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Technical Market Report

The good news is:
• All of the major indices hit multi month highs last week and most of them closed at multi month highs on Friday.

Short Term

Nearly all of the indicators support a continued advance.

The chart below covers 107 trading days from the beginning of the rally in early March through last Friday showing the NASDAQ composite (OTC) in blue and a 10% trend (19 day EMA) of NASDAQ new highs (OTC NH) in green. Dashed vertical lines have been drawn on the 1st trading day of each month.

OTC NH confirmed last Tuesday's OTC high suggesting, at least, one higher high to come. But, the indicator fell on Friday while the index rallied suggesting short term weakness.

Intermediate term

New highs declined a bit last week, but, there was no build up of new lows. The market will not be in any real trouble until new lows begin to expand.

The chart below covers the rally since its beginning in early March showing the OTC in blue and a 40% trend (4 day EMA) of NASDAQ (new highs / (new highs + new lows)) (OTC HL Ratio) in red. Dashed horizontal lines have been draws at 10% increments of the indicator, the line is solid at the neutral 50% level.

Risk will be limited as long as the indicator remains above the 50% level.

The next chart is similar to the one above except it covers the past 5 years to give you a perspective on how the indicator has worked over a longer period.

Seasonality

Next week includes the 5 trading days prior to the 2nd Friday of August during the 1st year of the Presidential Cycle.

The tables show the daily return on a percentage basis for the 5 trading days prior to the 2nd Friday of August during the 1st year of the Presidential Cycle. OTC data covers the period from 1963 - 2008 and S&P 500 (SPX) data from 1953 - 2008. Prior to 1953 the market traded 6 days a week so that data has been ignored. There are summaries for both the 1st year of the Presidential Cycle and all years combined.

Over all years the average returns have been modestly positive, however, during the 1st year of the Presidential Cycle average returns have been modestly negative.

Report for the week before the 2nd Friday of August.
The number following the year is the position in the presidential cycle.
Daily returns from Monday to 2nd Friday.

OTC Presidential Year 1
Year Mon Tue Wed Thur Fri Totals
1965-1 0.82% 0.35% 0.45% 0.71% -0.14% 2.18%
 
1969-1 1.52% -0.42% 0.56% 0.08% 0.33% 2.07%
1973-1 0.37% 0.08% -1.09% 0.02% -0.78% -1.40%
1977-1 -0.31% -0.03% 0.29% 0.13% -0.18% -0.10%
1981-1 -0.25% 0.39% 0.13% 0.19% -0.11% 0.36%
1985-1 -0.78% -0.64% -0.67% 0.17% 0.14% -1.78%
Avg 0.11% -0.12% -0.16% 0.12% -0.12% -0.17%
 
1989-1 0.94% 0.34% -0.19% 0.25% -0.23% 1.11%
1993-1 0.06% -0.20% 0.24% -0.23% 0.16% 0.03%
1997-1 0.70% 1.00% 0.55% -0.38% -1.58% 0.29%
2001-1 -1.55% -0.32% -3.03% -0.15% -0.35% -5.40%
2005-1 -0.62% 0.45% -0.75% 0.78% -0.81% -0.96%
Avg -0.10% 0.26% -0.64% 0.05% -0.56% -0.99%
 
OTC summary for Presidential Year 1 1965 - 2005
Avg 0.08% 0.09% -0.32% 0.14% -0.32% -0.33%
Win% 55% 55% 55% 73% 27% 55%
 
OTC summary for all years 1963 - 2008
Avg -0.26% 0.13% 0.27% -0.02% 0.05% 0.17%
Win% 41% 57% 64% 62% 48% 61%
 
SPX Presidential Year 1
Year Mon Tue Wed Thur Fri Totals
1953-1 -0.12% -0.12% 0.24% -0.20% -0.44% -0.65%
1957-1 -0.88% -1.25% 0.77% -0.28% 0.04% -1.59%
1961-1 -0.01% 0.22% -0.12% 0.31% 0.16% 0.56%
1965-1 -0.24% 0.01% 0.30% 0.29% 0.45% 0.81%
 
1969-1 -0.51% 0.45% 0.55% 0.07% -0.05% 0.51%
1973-1 0.23% -0.17% -0.94% 0.06% -0.80% -1.62%
1977-1 -0.78% 0.06% 0.89% -0.77% -0.29% -0.88%
1981-1 0.60% 0.99% -0.34% 0.08% -0.76% 0.57%
1985-1 -0.45% -1.41% -0.13% 0.68% -0.33% -1.65%
Avg -0.18% -0.02% 0.01% 0.02% -0.45% -0.62%
 
1989-1 1.60% -0.02% -0.69% 0.38% -1.01% 0.26%
1993-1 0.45% -0.28% 0.22% -0.33% 0.26% 0.33%
1997-1 0.33% 0.22% 0.83% -0.95% -1.85% -1.42%
2001-1 -1.14% 0.33% -1.73% -0.01% 0.57% -1.99%
2005-1 -0.27% 0.67% -0.18% 0.71% -0.60% 0.33%
Avg 0.19% 0.18% -0.31% -0.04% -0.53% -0.50%
 
SPX summary for Presidential Year 1 1953 - 2005
Avg -0.09% -0.02% -0.02% 0.00% -0.33% -0.46%
Win% 36% 57% 50% 57% 36% 50%
 
SPX summary for all years 1953 - 2008
Avg -0.24% 0.19% 0.19% 0.00% 0.07% 0.19%
Win% 39% 63% 55% 48% 54% 59%

Money supply (M2)

The money supply chart was provided by Gordon Harms. Money supply growth picked up a little last week.

Conclusion

The decline in OTC NH on an up day suggests there may be a little weakness in the next few days, however, the recent highs were confirmed by most of the indicators so higher highs in the intermediate term should be expected.

I expect the major indices to be lower on Friday August 14 than they were on Friday August 7.

This report is free to anyone who wants it, so please tell your friends. They can sign up at: http://alphaim.net/signup.html. If it is not for you, reply with REMOVE in the subject line.

Thank you,

 

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