Technical Market Report for July 30, 2016

By: Mike Burk | Sat, Jul 30, 2016
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The good news is:
• The blue chip indices finished the week at or near their all time highs and the secondaries have been outperforming the blue chips.


The Negatives

The market is overbought and new lows have been creeping up a little.


The positives

New highs have been holding at levels that assure there should not be any really bad surprises and the secondaries continue to outperform the blue chips.

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 rose slightly to an extremely strong 83%.

OTC and OTC HL Ratio

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 a sensationally high 95%.

SPX and NY HL Ratio

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 continued its ascent.

OTC and OTC NH

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

NY NH resumed its ascent from a very high level.

SPX and NY NH


Seasonality

Next week includes the first 5 trading days of August 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 1928 to 2015. There are summaries for both the 4th year of the Presidential Cycle and all years combined.

Average returns for the coming week have been mostly positive and stronger during the 4th year of the Presidential Cycle than other years.

Report for the first 5 days of August.
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
  Day1 Day2 Day3 Day4 Day5 Totals
1964-4 0.05% 1 -0.29% 2 -1.24% 3 0.22% 4 -0.84% 5 -2.10%
1968-4 -0.32% 4 -0.19% 5 -0.97% 1 0.40% 2 0.42% 4 -0.66%
1972-4 0.55% 2 0.73% 3 0.71% 4 0.48% 5 0.02% 1 2.50%
 
1976-4 -0.02% 1 0.81% 2 -0.15% 3 -0.42% 4 0.17% 5 0.39%
1980-4 0.40% 5 -0.35% 1 0.37% 2 0.54% 3 1.03% 4 1.99%
1984-4 1.59% 3 2.37% 4 3.09% 5 1.23% 1 -0.07% 2 8.20%
1988-4 0.17% 1 -0.05% 2 0.19% 3 0.09% 4 -0.30% 5 0.10%
1992-4 0.26% 1 -0.18% 2 -0.77% 3 -0.49% 4 -0.05% 5 -1.22%
Avg 0.48% 0.52% 0.54% 0.19% 0.16% 1.89%
 
1996-4 1.68% 4 2.38% 5 -0.39% 1 0.75% 2 1.08% 3 5.50%
2000-4 -2.16% 2 -0.73% 3 2.77% 4 0.73% 5 2.00% 1 2.60%
2004-4 0.25% 1 -1.73% 2 -0.23% 3 -1.80% 4 -2.46% 5 -5.97%
2008-4 -0.63% 5 -1.10% 1 2.81% 2 1.21% 3 -0.95% 4 1.35%
2012-4 -0.66% 3 -0.36% 4 2.00% 5 0.74% 1 0.87% 2 2.59%
Avg -0.30% -0.31% 1.39% 0.33% 0.11% 1.21%
 
OTC summary for Presidential Year 4 1964 - 2012
Averages 0.09% 0.10% 0.63% 0.28% 0.07% 1.17%
% Winners 62% 31% 54% 77% 54% 69%
MDD 8/6/2004 6.09% -- 8/2/2000 2.88% -- 8/7/1964 2.14%
 
OTC summary for all years 1963 - 2015
Averages -0.03% -0.17% -0.07% -0.02% 0.12% -0.16%
% Winners 52% 40% 51% 62% 57% 51%
MDD 8/5/2002 9.20% -- 8/6/1990 8.72% -- 8/5/2011 8.13%
 
SPX Presidential Year 4
  Day1 Day2 Day3 Day4 Day5 Totals
1928-4 -0.05% 3 -0.46% 4 0.16% 5 0.26% 6 0.88% 1 0.77%
1932-4 0.16% 1 -3.93% 2 8.86% 3 2.03% 4 4.29% 5 11.42%
 
1936-4 0.13% 6 0.25% 1 -0.25% 2 -0.63% 3 0.63% 4 0.13%
1940-4 -0.29% 4 -0.10% 5 0.29% 6 0.00% 1 -1.07% 2 -1.17%
1944-4 0.55% 2 0.23% 3 -0.62% 4 -0.94% 5 0.24% 6 -0.54%
1948-4 0.00% 1 0.32% 2 1.57% 3 -0.37% 4 0.19% 5 1.70%
1952-4 0.20% 5 -0.08% 1 0.12% 2 -0.08% 3 0.31% 4 0.47%
Avg 0.12% 0.13% 0.22% -0.40% 0.06% 0.12%
 
1956-4 0.06% 3 0.65% 4 -0.20% 5 -1.57% 1 0.61% 2 -0.45%
1960-4 0.04% 1 -0.88% 2 -0.58% 3 0.31% 4 1.00% 5 -0.12%
1964-4 -0.22% 1 -1.25% 2 0.16% 3 -0.91% 4 0.64% 5 -1.59%
1968-4 -0.47% 4 -0.67% 5 0.23% 1 0.41% 2 -0.22% 4 -0.71%
1972-4 0.94% 2 0.82% 3 0.78% 4 0.26% 5 0.16% 1 2.97%
Avg 0.07% -0.27% 0.08% -0.30% 0.44% 0.02%
 
