Technical Market Report for July 16, 2016

By: Mike Burk | Sun, Jul 17, 2016
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The good news is:
• The blue chip indices closed at all time highs last week.


The Negatives

The market is overbought.

Treasury yields, although still absurdly low, increased by nearly 10% last week.


The positives

New highs increased dramatically while new lows remained insignificant.

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 its highest level in over 2 years.

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 its highest level in over 3 years.

SPX and NY HL Ratio Chart

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

OTC NH hit its highest level in over a year.

OTC and OTC NH Chart

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

NY NH is also at its highest level in over a year.

SPX and NY NH Chart


Seasonality

Next week includes the 5 trading days prior to the 4th 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 mostly negative and weaker during the 4th year of the Presidential Cycle than other years.

Report for the week before the 4th Friday of July.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday through the 4th Friday.

OTC Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1964-4 -0.02% -0.34% 0.02% 0.05% 0.10% -0.19%
1968-4 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
1972-4 0.89% -0.23% 0.14% -0.23% -0.16% 0.41%
 
1976-4 -0.35% -0.43% -0.16% 0.14% -0.07% -0.87%
1980-4 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
1984-4 -1.01% -0.59% -0.19% 0.78% 0.99% -0.02%
1988-4 0.05% -0.88% 0.09% -0.71% -0.39% -1.84%
1992-4 -0.16% 1.22% 1.03% 0.23% 0.35% 2.67%
Avg -0.37% -0.17% 0.19% 0.11% 0.22% -0.01%
 
1996-4 -1.48% -2.99% -0.64% 1.92% 1.60% -1.59%
2000-4 -2.76% 1.21% -1.04% -3.65% -4.66% -10.90%
2004-4 0.04% 1.76% -2.23% 0.78% -2.12% -1.76%
2008-4 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
2012-4 -1.20% -0.94% -0.31% 1.37% 2.24% 1.16%
Avg -1.35% -0.24% -1.05% 0.11% -0.73% -3.27%
 
OTC summary for Presidential Year 4 1964 - 2012
Avg -0.60% -0.22% -0.33% 0.07% -0.21% -1.29%
Win% 30% 30% 40% 70% 50% 30%
 
OTC summary for all years 1963 - 2015
Avg -0.34% -0.10% 0.12% 0.11% -0.02% -0.23%
Win% 41% 57% 55% 66% 61% 55%
 
SPX Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1956-4 -0.04% 0.00% 0.22% 0.08% -0.81% -0.55%
Avg -0.04% 0.00% 0.22% 0.08% -0.81% -0.55%
 
1960-4 -0.62% 0.00% -0.16% -0.92% -0.69% -2.39%
1964-4 -0.46% -0.28% 0.08% 0.21% 0.11% -0.33%
1968-4 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
1972-4 1.18% -0.30% -0.07% -0.23% 0.09% 0.68%
1976-4 -0.37% -0.55% 0.10% 0.11% 0.13% -0.59%
Avg -0.07% -0.37% -0.01% -0.21% -0.09% -0.66%
 
1980-4 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
1984-4 -0.40% -0.76% 0.68% 0.84% 0.74% 1.10%
1988-4 -0.57% -0.75% 0.57% -1.24% -1.19% -3.17%
1992-4 -0.01% 1.45% 1.13% 0.40% 0.07% 3.04%
1996-4 -0.78% -1.09% -0.04% 0.72% 0.75% -0.43%
Avg -0.44% -0.29% 0.59% 0.18% 0.09% 0.13%
 
2000-4 -1.07% 0.69% -1.50% -0.19% -2.05% -4.12%
2004-4 -0.04% 0.71% -1.33% 0.27% -0.97% -1.37%
2008-4 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
2012-4 -0.89% -0.90% -0.03% 1.65% 1.91% 1.74%
 
SPX summary for Presidential Year 4 1956 - 2012
Avg -0.34% -0.18% -0.03% 0.14% -0.16% -0.53%
Win% 08% 30% 50% 67% 58% 33%
 
SPX summary for all years 1953 - 2015
Avg -0.19% -0.10% 0.31% 0.19% -0.01% 0.20%
Win% 32% 53% 60% 65% 61% 57%


Money supply (M2) and interest rates

The money supply and interest rate charts were provided by Gordon Harms. Several years ago the regression line of M2 turned noticeably upward. The rate of increase appears to have accelerated again.

S&P500 and M2 Money Supply Charts

With the shortest end of the yield curve held artificially at or near 0% it is nearly impossible for the yield curve to invert, but it appears to be flattening.

S&P500 and Yield Curve Charts


Conclusion

The major indices have been up 8% - 10% in the last 12 trading days.

Central Banks have been using BREXIT as an excuse to flood their deteriorating economies with even more liquidity. All of the financial markets may be in a blow off. I cannot imagine how this can end well.

The technical indicators are strong while seasonality has been weak.

I expect the major averages to be lower on Friday July 22 than they were on Friday July 15.

Last weeks negative forecast was a miss.

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Good Luck,

YTD W 12 / L 13 / 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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