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Technical Market Report for June 12, 2010

The good news is:
• New lows declined sharply last week.


The negatives

New highs give an indication of market strength and new highs have not confirmed any of the rallies since the April high.

The chart below covers the past year showing the S&P 500 (SPX) in red and a 10% trend (19 day EMA) of NYSE new highs (NY NH) in green. Dashed vertical lines have been drawn on the 1st trading day of each month.

NY NH has not confirmed any of the rallies since the April high including the one last week.

SPX and NYSE NH

The next chart is similar to the one above except it shows the NASDAQ composite (OTC) in blue and OTC NH has been calculated from NASDAQ data.. The patterns are similar.

NASDAQ and NASDAQ NH

The next chart covers the past year showing the OTC in blue and the ratio of NASDAQ new highs to new highs + new lows (OTC HL Ratio) in red. Dashed horizontal lines have been drawn at 10% levels of the indicator; the line is solid at the neutral 50% level.

Although rising OTC HL Ratio is well below the neutral level.

NASDAQ and NASDAQ HL ratio


The positives

There are not many.

On Friday new highs exceeded new lows on both the NYSE and NASDAQ.

The chart below is similar to the OTC chart above, but shows the SPX in red and NY HL Ratio (calculated from NYSE data) in black.

NY HL Ratio broke above the neutral line on Friday.

SPX and NASDAQ HL Ratio

The chart below is similar to the one above except it covers the past 18 months to give you a longer term perspective on this indicator.

SPX and NASDAQ HL ratio

The next chart covers the past 6 months showing the SPX in red and a 5% trend of NYSE upside volume (NY UV) in green. NY UV hit a multi month high on Thursday and Friday.

SPX and NYSE UV 5%


Seasonality

Next week includes the 5 trading days prior to the 3rd Friday of June 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 June 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.

By all measures average returns have been negative over the coming week and the 2nd year of the Presidential Cycle has been the worst of all.

Report for the week before the 3rd Friday of June.
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 0.51% 0.31% 0.20% -0.02% 0.24% 1.24%
 
1970-2 -1.41% 0.27% 1.66% 0.83% 1.46% 2.80%
1974-2 -1.47% -0.36% -0.73% -1.00% -0.93% -4.49%
1978-2 -0.10% -0.04% 0.22% -0.26% -0.40% -0.58%
1982-2 -0.81% -0.56% 0.15% -0.93% -0.79% -2.94%
1986-2 -0.26% -0.57% -0.26% 0.29% 0.12% -0.68%
Avg -0.81% -0.25% 0.21% -0.21% -0.11% -1.18%
 
1990-2 0.42% 0.81% 0.49% -0.38% 0.10% 1.45%
1994-2 -0.35% 0.58% -0.02% -0.12% -0.76% -0.66%
1998-2 -1.68% 2.17% 1.33% -0.21% 0.49% 2.10%
2002-2 3.23% -0.67% -2.99% -2.14% -1.62% -4.20%
2006-2 -2.05% -0.90% 0.65% 2.79% -0.66% -0.17%
Avg -0.09% 0.40% -0.11% -0.01% -0.49% -0.30%
 
OTC summary for Presidential Year 2 1966 - 2006
Avg -0.36% 0.10% 0.06% -0.10% -0.25% -0.56%
Win% 27% 45% 64% 27% 45% 36%
 
OTC summary for all years 1963 - 2009
Avg -0.18% -0.01% 0.08% -0.03% 0.00% -0.13%
Win% 43% 55% 65% 46% 59% 51%
 
SPX Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1954-2 0.14% 0.73% 0.73% -0.28% 0.28% 1.60%
1958-2 0.36% -0.53% 0.89% -1.61% 0.54% -0.36%
1962-2 -1.08% -2.56% -1.49% -2.11% 2.87% -4.37%
1966-2 0.45% 0.28% -0.39% -0.30% 0.05% 0.08%
 
1970-2 0.23% 2.38% -0.20% 0.67% 0.71% 3.79%
1974-2 -1.38% -0.66% -0.68% -0.71% -0.85% -4.28%
1978-2 -0.38% 0.02% -0.09% -1.15% -0.94% -2.53%
1982-2 -1.15% -0.25% -0.75% -1.17% -0.30% -3.61%
1986-2 0.16% -0.72% 0.26% -0.38% 1.44% 0.76%
Avg -0.50% 0.16% -0.29% -0.55% 0.01% -1.17%
 
1990-2 0.81% 1.28% -0.37% -0.55% 0.00% 1.18%
1994-2 0.09% 0.71% -0.38% 0.29% -0.75% -0.04%
1998-2 -1.98% 0.98% 1.79% -0.06% -0.52% 0.21%
2002-2 2.87% 0.09% -1.65% -1.34% -1.70% -1.74%
2006-2 -1.27% -1.03% 0.52% 2.12% -0.37% -0.02%
Avg 0.10% 0.41% -0.02% 0.09% -0.67% -0.08%
 
SPX summary for Presidential Year 2 1954 - 2006
Avg -0.15% 0.05% -0.13% -0.47% 0.03% -0.67%
Win% 57% 57% 36% 21% 50% 43%
 
SPX summary for all years 1953 - 2009
Avg -0.06% 0.06% 0.05% -0.16% -0.03% -0.14%
Win% 58% 53% 50% 44% 56% 51%


Money supply (M2)

The money supply chart was provided by Gordon Harms. Money supply growth has been leveling off.

M2 Money Supply


Conclusion

Last weeks rally appears to have been little more than relief from an oversold condition.

I expect the major averages to be lower on Friday June 18 than they were on Friday June 11.

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

In his latest newsletter, titled "Non-random Returns", Jerry Minton looks at the historical returns of the market during the election cycle "power zone".

You can read about it and sign up for a free subscription at Alpha's website: www.alphaim.net.

Thank you,

 

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