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Technical Market Report for July 16, 2011

The good news is:
• New lows have not reached threatening levels.


The negatives

All of the breadth indicators deteriorated last week revealing a down trend that began last February.

The charts all cover the past year with a dashed vertical line on the 1st trading day of month.

The 1st chart shows the S&P 500 (SPX) in red and a 10% trend (19 day EMA) of NYSE new highs (NY NH) in green.

NY NH peaked in early November then again in late February and has been trending sharply downward since early May.

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

OTC NH peaked in mid January and has been in a down trend since then.

The next chart shows the SPX in red and a 10% trend of NYSE new lows (NY NL) in blue. NY NL has been plotted on an inverted Y axis so decreasing new lows move the indicator upward (up is good).

NY NL has been trending downward since early May. OTC NL has not turned downward.

Advance - decline lines (ADL) are running totals of daily declining issues subtracted from advancing issues. Their characteristics vary and sometimes change.

The chart below shows the OTC in blue and an ADL calculated from NASDAQ data (OTC ADL) in green.

OTC ADL peaked in February and has been in a well defined down trend since early May. NYSE ADL hit an all time high in early July.

The sharp rally from late June through early July appears to have been a blow off.


The positives

New highs deteriorated last week, but were greater than new lows every day.

The chart below shows the OTC in blue and a 40% trend (4 day EMA) of NASDAQ new highs divided by (new highs + new lows) (OTC HL Ratio) in red. Dashed horizontal lines have been drawn at 10% levels for the indicator; the line is solid at the neutral, 50% level.

OTC HL Ratio fell, but, at 62% is still above the neutral level.

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

NY HL Ratio fell sharply last week, but at 59% is still above neutral.


Seasonality

Next week includes the 5 trading days prior to the 4th Friday in July during the 3rd year of the Presidential Cycle.

The tables below show the return on a percentage basis for the 5 trading days prior to the 4th Friday of July during the 3rd year of the Presidential Cycle. OTC data covers the period from 1963 - 2010 and SPX data covers the period from 1953 - 2010. There are summaries for both the 3rd 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 over all periods have been modestly negative for the OTC and modestly positive for the SPX.

Report for the week before the 4th Friday of July.
The number following the year is the position in the presidential cycle.
Daily returns from Monday through the 4th Friday.

OTC Presidential Year 3
Year Mon Tue Wed Thur Fri Totals
1963-3 -0.27% 0.30% -0.39% 0.99% -0.36% 0.28%
1967-3 0.21% -0.33% -0.06% 0.37% 0.76% 0.95%
 
1971-3 -0.55% 0.38% -0.05% -0.18% 0.08% -0.32%
1975-3 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
1979-3 -0.30% 0.33% 0.69% 0.40% 0.36% 1.47%
1983-3 -0.82% 0.28% 1.80% 0.80% -2.69% -0.63%
1987-3 -0.06% 0.26% 0.29% 0.55% 0.31% 1.35%
Avg -0.43% 0.31% 0.68% 0.39% -0.48% 0.47%
 
1991-3 -0.51% -1.08% -0.46% 0.59% 0.49% -0.97%
1995-3 1.75% 1.55% 0.65% 1.05% -0.53% 4.46%
1999-3 -1.19% -3.47% 1.08% -2.80% 0.30% -6.08%
2003-3 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
2007-3 0.11% -1.89% 0.31% -1.84% -1.43% -4.73%
Avg 0.04% -1.22% 0.40% -0.75% -0.29% -1.83%
 
OTC summary for Presidential Year 3 1963 - 2007
Avg -0.16% -0.37% 0.39% -0.01% -0.27% -0.42%
Win% 30% 60% 60% 70% 60% 50%
 
OTC summary for all years 1963 - 2010
Avg -0.31% -0.16% 0.14% 0.04% -0.10% -0.39%
Win% 43% 58% 55% 63% 60% 50%
 
SPX Presidential Year 3
Year Mon Tue Wed Thur Fri Totals
1955-3 -0.09% -0.61% 0.31% 0.97% 0.84% 1.42%
1959-3 0.62% 0.50% 0.50% -0.20% 0.02% 1.44%
1963-3 -0.66% 0.01% 0.54% -0.03% 0.41% 0.28%
1967-3 -0.33% 0.01% 0.34% 0.31% 0.15% 0.48%
 
1971-3 -0.18% 0.39% -0.04% -0.17% -0.17% -0.17%
1975-3 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
1979-3 -0.23% 0.37% 1.09% 0.02% 0.00% 1.26%
1983-3 -0.21% 0.54% 2.71% -0.14% -0.10% 2.80%
1987-3 0.45% 0.54% 1.06% 0.76% 0.19% 3.00%
Avg -0.04% 0.46% 1.20% 0.12% -0.03% 1.72%
 
1991-3 -0.35% -0.90% -0.21% 0.61% -0.01% -0.85%
1995-3 0.54% 0.80% 0.09% 0.64% -0.41% 1.68%
1999-3 -0.78% -2.17% 0.16% -1.33% -0.29% -4.42%
2003-3 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
2007-3 0.49% -1.98% 0.47% -2.33% -1.60% -4.96%
Avg -0.03% -1.06% 0.13% -0.60% -0.58% -2.14%
 
SPX summary for Presidential Year 3 1955 - 2007
Avg -0.06% -0.21% 0.59% -0.07% -0.09% 0.16%
Win% 33% 67% 83% 50% 45% 67%
 
SPX summary for all years 1953 - 2010
Avg -0.16% -0.15% 0.33% 0.14% -0.05% 0.11%
Win% 33% 53% 63% 63% 60% 55%


Money supply (M2)

The money supply chart was provided by Gordon Harms. Gordon sent me a note saying he was surprised by the recent explosive growth in M2. He checked the data and found it to be correct.

M2 Money Supply


Conclusion

Most of the breadth indicators turned sharply downward last week suggesting the late June - early July rally was a blow off. Seasonality for the remainder of July is negative.

I expect the major averages to be lower on Friday July 22 that they were on Friday July 15.

Last weeks positive forecast based on my misreading of seasonality 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 looks at "The Dead Zone", calendar periods that claim 80% of the markets declines. You can sign up for his free newsletter at: http://alphaim.net

Thank you,

 

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