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Technical Market Report

The good news is:
• All of the major indices closed at new recovery highs on Friday.

The negatives

The market is overbought. There has not had a down week in the past 9 weeks.

The NASDAQ composite (OTC) hit a recovery high Friday logging 181 new highs which was nearly 100 short of the 280 new highs recorded on March 17.

The chart below covers the past 6 months showing the 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 did not confirm the OTC high on Friday.

OTC New Highs Did Not Confirm the OTC High on Friday

The Positives

The NYSE advance - decline line (NY ADL) hit a new all time high on Friday and this is good, but not surprising considering the wildly positive bias this indicator has taken on over the past 8 years. It is more important that the NASDAQ advance - decline line (OTC ADL) hit a new recovery high on Friday because this indicator has a negative bias.

Advance decline lines are running totals of declining issues subtracted from advancing issues.

The chart below covers the past year showing the OTC in blue and the OTC ADL hitting a new recovery high in green.

OTC Hit New Recovery High on Friday

The next chart covers the past 8 years beginning just before the bottom of the 2000 - 2002 bear market. Dashed vertical lines have been drawn on the 1st trading day of each year.

The negative bias is visible.

OTC and OTC Advance/Decline 2002-2010

The next chart covers the past 25 years.

OTC and OTC Advance/Decline 1985-2010

Throughout its history the OTC ADL has had brief periods of strength during very strong markets and we are in one of them.

Seasonality

Next week includes the 5 trading days prior to the 3rd Friday of April 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 April during the 2nd year of the Presidential Cycle. OTC data covers the period from 1963 - 2009 and S&P 500 (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.

Over all years the average return during the coming week has been very good, however during the 2nd week of the Presidential Cycle average returns have been negative.

Report for the week before the 3rd Friday of April.
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 0.68% -0.25% -0.45% 0.57% 0.20% 0.75%
 
1970-2 -0.83% -1.56% -0.92% -1.35% -1.42% -6.09%
1974-2 -0.04% -1.99% -1.72% -1.05% 0.23% -4.57%
1978-2 0.56% -0.43% 0.19% 1.09% 0.41% 1.82%
1982-2 0.07% -0.24% 0.21% 0.73% 0.69% 1.47%
1986-2 0.51% 0.23% 1.55% 0.60% 0.16% 3.05%
Avg 0.05% -0.80% -0.14% 0.01% 0.01% -0.86%
 
1990-2 -1.34% -0.21% 0.33% 0.12% -0.73% -1.84%
1994-2 -1.03% -1.05% -1.03% 1.87% 0.53% -0.71%
1998-2 1.10% 0.89% 0.72% -1.88% -0.66% 0.16%
2002-2 -0.14% 3.59% -0.34% -0.46% -0.31% 2.35%
2006-2 -0.40% -0.13% 0.14% 0.49% -0.95% -0.86%
Avg -0.36% 0.62% -0.04% 0.03% -0.43% -0.18%
 
OTC summary for Presidential Year 2 1966 - 2006
Avg -0.08% -0.11% -0.12% 0.07% -0.17% -0.41%
Win% 45% 27% 55% 64% 55% 55%
 
OTC summary for all years 1963 - 2009
Avg -0.40% 0.30% 0.26% 0.27% 0.14% 0.58%
Win% 48% 57% 70% 64% 62% 70%
 
SPX Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1954-2 -0.64% -0.04% -0.40% 0.14% 0.36% -0.57%
1958-2 0.52% -0.30% 0.00% 0.79% 0.51% 1.52%
1962-2 -0.09% -0.10% -1.10% -0.97% -1.12% -3.38%
1966-2 -0.45% -0.01% 0.56% 0.37% -0.16% 0.31%
 
1970-2 -0.68% -0.86% -0.18% -0.98% -0.24% -2.94%
1974-2 -0.39% -1.68% -1.64% -0.81% 0.68% -3.85%
1978-2 1.65% -1.08% 0.46% 0.72% -0.21% 1.54%
1982-2 -0.09% -1.08% 0.24% 1.27% 1.24% 1.58%
1986-2 0.56% 0.19% 1.89% 0.33% -0.27% 2.70%
Avg 0.21% -0.90% 0.15% 0.11% 0.24% -0.20%
 
1990-2 -1.21% -0.21% 0.51% 0.27% -1.14% -1.79%
1994-2 -0.83% 0.02% -0.13% 1.53% -0.25% 0.34%
1998-2 0.08% 0.24% 0.33% -0.92% -1.05% -1.32%
2002-2 -0.76% 2.34% -0.20% -0.14% 0.06% 1.30%
2006-2 -0.24% -0.49% 0.28% 0.33% 0.07% -0.05%
Avg -0.59% 0.38% 0.16% 0.21% -0.46% -0.30%
 
SPX summary for Presidential Year 2 1954 - 2006
Avg -0.19% -0.22% 0.05% 0.14% -0.11% -0.33%
Win% 29% 29% 54% 64% 43% 50%
 
SPX summary for all years 1953 - 2009
Avg -0.13% 0.29% 0.08% 0.12% -0.06% 0.30%
Win% 47% 53% 59% 61% 47% 67%

Conclusion

New highs were off their levels of about a month ago, but, aside from that, there is little to suggest this rally is near an end. On the other hand, after 9 consecutive up weeks the market is overdue for a rest.

I expect the major averages to be lower on Friday April 16 than they were on Thursday April 9.

Last weeks negative forecast was a miss.

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 his latest newsletter, Jerry Minton asks three "What ifs" and comes up with "The Formula". You can read about it and sign up for a free subscription at: http://www.alphaim.net/

Gordon Harms produces a power point for our local timing group meetings. You can get a copy of that at: http://www.stockmarket-ta.com/

Thank you,

 

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