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Market Sentiment At Its Lowest In 10 Months

Market Sentiment At Its Lowest In 10 Months

Stocks sold off last week…

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Technical Market Report for June 16, 2012

The good news is:
• It looks like a short term bottom is in place.

New lows held at relatively low levels last week while new highs increased slightly, which is good. However, the secondaries continued to under perform the blue chips, which is bad.


The negatives

The chart below covers the past 6 months showing the NASDAQ composite (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 vertical lines have been drawn on the first trading day of each month. Dashed horizontal lines have been drawn at 10% levels of the indicator; the line is solid at the neutral 50% level.

OTC HL Ratio is below the neutral level and lower than it was about a week ago when the index was slightly below its current level.

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

NY HL Ratio is tracing out a similar pattern, but a little higher.

The next chart is from FastTrack (fasttrack.net). It covers the past 6 months showing the SPX in green, the Russell 2000 (R2K) in red and a relative strength indicator called Accutrack as a histogram in yellow.

Accutrack shows the R2K underperforming the SPX, not the stuff of a strong market.


The positives

New lows continued declining last week

The chart below covers the past 6 months showing the OTC in blue and a 10% trend (19 day EMA) of NASDAQ new lows (OTC NL) in orange. OTC NL has been plotted on an inverted Y axis so decreasing new lows move the indicator upward (up is good).

OTC NL made a higher low near the beginning of the month when prices made a lower low (non confirmation) and has continued upward. This suggests risk going forward is limited.

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

NY NL has also been moving sharply upward.


Seasonality

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

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

OTC data covers the period from 1963 - 2011 and SPX data covers the period from 1953 - 2011. 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.

Average returns for the coming week have been mixed, down slightly over all years and up slightly during the 4th year of the Presidential Cycle.

Report for the week before the 4th Friday of June.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday through the 4th Friday.

OTC Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1964-4 0.33% 0.05% -0.13% 0.38% 0.28% 0.91%
1968-4 0.19% 0.39% 0.00% -0.33% -0.22% 0.03%
 
1972-4 -0.40% 0.24% 0.24% -0.45% -0.44% -0.81%
1976-4 0.11% -0.68% -0.39% 0.68% 0.28% 0.01%
1980-4 0.31% 0.43% 0.69% 0.16% 0.11% 1.70%
1984-4 0.50% 0.44% 0.20% 0.59% 0.57% 2.30%
1988-4 -0.24% 0.46% 0.72% 0.13% 0.15% 1.21%
Avg 0.06% 0.18% 0.29% 0.22% 0.13% 0.88%
 
1992-4 -0.81% 0.66% -0.36% -0.58% -0.07% -1.15%
1996-4 0.64% -0.87% -1.65% 1.10% 1.63% 0.85%
2000-4 3.35% 0.59% 1.26% -3.13% -2.32% -0.26%
2004-4 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
2008-4 -0.85% -0.73% 1.39% -3.33% -0.25% -3.76%
Avg 0.58% -0.09% 0.16% -1.48% -0.25% -1.08%
 
OTC summary for Presidential Year 4 1964 - 2008
Avg 0.28% 0.09% 0.20% -0.43% -0.03% 0.09%
Win% 64% 73% 60% 55% 55% 64%
 
OTC summary for all years 1963 - 2011
Avg -0.17% 0.04% 0.10% -0.06% -0.12% -0.22%
Win% 40% 60% 51% 60% 52% 50%
 
SPX Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1956-4 -0.43% 0.11% 0.41% 0.69% -0.30% 0.48%
1960-4 -0.49% -0.09% 0.30% 0.54% 0.16% 0.42%
1964-4 0.27% -0.42% 0.36% 0.19% 0.31% 0.70%
1968-4 -0.27% -0.31% 0.00% -0.10% -0.40% -1.08%
 
1972-4 -0.23% 0.42% 0.21% -0.10% -0.38% -0.08%
1976-4 0.50% -0.78% -0.21% 0.52% -0.07% -0.03%
1980-4 0.39% 0.55% 1.37% -0.45% -0.16% 1.70%
1984-4 1.81% 0.58% 1.46% -0.21% -0.03% 3.61%
1988-4 -0.64% 1.02% 1.47% -0.30% -0.38% 1.16%
Avg 0.37% 0.36% 0.86% -0.11% -0.20% 1.27%
 
1992-4 -0.07% 0.16% -0.05% -0.18% 0.08% -0.05%
1996-4 0.30% -0.05% -0.61% 0.63% 0.31% 0.57%
2000-4 1.47% -0.67% 0.21% -1.82% -0.74% -1.55%
2004-4 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
2008-4 0.01% -0.28% 0.58% -2.94% -0.37% -3.00%
Avg 0.43% -0.21% 0.03% -1.08% -0.18% -1.01%
 
SPX summary for Presidential Year 4 1956 - 2008
Avg 0.20% 0.02% 0.46% -0.27% -0.15% 0.22%
Win% 54% 46% 75% 38% 31% 54%
 
SPX summary for all years 1953 - 2011
Avg -0.21% 0.13% 0.04% -0.06% -0.16% -0.24%
Win% 39% 55% 53% 52% 43% 52%


Money supply (M2)

The money supply chart was provided by Gordon Harms. M2 growth fell last week.

M2


Conclusion

Most of the indicators are moving upward suggesting the low earlier this month was a bottom.

I expect the major averages to be higher on Friday June 22 than they were on Friday June 15.

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, Jerry Minton introduces the soon to be released "Alpha Seasonal Index". You can get his bi-weekly letter free by subscribing at the home page at www.alphaim.net.

Good Luck,

YTD W 7 /L11/T 6

 

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