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Earning season has just begun,…

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Investors Bullish As Earnings Season Kicks Off

The first round of earnings…

Technical Market Report for July 7, 2012

The good news is:
• The NYSE advance - decline hit a new all time high for the first time since early May.


The negatives

The market is over bought.

The S&P 500 (SPX) had its best June since 1938 (up 6.6%).

The NASDAQ composite (OTC) was up 6.8% for its 3rd best June ever. The OTC was up 10.7% in 2000 followed by a 5.6% loss the following July and up 11.3% in 1999 followed by a 2.5% loss the following July.

The Russell 2000 (R2K) was up 8.3% in June, its best June ever by a good margin.

June was a little too much of a good thing.


The positives

The secondaries have been leading the way up and all of the breadth indicators have been strong.

The chart below covers the past 6 months showing 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 vertical lines have been drawn on the 1st 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 broke above 80% for a couple days last week before falling to a very strong 76%.

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 hit 94% on Friday.


Seasonality

Next week includes the 5 trading days prior to the 2nd Friday of July 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 2nd Friday of July 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 modestly positive by all measures.

Report for the week before the 2nd Friday of July.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday to 2nd Friday.

OTC Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1964-4 0.05% 0.15% 0.22% 0.20% 0.37% 0.98%
1968-4 -0.06% 0.19% 0.00% -0.20% -0.28% -0.35%
 
1972-4 -0.49% -0.29% -0.28% -0.83% 0.27% -1.62%
1976-4 0.00% -0.29% -0.02% 0.21% 0.76% 0.66%
1980-4 1.03% 0.32% 0.03% 0.94% 0.78% 3.10%
1984-4 0.11% -0.31% -0.61% -0.26% 0.19% -0.87%
1988-4 0.00% 0.36% -0.17% -0.01% -0.28% -0.09%
Avg 0.22% -0.04% -0.21% 0.01% 0.35% 0.24%
 
1992-4 0.43% 0.88% 0.05% 0.13% -0.98% 0.49%
1996-4 -0.83% 0.42% -1.06% -3.08% -0.25% -4.80%
2000-4 -1.07% -0.60% 3.62% 1.84% 1.71% 5.50%
2004-4 0.00% -2.15% 0.13% -1.56% 0.57% -3.01%
2008-4 -1.17% 0.13% 3.12% 1.20% -1.28% 2.00%
Avg -0.66% -0.27% 1.17% -0.30% -0.05% 0.04%
 
OTC summary for Presidential Year 4 1964 - 2008
Avg -0.22% -0.10% 0.46% -0.12% 0.13% 0.17%
Win% 44% 58% 55% 50% 58% 50%
 
OTC summary for all years 1963 - 2011
Avg 0.04% -0.11% 0.37% 0.32% 0.36% 0.96%
Win% 68% 51% 60% 67% 73% 67%
 
SPX Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1956-4 0.44% 0.60% 0.31% -0.23% 0.29% 1.41%
1960-4 0.00% -0.07% -0.14% 0.53% 0.24% 0.56%
1964-4 -0.06% -0.30% 0.34% 0.36% 0.44% 0.78%
1968-4 -0.08% -0.55% 0.00% -0.26% -0.97% -1.85%
 
1972-4 -0.53% -0.73% -0.40% -0.57% 0.49% -1.75%
1976-4 0.00% -0.55% 0.28% 0.14% 0.96% 0.84%
1980-4 1.84% -0.59% 0.28% 1.51% 0.49% 3.53%
1984-4 0.74% -0.31% -1.52% -0.35% 0.57% -0.88%
1988-4 0.00% 1.48% -1.37% -0.09% -0.65% -0.63%
Avg 0.68% -0.14% -0.55% 0.13% 0.37% 0.22%
 
1992-4 0.06% 0.68% -0.14% 0.11% -0.46% 0.24%
1996-4 -0.75% 0.34% 0.20% -1.59% 0.08% -1.71%
2000-4 -0.22% 0.36% 0.81% 0.19% 0.95% 2.09%
2004-4 0.00% -0.81% 0.19% -0.82% 0.33% -1.12%
2008-4 -0.90% -1.09% 2.51% 1.20% 0.03% 1.74%
Avg -0.45% -0.11% 0.71% -0.18% 0.19% 0.25%
 
SPX summary for Presidential Year 4 1956 - 2008
Avg 0.05% -0.11% 0.10% 0.01% 0.20% 0.23%
Win% 40% 36% 62% 50% 79% 57%
 
SPX summary for all years 1953 - 2011
Avg 0.01% -0.03% 0.27% 0.17% 0.25% 0.68%
Win% 59% 46% 59% 62% 66% 66%


Conclusion

The market is overbought and seasonally the 2nd and 3rd weeks of July have been weak.

I expect the major averages to be lower on Friday July 13 than they were on Friday July 6.

Last week the secondaries were up while the blue chips were down so I am calling last weeks positive forecast a tie.

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.

Gordon Harms produces a Power Point for our local timing group meetings. You can get a copy of that at: http://www.stockmarket-ta.com/

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 8 /L11/T 8

 

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