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Technical Market Report

The good news is:
• The market is oversold, offering the 1st buying opportunity since last October.

The negatives

They are still hard to find.

The chart below covers the past year showing the S&P 500 (SPX) in red and a 5% trend (39 day EMA) of NYSE upside volume (NY UV) in green. Dashed vertical lines have been drawn on the 1st trading day of each month.

NY UV hit its high for the year in early May and has fallen to a multi year low. It is odd to see a 60% rally in the SPX draw so little interest.

The Positives

Most of the major indices fell around 5% in the last 3 days of last week. New highs also declined, but, new lows did not increase significantly (the NL highs for the week occurred on Friday with 6 on the NYSE and 15 on the NASDAQ).

The chart below covers the past 6 months showing the SPX in red and the ratio of NYSE new highs to new highs + new lows (NY HL Ratio) in dark blue.

NY HL Ratio was at 96% on Friday. Any price decline with the indicator at this level should be fully recovered.

The next chart is similar to the one above except it covers the last 5 years to give you a longer term perspective on this indicator. Dashed vertical lines have been drawn on the 1st trading day of each year.

The next chart covers the past 6 months showing the NASDAQ composite (OTC) in blue and OTC HL Ratio calculated from NASDAQ data in red. On Friday this indicator dropped to 85%, a little weaker than NY HL Ratio but still suggesting a full recovery in prices.

The secondaries lead both up and down.

The chart below covers the past 2 months showing the SPX in red, the OTC in blue, the S&P mid cap (MID) in black and the Russell 2000 (R2K) in green. The indices have been plotted on log scales to show their relative performance. The stratification with the R2K being the strongest and the SPX the weakest is exactly what you like to see in a bull market.

Seasonality

Next week includes the last 5 trading days of January during the 2nd year of the Presidential Cycle.

The tables below show the return on a percentage basis for the last 5 trading days of January during the 2nd year of the Presidential Cycle. OTC data covers the period from 1963 - 2009 and SPX data from 1928 - 2009. There are summaries for both the 2nd year of the Presidential Cycle and all years combined.

Average returns for the period have been modestly positive by all measures.

Last 5 days of January.
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 2
  Day5 Day4 Day3 Day2 Day1 Totals
1966-2 -0.07% 2 0.27% 3 -0.08% 4 0.02% 5 0.27% 1 0.40%
 
1970-2 -0.20% 1 -0.84% 2 -0.73% 3 -1.14% 4 -1.94% 5 -4.85%
1974-2 -0.22% 5 -0.40% 1 -0.48% 2 0.65% 3 -0.25% 4 -0.71%
1978-2 0.33% 3 -0.34% 4 0.09% 5 0.35% 1 -0.13% 2 0.30%
1982-2 -1.24% 1 -0.06% 2 0.09% 3 1.44% 4 1.17% 5 1.39%
1986-2 0.41% 1 0.74% 2 0.63% 3 -0.12% 4 0.43% 5 2.09%
Avg -0.18% -0.18% -0.08% 0.24% -0.14% -0.36%
 
1990-2 -0.10% 4 -0.92% 5 -0.76% 1 -1.77% 2 1.24% 3 -2.31%
1994-2 -0.54% 2 0.31% 3 0.52% 4 0.46% 5 0.49% 1 1.24%
1998-2 -0.91% 1 1.08% 2 2.05% 3 0.53% 4 0.00% 5 2.76%
2002-2 -0.25% 5 0.32% 1 -2.62% 2 1.08% 3 1.08% 4 -0.39%
2006-2 -0.20% 3 0.99% 4 0.93% 5 0.11% 1 -0.04% 2 1.78%
Avg -0.40% 0.36% 0.02% 0.08% 0.55% 0.62%
 
OTC summary for Presidential Year 2 1966 - 2006
Averages -0.27% 0.10% -0.03% 0.15% 0.21% 0.15%
% Winners 18% 55% 55% 73% 55% 64%
MDD 1/30/1970 4.76% -- 1/30/1990 3.51% -- 1/29/2002 2.62%
 
