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Technical Market Report for November 13, 2010

The good news is:
• Although all of the major indices were down last week there was not a significant build up of new lows.


The negatives

NASDAQ new highs fell from 356 November 4 to 54 last Friday.

NYSE new highs fell from 569 on November 4 to 49 last Friday.

The chart below covers the past year showing the NASDAQ composite (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 fell last week, but, the non confirmation, by the indicator, of the index high is a greater concern. The value of the indicator is 150 so any rally that generates less than 150 NASDAQ new highs should be regarded with suspicion.

NASDAQ New Highs

The chart below is similar to the one above except is shows the S&P 500 (SPX) in red and NY NH has been calculated from NYSE new highs.

The pattern is similar. The value of NY NH is 219 so more than 219 NYSE new highs will be required to turn NY NH upward.

NYSE New Highs


The positives

The chart below is an update of one I have been showing every week, it covers the 6 months showing the OTC in blue and a 40% trend (4 day EMA) of 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.

The indicator fell to 72% on Friday, but it is still quite strong.

NASDAQ HL Ratio

The next chart is similar to the one above except is shows the SPX in red and NY HL Ratio has been calculated from NYSE data.

NY HL Ratio fell to 83.5% on Friday, still very strong.

NYSE HL Ratio

The next chart is from FastTrack (Fasttrack.net). It covers the past year showing the Russell 2000 in red, the SPX in green and a relative strength indicator called Accutrack as a histogram in yellow.

Accutrack held up well during last weeks sell off indicating the secondaries were strong relative to the blue chips.

Russll 2000 and SPX


Seasonality

Next week includes the 5 trading days prior to the 3rd Friday of November 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 November during the 2nd year of the Presidential Cycle. OTC data covers the period from 1963 - 2009 and SPX data from 1953 - 2009. Prior to 1953 the market traded 6 days a week so that data is been ignored. There are summaries for both the 2nd year of the Presidential Cycle and all years combined.

Average returns by all measures have been modestly positive during the 2nd year of the Presidential Cycle and flat over all years.

Report for the week before the 3rd Friday of November.
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 0.18% -0.35% 0.90% -0.11% 0.75% 1.37%
 
1970-2 -1.11% -0.05% -0.07% -0.51% -0.09% -1.82%
1974-2 0.32% -2.04% -0.58% 0.09% -0.97% -3.18%
1978-2 -1.60% -1.88% 0.51% 0.69% 1.32% -0.96%
1982-2 -1.41% -1.91% 1.24% 0.67% 0.06% -1.35%
1986-2 -0.42% -1.25% -0.80% 0.68% 0.70% -1.09%
Avg -0.85% -1.42% 0.06% 0.33% 0.20% -1.68%
 
1990-2 2.78% 0.40% 1.13% -0.68% -1.02% 2.62%
1994-2 0.79% 0.11% 0.08% -0.49% -0.15% 0.34%
1998-2 0.74% 0.91% 1.00% 1.18% 0.44% 4.27%
2002-2 -2.95% 2.30% 0.87% 3.69% -0.03% 3.88%
2006-2 0.70% 1.01% 0.50% 0.26% -0.13% 2.33%
Avg 0.41% 0.95% 0.72% 0.79% -0.18% 2.69%
 
OTC summary for Presidential Year 2 1966 - 2006
Avg -0.18% -0.25% 0.43% 0.50% 0.08% 0.58%
Win% 55% 45% 73% 64% 45% 55%
 
OTC summary for all years 1963 - 2009
Avg -0.12% 0.13% -0.06% 0.02% 0.03% 0.00%
Win% 48% 53% 57% 55% 53% 55%
 
SPX Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1954-2 -0.21% 0.30% 0.18% -0.56% 0.03% -0.27%
1958-2 0.28% -0.21% 0.13% 0.02% -0.96% -0.73%
1962-2 1.38% -0.22% 1.18% -0.32% 0.32% 2.34%
1966-2 -0.70% 0.39% 0.83% -0.69% -0.66% -0.82%
 
1970-2 -0.16% 0.12% -0.66% 0.14% 0.98% 0.43%
1974-2 0.32% -1.97% -0.43% -0.40% -1.57% -4.05%
1978-2 -1.73% -0.69% 0.24% 1.08% 0.76% -0.34%
1982-2 -1.79% -1.17% 1.85% 0.30% -0.95% -1.77%
1986-2 -0.53% -2.64% 0.37% 1.85% 1.57% 0.62%
Avg -0.78% -1.27% 0.27% 0.59% 0.16% -1.02%
 
1990-2 1.83% -0.57% 0.86% -1.05% 0.03% 1.10%
1994-2 0.80% -0.22% 0.13% -0.44% -0.45% -0.19%
1998-2 0.91% 0.30% 0.46% 0.71% 0.95% 3.32%
2002-2 -2.07% 0.77% -0.05% 2.46% 0.61% 1.73%
2006-2 0.25% 0.64% 0.24% 0.23% 0.10% 1.46%
Avg 0.34% 0.18% 0.33% 0.38% 0.25% 1.48%
 
SPX summary for Presidential Year 2 1954 - 2006
Avg -0.10% -0.37% 0.38% 0.24% 0.05% 0.20%
Win% 50% 43% 79% 57% 64% 50%
 
SPX summary for all years 1953 - 2009
Avg -0.01% 0.02% -0.02% -0.08% 0.12% 0.04%
Win% 46% 47% 63% 49% 61% 53%


Money supply (M2)

The chart below was provided by Gordon Harms. Money supply growth fell off last week.

M2 Money Supply


Conclusion

Last weeks sell off appears to be no more than routine consolidation following a great run up. At this point, however, there is no evidence the sell off is complete.

I expect the major averages to be lower on Friday November 19 than they were on Friday November 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 his latest newsletter, Jerry Minton looks at the forces which will shape investments for the next ten years. You can read about it and sign up for his free newsletter at www.alphaim.net.

Thank you,

 

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