

The next chart 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 finished the week at 93% very strong.

SPX and NY HL Ratio Chart


Seasonality

Next week includes the 4 trading days prior to the 2nd Friday of July 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.

Average returns for the coming week have been positive by all measures, but weaker during the 4th year of the Presidential Cycle than other years.

Report for the week before the 2nd Friday of July.
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 0.05% 0.15% 0.22% 0.20% 0.37% 0.98%
1968-4 -0.06% 0.19% 0.00% -0.20% -0.28% -0.35%
1972-4 -0.49% -0.29% -0.28% -0.83% 0.27% -1.62%
 
1976-4 0.00% -0.29% -0.02% 0.21% 0.76% 0.66%
1980-4 1.03% 0.32% 0.03% 0.94% 0.78% 3.10%
1984-4 0.11% -0.31% -0.61% -0.26% 0.19% -0.87%
1988-4 0.00% 0.36% -0.17% -0.01% -0.28% -0.09%
1992-4 0.43% 0.88% 0.05% 0.13% -0.98% 0.49%
Avg 0.52% 0.19% -0.14% 0.20% 0.09% 0.66%
 
1996-4 -0.83% 0.42% -1.06% -3.08% -0.25% -4.80%
2000-4 -1.07% -0.60% 3.62% 1.84% 1.71% 5.50%
2004-4 0.00% -2.15% 0.13% -1.56% 0.57% -3.01%
2008-4 -1.17% 0.13% 3.12% 1.20% -1.28% 2.00%
2012-4 -0.19% -1.00% -0.49% -0.75% 1.48% -0.97%
Avg -0.81% -0.64% 1.06% -0.47% 0.44% -0.26%
 
OTC summary for Presidential Year 4 1964 - 2012
Avg -0.22% -0.17% 0.38% -0.17% 0.23% 0.08%
Win% 40% 54% 50% 46% 62% 46%
 
OTC summary for all years 1963 - 2015
Avg 0.09% -0.11% 0.34% 0.31% 0.42% 1.02%
Win% 68% 51% 60% 66% 75% 68%
 
SPX Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1956-4 0.44% 0.60% 0.31% -0.23% 0.29% 1.41%
1960-4 0.00% -0.07% -0.14% 0.53% 0.24% 0.56%
1964-4 -0.06% -0.30% 0.34% 0.36% 0.44% 0.78%
1968-4 -0.08% -0.55% 0.00% -0.26% -0.97% -1.85%
1972-4 -0.53% -0.73% -0.40% -0.57% 0.49% -1.75%
Avg -0.06% -0.21% 0.03% -0.03% 0.10% -0.17%
 
1976-4 0.00% -0.55% 0.28% 0.14% 0.96% 0.84%
1980-4 1.84% -0.59% 0.28% 1.51% 0.49% 3.53%
1984-4 0.74% -0.31% -1.52% -0.35% 0.57% -0.88%
1988-4 0.00% 1.48% -1.37% -0.09% -0.65% -0.63%
1992-4 0.06% 0.68% -0.14% 0.11% -0.46% 0.24%
Avg 0.88% 0.14% -0.50% 0.26% 0.18% 0.62%
 
1996-4 -0.75% 0.34% 0.20% -1.59% 0.08% -1.71%
2000-4 -0.22% 0.36% 0.81% 0.19% 0.95% 2.09%
2004-4 0.00% -0.81% 0.19% -0.82% 0.33% -1.12%
2008-4 -0.90% -1.09% 2.51% 1.20% 0.03% 1.74%
2012-4 -0.16% -0.81% 0.00% -0.50% 1.65% 0.17%
Avg -0.51% -0.40% 0.74% -0.30% 0.61% 0.24%
 
SPX summary for Presidential Year 4 1956 - 2012
Avg 0.03% -0.16% 0.10% -0.02% 0.30% 0.23%
Win% 36% 33% 57% 47% 80% 60%
 
SPX summary for all years 1953 - 2015
Avg 0.06% -0.02% 0.26% 0.17% 0.29% 0.73%
Win% 60% 46% 58% 61% 68% 68%


Conclusion

The market is overbought after an interesting 2 weeks. Next week is likely to be dull and without much help from seasonality probably down a little.

I expect the major averages to be lower on Friday July 8 than they were on Friday July 1.

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Good Luck,

YTD W 12 / L 11 / T 3

 


 

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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