OTC summary for all years 1963 - 2009
Averages -0.06% 0.20% 0.15% 0.02% 0.29% 0.58%
% Winners 41% 62% 62% 59% 66% 60%
MDD 1/28/2000 6.73% -- 1/30/2009 5.26% -- 1/30/1970 4.76%
 
SPX Presidential Year 2
  Day5 Day4 Day3 Day2 Day1 Totals
1930-2 -0.09% 1 -0.50% 2 1.13% 3 0.54% 4 1.42% 5 2.51%
1934-2 -0.90% 5 -0.09% 6 1.63% 1 1.25% 2 -1.41% 3 0.48%
1938-2 -3.83% 3 -1.39% 4 -0.85% 5 -0.38% 6 1.71% 1 -4.73%
1942-2 0.22% 2 -0.67% 3 -0.22% 4 -0.67% 5 -0.45% 6 -1.79%
1946-2 0.06% 6 2.87% 1 0.27% 2 -0.59% 3 0.05% 4 2.66%
Avg -0.91% 0.05% 0.39% 0.03% 0.27% -0.18%
 
1950-2 -0.06% 4 0.54% 5 0.48% 6 0.71% 1 0.18% 2 1.84%
1954-2 0.31% 1 0.62% 2 -0.31% 3 0.04% 4 0.23% 5 0.89%
1958-2 -0.29% 1 0.10% 2 0.60% 3 -0.48% 4 0.05% 5 -0.02%
1962-2 -0.07% 4 -0.32% 5 -0.34% 1 0.40% 2 0.98% 3 0.65%
1966-2 0.15% 2 -0.16% 3 -0.03% 4 -0.38% 5 -0.46% 1 -0.89%
Avg 0.01% 0.15% 0.08% 0.06% 0.20% 0.49%
 
1970-2 -1.01% 1 -0.62% 2 -0.95% 3 -1.27% 4 -0.78% 5 -4.63%
1974-2 -0.20% 5 -0.56% 1 -0.08% 2 1.09% 3 -0.50% 4 -0.25%
1978-2 0.16% 3 -0.91% 4 0.00% 5 0.86% 1 -0.10% 2 0.01%
1982-2 0.03% 1 -0.19% 2 0.48% 3 2.75% 4 1.24% 5 4.30%
1986-2 0.47% 1 1.17% 2 0.23% 3 -0.46% 4 1.17% 5 2.57%
Avg -0.11% -0.22% -0.06% 0.60% 0.21% 0.40%
 
1990-2 -1.27% 4 -0.09% 5 -0.18% 1 -0.68% 2 1.89% 3 -0.33%
1994-2 -0.22% 2 0.48% 3 0.81% 4 0.35% 5 0.61% 1 2.03%
1998-2 -0.07% 1 1.26% 2 0.87% 3 0.82% 4 -0.53% 5 2.36%
2002-2 0.10% 5 -0.02% 1 -2.86% 2 1.17% 3 1.49% 4 -0.11%
2006-2 -0.17% 3 0.72% 4 0.78% 5 0.12% 1 -0.40% 2 1.04%
Avg -0.33% 0.47% -0.12% 0.35% 0.61% 1.00%
 
SPX summary for Presidential Year 2 1930 - 2006
Averages -0.33% 0.11% 0.07% 0.26% 0.32% 0.43%
% Winners 40% 40% 50% 60% 60% 60%
MDD 1/29/1938 6.33% -- 1/30/1970 4.55% -- 1/29/2002 2.88%
 
SPX summary for all years 1928 - 2009
Averages -0.05% 0.16% 0.06% 0.11% 0.28% 0.55%
% Winners 49% 53% 49% 62% 65% 60%
MDD 1/29/1938 6.33% -- 1/30/2009 5.52% -- 1/30/1932 5.05%

Money supply (M2)

The money supply chart was provided by Gordon Harms. Money supply growth has been falling sharply.

Conclusion

Last weeks sell off relieved the markets overbought condition with little damage to the breadth indicators. There may be a little more downside, but, it is likely, most of the decline is behind us.

I expect the major averages to be higher on Friday January 29 than they were on Friday January 22.

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.

What would happen if you invested in the Dow only when Congress was out of session, about 34% of the time? To find out the surprising answer see Jerry Minton's latest newsletter at: http://www.alphaim.net

Thank you,

 

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