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Technical Market Report for August 14, 2010

The good news is:
• The market is oversold going into a seasonally strong week.


The negatives

Panic selling often marks market lows and there was none of that last week

The chart below covers the past 6 months showing the NASDAQ composite (OTC) in blue and a 5% trend (39 day EMA) of NASDAQ total volume (OTC TotVol T) in orange. Dashed vertical lines have been drawn on the 1st trading day of each month.

Volume continued to decline while the index fell over 5% last week.

NASDAQ

Conditions were similar on the NYSE.

The chart below is similar to the one above except is shows the S&P 500 (SPX) in red and the indicator shown in grey has been calculated from NYSE data.

SPX

There was no panic selling last week, just a lack of buyers.


The positives

All of the major indices were down the last 4 days of last week.

New lows increased Tuesday - Thursday, but declined on Friday in spite of the indices all hitting their lows for the week on Friday.

Down side volume peaked on Wednesday and declined on both Thursday and Friday.

The chart below covers the past 6 months showing the SPX in red and a 5% trend of NYSE downside volume (NY DV) in brown. NY DV is plotted on an inverted Y axis so declining NY DV moves the indicator upward (up is good).

The NY DV moved slightly upward on Friday, a down day for prices.

SPX

The chart below is similar to the one above except is shows the OTC in blue and OTC DV has been calculated from NASDAQ data.

OTC did not turn upward on Friday, but it did flatten out.

NASDAQ


Seasonality

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

Average returns by all measures have been positive over the coming week and they have been strongest during the 2nd year of the Presidential Cycle. There has not been a down week during the 2nd year of the Presidential Cycle since 1990.

Report for the week before the 3rd Friday of August.
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 -0.10% -0.30% -1.28% -0.67% -1.14% -3.49%
 
1970-2 -0.85% 0.62% 0.76% 1.08% 0.41% 2.02%
1974-2 -0.47% -2.19% -2.28% -0.55% -1.53% -7.01%
1978-2 0.08% -0.12% 0.62% 1.03% 0.42% 2.04%
1982-2 0.34% 1.63% 3.52% -1.83% 1.24% 4.90%
1986-2 1.11% 0.91% 0.97% 0.69% 0.17% 3.85%
Avg 0.04% 0.17% 0.72% 0.09% 0.14% 1.16%
 
1990-2 0.07% 0.50% 0.27% -2.23% -2.18% -3.58%
1994-2 0.17% 0.36% 0.97% -0.07% 0.04% 1.47%
1998-2 1.55% 2.04% -0.67% -0.56% -1.90% 0.47%
2002-2 0.06% -2.87% 5.12% 0.80% 1.19% 4.30%
2006-2 0.55% 2.22% 1.63% 0.38% 0.29% 5.07%
Avg 0.48% 0.45% 1.47% -0.34% -0.51% 1.55%
 
OTC summary for Presidential Year 2 1966 - 2006
Avg 0.23% 0.25% 0.88% -0.17% -0.27% 0.91%
Win% 73% 64% 73% 45% 64% 73%
 
OTC summary for all years 1963 - 2009
Avg 0.18% -0.01% 0.25% 0.04% -0.05% 0.40%
Win% 64% 50% 62% 54% 55% 55%
 
SPX Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1954-2 1.07% 0.23% -0.10% 0.23% 0.16% 1.59%
1958-2 0.27% -0.93% 0.17% 0.21% -0.86% -1.14%
1962-2 0.14% 1.08% 0.70% -0.03% 0.63% 2.52%
1966-2 -0.52% -1.34% -0.55% -1.26% -0.67% -4.34%
 
1970-2 0.20% 1.15% 1.00% 0.88% 2.06% 5.30%
1974-2 -1.37% -1.58% -2.24% -0.56% -0.83% -6.58%
1978-2 0.01% -0.12% 0.77% 0.41% -0.33% 0.74%
1982-2 0.23% 4.76% -0.47% 0.58% 3.54% 8.64%
1986-2 1.60% 1.11% 0.96% 0.24% 0.37% 4.27%
Avg 0.13% 1.06% 0.00% 0.31% 0.96% 2.47%
 
1990-2 0.06% 1.09% 0.20% -2.26% -1.37% -2.28%
1994-2 -0.16% 0.82% 0.03% -0.43% 0.11% 0.38%
1998-2 1.98% 1.61% -0.28% -0.59% -0.95% 1.76%
2002-2 -0.53% -2.17% 4.00% 1.16% -0.16% 2.30%
2006-2 0.12% 1.37% 0.77% 0.16% 0.37% 2.78%
Avg 0.29% 0.55% 0.94% -0.39% -0.40% 0.99%
 
SPX summary for Presidential Year 2 1954 - 2006
Avg 0.22% 0.51% 0.35% -0.09% 0.15% 1.14%
Win% 71% 64% 64% 57% 50% 71%
 
SPX summary for all years 1953 - 2009
Avg 0.15% 0.00% -0.01% 0.05% 0.10% 0.28%
Win% 65% 51% 55% 51% 63% 54%


Money Supply (M2)

The money supply chart was provided by Gordon Harms. Money supply growth has flattened out.

M2 Money Supply


Conclusion

The market had a rough week, but it is now oversold going into a seasonally strong week.

I expect the major averages to be higher on Friday August 20 than they were on Friday August 13.

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, Jerry Minton looks at the "94% bet" which occurs in the fourth quarter of the year. You can read about it and subscribe to the free newsletter at www.alphaim.net.

Thank you,

 

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