1976-4 -0.24% 1 0.92% 2 0.28% 3 -0.56% 4 -0.06% 5 0.34%
1980-4 -0.38% 5 -0.19% 1 -0.20% 2 0.67% 3 1.44% 4 1.34%
1984-4 2.27% 3 2.54% 4 2.76% 5 0.15% 1 0.07% 2 7.79%
1988-4 0.07% 1 -0.06% 2 0.34% 3 -0.38% 4 -0.29% 5 -0.32%
1992-4 0.21% 1 -0.17% 2 -0.51% 3 -0.38% 4 -0.41% 5 -1.26%
Avg 0.39% 0.61% 0.53% -0.10% 0.15% 1.58%
 
1996-4 1.58% 4 1.92% 5 -0.34% 1 0.33% 2 0.27% 3 3.75%
2000-4 0.51% 2 0.04% 3 0.96% 4 0.71% 5 1.12% 1 3.35%
2004-4 0.44% 1 -0.63% 2 -0.10% 3 -1.63% 4 -1.55% 5 -3.46%
2008-4 -0.56% 5 -0.90% 1 2.87% 2 0.34% 3 -1.79% 4 -0.04%
2012-4 -0.29% 3 -0.75% 4 1.90% 5 0.23% 1 0.51% 2 1.61%
Avg 0.34% -0.06% 1.06% 0.00% -0.29% 1.04%
 
SPX summary for Presidential Year 4 1928 - 2012
Averages 0.21% -0.11% 0.84% -0.08% 0.32% 1.18%
% Winners 59% 41% 64% 50% 68% 55%
MDD 8/2/1932 3.93% -- 8/6/2004 3.85% -- 8/6/1964 2.21%
 
SPX summary for all years 1928 - 2015
Averages 0.10% -0.03% 0.12% -0.17% 0.13% 0.16%
% Winners 53% 49% 52% 46% 53% 48%
MDD 8/5/2002 8.45% -- 8/5/2011 7.19% -- 8/6/1990 6.10%


August

August, during the 4th year of the Presidential Cycle, has been the strongest month of the year.

Since 1963, over all years, the OTC in August has been up 58% of the time with an average gain of 0.3%. During the 4th year of the Presidential Cycle August has been up 69% time with an average gain of 2.6%. The best August ever for the OTC was 2000 (+11.7%), the worst 1998 (-19.9%).

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 August over all years since 1963 while the black line shows the average during the 4th year of the Presidential Cycle over the same period.

OTC August, All, Year 4 1963-2016

Since 1928 the SPX has been up 59% of the time in August with an average gain of 0.6%. During the 4th year of the Presidential Cycle the SPX has been up 73% of the time with an average gain of 3.0%. The best August for the SPX was 1932 (+37.5%) the worst 1998 (-14.6%).

The chart below is similar to the one above except it shows the daily average performance over all years for the SPX in August in red and the performance during the 4th year of the Presidential Cycle in black.

SPX August, All, Year 4 1928-2016

Since 1979 the Russell 2000 (R2K) has been up 57% of the time in August with an average gain of 0.2%. During the 4th year of the Presidential Cycle the R2K has been up 67% of the time with an average gain of 3.5%. The best August ever for the R2K, 1984 (+11.5%), the worst 1998 (-19.5%)

The chart below is similar to those above except it shows the daily performance over all years of the R2K in August in magenta and the performance during the 4th year of the Presidential Cycle in black.

Russell 2000 August, All, Year 4 1979-2016

Since 1885 the DJIA has been up 65% of the time in August with an average gain of 1.2%. During the 4th year of the Presidential Cycle the DJIA has been up 69% of the time in August with an average gain of 2.6%. The best August ever for the DJIA 1932 (+34.8%), the worst 1998 (-15.1%)

The chart below is similar to those above except it shows the daily performance over all years of the DJIA in August in grey and the performance during the 4th year of the Presidential Cycle in black.

Dow August, All, Year 4 1885-2016


Conclusion

August, on average, has been the strongest month of the 4th year of the Presidential Cycle.

July, which historically has been a bit dicey, was sensational. The Dow Jones Industrial Average was the weakest of the major indices, up 3.3% while the Russell 2000 was the strongest of the major indices, up 7.1%.

The breadth indicators have been strong.

I expect the major averages to be higher on Friday August 5 than they were on Friday July 29.

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

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Good Luck,

YTD W 12 / L 14 / T 4

 


 

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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