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Technical Market Report

The good news is:
• All of the major indices except the Dow Jones Industrial Average closed at new recovery highs last week.

The negatives

The market is about as over bought as it has ever been.

Two significant, although not major, indices have been up for 13 consecutive days, they are:

The NASDAQ 100 (NDX) up 7.3%, its longest run since January 1992.

The S&P mid cap (MID) up 7.3%, the longest run in its slightly less than 20 year history.

The extreme overbought condition is only a short term negative because all of the major indices and indicators are confirming the high.

Volume is what's been missing from this rally.

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

Volume picked up during the decline from the mid January high to the early February low and has been falling during the rally to new highs.

Volume on the NASDAQ has been not quite as bad.

The chart below is similar to the one above except is shows the NASDAQ composite (OTC) in blue and a 5% trend of NASDAQ total volume in orange.

The Positives

Nearly every indicator that matters confirmed the highs last week.

Advance decline lines (ADL) are a running total of declining issues subtracted from advancing issues.

The chart below covers the past year showing the OTC in blue and the NASDAQ ADL in green.

The ADL is slightly off its rally high set back in October.

The OTC ADL in the chart above shows a modest non confirmation, that is, the indicator did not quite hit a new high while the index did. In this case close is great because the OTC ADL has a very pronounced negative bias as you can see in the chart below which covers the past 7 years.

Dashed vertical lines have been drawn on the 1st trading day of each year.

Seasonality

Next week includes the 5 trading days prior to the 3rd Friday of March during the 2nd year of the Presidential Cycle.

The tables below show the return on a percentage basis for the 5 trading days prior to the 3rd Friday of March during the 2nd year of the Presidential Cycle. OTC data covers the period from 1963 - 2009 and SPX data from 1953 - 2009. There are summaries for both the 2nd 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.

Seasonally next week has been pretty strong, especially during the 2nd year of the Presidential Cycle.

Report for the week before the 3rd Friday of March.
The number following the year is the position in the presidential cycle.
Daily returns from Monday through 3rd Friday.

OTC Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1966-2 -0.19% -0.92% -0.63% 0.23% 0.28% -1.22%
 
1970-2 -2.13% -0.76% 1.04% 0.17% 0.06% -1.62%
1974-2 0.74% -0.07% 0.55% 0.19% 0.02% 1.42%
1978-2 0.11% 0.13% 0.14% 0.56% 0.54% 1.46%
1982-2 -0.18% 0.21% -0.05% 1.15% 0.96% 2.09%
1986-2 -0.47% 0.38% 0.05% 0.27% -0.03% 0.21%
Avg -0.39% -0.02% 0.35% 0.47% 0.31% 0.71%
 
1990-2 -0.05% -0.45% 0.36% 0.44% 0.94% 1.24%
1994-2 0.46% 0.09% 0.69% 0.61% 0.01% 1.85%
1998-2 0.93% -0.50% 0.51% 0.65% -0.60% 0.99%
2002-2 -0.01% -1.68% -1.85% -0.42% 0.76% -3.20%
2006-2 0.22% 1.27% 0.69% -0.53% 0.30% 1.96%
Avg 0.31% -0.25% 0.08% 0.15% 0.28% 0.57%
 
OTC summary for Presidential Year 2 1966 - 2006
Avg -0.05% -0.21% 0.14% 0.30% 0.29% 0.47%
Win% 45% 45% 73% 82% 82% 73%
 
OTC summary for all years 1963 - 2009
Avg -0.19% 0.06% 0.03% 0.15% -0.10% -0.05%
Win% 51% 55% 64% 70% 51% 55%
 
SPX Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1954-2 -0.45% -0.04% 0.23% 0.41% 0.30% 0.45%
1958-2 -0.69% -0.36% 0.48% 0.05% 0.74% 0.22%
1962-2 -0.03% 0.28% 0.44% 0.21% -0.17% 0.74%
1966-2 -1.13% -0.57% 0.58% 0.35% 0.41% -0.35%
 
1970-2 -1.08% 0.44% 0.29% -0.14% -0.41% -0.91%
1974-2 1.12% 0.27% 0.60% -0.09% -0.37% 1.53%
1978-2 0.08% 0.45% -0.26% 0.44% 0.77% 1.48%
1982-2 0.77% -0.16% -0.18% 1.12% 0.28% 1.83%
1986-2 -0.79% 0.47% -0.08% 0.40% -1.35% -1.35%
Avg 0.02% 0.30% 0.07% 0.35% -0.22% 0.52%
 
1990-2 0.22% -0.79% 0.26% 0.36% 1.14% 1.18%
1994-2 0.20% -0.08% 0.52% 0.32% 0.03% 0.99%
1998-2 1.00% 0.11% 0.46% 0.39% 0.87% 2.83%
2002-2 0.34% -0.23% -0.99% -0.09% 1.14% 0.17%
2006-2 0.20% 1.04% 0.43% 0.18% 0.15% 1.99%
Avg 0.39% 0.01% 0.14% 0.23% 0.67% 1.43%
 
SPX summary for Presidential Year 2 1954 - 2006
Avg -0.02% 0.06% 0.20% 0.28% 0.25% 0.77%
Win% 57% 50% 71% 79% 71% 79%
 
SPX summary for all years 1953 - 2009
Avg 0.02% 0.20% 0.16% 0.18% 0.00% 0.56%
Win% 63% 58% 60% 58% 58% 61%

Money supply (M2)

The money supply chart was provided by Gordon Harms. Money supply growth is continuing to improve.

Conclusion

Nearly everything that matters confirmed last week's highs. The implications of that are if a cycle top were to begin to develop next Monday, a final top would take 4-6 weeks to develop.

I expect the major averages to be higher on Friday March 19 than they were on Friday March 12.

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.

In this week's newsletter, Jerry Minton looks at the implications of John Hussman's belief that the CPI will double over the next ten years. Sign up for a free subscription at: http://www.alphaim.net

Thank you,

 

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