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Technical Market Report for January 7, 2012

The good news is:
• The market got off to a good start for the year, all of the major averages were strong.


The negatives

Volume has been weak, but that is partly seasonal.

The secondaries have been underperforming the blue chips.

Equity new highs have left a lot to be desired, but there have been no new lows either.

The chart below covers the past 6 months 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 has been trending slowly, but unexcitedly upward.

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

NY NH looks a lot better than OTC NH, unfortunately most of the issues hitting new highs on the NYSE are fixed income related.

The next chart shows the NYSE composite (!NYA) in red and NH, in green, has been calculated from NYSE equity only issues over the trailing 15 trading days.

The patterns change dramatically when fixed income issues are removed.


The positives

Nothing exciting on the positive side either, a lack of new lows is about it.

The chart below covers the past year showing the SPX in red and a 40% trend (4 day EMA) of NYSE new highs divided by new highs + new lows (NY HL Ratio) in dark blue. Dashed horizontal lines have been drawn at 10% levels of the indicator; the line is solid at the neutral 50% level.

At a current value of 88% NY HL Ratio is strong.

The next chart is similar to the one above except is shows the OTC in blue and OTC HL Ratio, in red, has been calculated from NASDAQ data.

OTC HL Ratio finally went positive for the 1st time since October.


Seasonality

Next week includes the 5 trading days prior to the 2nd Friday of January during the 4th year of the Presidential Cycle.

The tables below show the return on a percentage basis for the 5 trading days prior to the 2nd Friday of January during the 4th year of the Presidential Cycle.

NASDAQ composite (OTC) data covers the period from 1963 - 2010 and SPX data covers the period from 1953 - 2010. There are summaries for both the 4th 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.

Historically, in the coming week, the secondaries have been much stronger than the blue chips. The opposite of what we have bee seeing recently.

Report for the week before the 2nd Friday of January.
The number following the year is the position in the presidential cycle.
Daily returns from Monday to 2nd Friday.

OTD Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1964-4 0.14% 0.41% 0.38% 0.19% 0.14% 1.26%
1968-4 0.80% -0.06% -0.20% 0.29% 0.38% 1.22%
 
1972-4 0.04% 0.47% 0.22% -0.41% 0.27% 0.60%
1976-4 0.90% 1.92% 0.90% 0.81% 0.81% 5.33%
1980-4 0.41% 1.39% 0.61% 1.00% 0.49% 3.89%
1984-4 -0.22% 0.13% 0.02% -0.02% -0.27% -0.36%
1988-4 -0.67% -1.26% 0.21% 0.47% 1.77% 0.52%
Avg 0.09% 0.53% 0.39% 0.37% 0.61% 2.00%
 
1992-4 0.89% 0.73% 1.33% 1.55% -0.66% 3.85%
1996-4 -0.11% -3.25% -0.86% 2.13% -0.31% -2.40%
2000-4 4.30% -3.17% -1.82% 2.78% 2.71% 4.81%
2004-4 2.03% 0.49% 0.99% 1.09% -0.63% 3.95%
2008-4 -0.21% -2.36% 1.39% 0.56% -1.95% -2.56%
Avg 1.38% -1.51% 0.21% 1.62% -0.17% 1.53%
 
OTC summary for Presidential Year 4 1964 - 2008
Avg 0.69% -0.38% 0.27% 0.87% 0.23% 1.68%
Win% 67% 58% 75% 83% 58% 75%
 
OTC summary for all years 1963 - 2011
Avg 0.39% -0.11% -0.05% 0.48% 0.20% 0.91%
Win% 67% 53% 49% 73% 69% 63%
 
SPX Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1956-4 -1.40% -0.79% 0.50% 0.83% -0.18% -1.03%
1960-4 -1.23% -0.61% -0.56% 0.55% -0.03% -1.89%
1964-4 0.23% 0.03% 0.41% 0.37% -0.05% 0.98%
1968-4 0.71% -0.12% 0.02% 0.10% 0.10% 0.81%
 
1972-4 -0.14% 0.32% -0.06% -0.58% 0.39% -0.07%
1976-4 1.85% 1.03% 0.45% 0.67% 0.39% 4.39%
1980-4 0.27% 2.00% 0.09% 0.77% 0.03% 3.17%
1984-4 -0.22% -0.56% -0.10% -0.02% -0.44% -1.34%
1988-4 1.68% -0.84% 0.16% 0.03% 2.51% 3.54%
Avg 0.69% 0.39% 0.11% 0.17% 0.58% 1.94%
 
1992-4 -0.33% -0.13% 0.17% -0.12% -0.60% -1.01%
1996-4 0.28% -1.46% -1.80% 0.70% -0.15% -2.42%
2000-4 1.12% -1.30% -0.44% 1.21% 1.07% 1.66%
2004-4 1.24% 0.13% 0.24% 0.50% -0.89% 1.21%
2008-4 0.32% -1.84% 1.36% 0.79% -1.36% -0.72%
Avg 0.53% -0.92% -0.09% 0.62% -0.39% -0.25%
 
SPX summary for Presidential Year 4 1956 - 2008
Avg 0.31% -0.30% 0.03% 0.42% 0.06% 0.52%
Win% 64% 36% 64% 79% 43% 50%
 
SPX summary for all years 1953 - 2011
Avg 0.12% -0.20% -0.25% 0.25% 0.05% -0.02%
Win% 58% 40% 42% 71% 54% 51%


Money supply (M2)

The money supply chart was provided by Gordon Harms. M2 growth continued to level off last week.

M2


Conclusion

The indicators do not reveal much enthusiasm, but seasonally next week has been pretty strong.

I expect the major averages to be higher on Friday January 13 than they were on Friday January 6.

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 (The Big Skew) Jerry Minton looks at the uneven history of equity markets over time. To read it and subscribe to his free newsletter go to http://www.alphaim.net/.

Good Luck,

YTD W 0 /L 1 /T 0

 

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