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Technical Market Report for January 12, 2013

The good news is:
• Most of the major indices closed at or very near multi year highs on Friday.


The negatives

Volume could be better.


The positives

By any standard but volume, this looks like a raging bull market.

Breadth by any measure but volume is strong and the secondaries are outperforming the blue chips.

The chart below covers the past 6 months showing the OTC in blue and a 40% trend (4 day EMA) of NASDAQ new highs / (new highs + new lows) (OTC HL Ratio) in red. Dashed vertical lines have been drawn on the 1st trading day of each month and dashed horizontal lines have been drawn at 10% levels for the indicator; the line is solid at the neutral 50% level.

OTC HL Ratio finished the week at 93%, its highest level since last February. There are trading systems that impose a no sell filter when variations of this indicator are above 80%.

OTC HL Ratio Chart

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

NY HL Ratio finished the week at an extremely strong 98%.

NY HL Ratio Chart


Seasonality

Next week includes the 5 trading days prior to the 3rd Friday in January during the 1st year of the Presidential Cycle. It is also the week prior to the Martin Luther King holiday.

The tables below show the daily return on a percentage basis for the 5 trading days prior to the 3rd Friday in January during the 1st 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 1st 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 OTC have been positive while average returns for the SPX have been modestly negative. Average returns for the week prior to the Martin Luther King holiday have been strong by all measures.

Report for the week before the 3rd Friday of January.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday through 3rd Friday.

OTC Presidential Year 1
Year Mon Tue Wed Thur Fri Totals
1965-1 0.26% 0.20% 0.09% 0.09% 0.07% 0.70%
1969-1 -0.76% -0.74% -0.16% 0.65% 1.11% 0.10%
 
1973-1 -0.61% -1.04% -0.42% 0.03% -0.15% -2.19%
1977-1 -0.06% -0.01% 0.43% -0.48% 0.25% 0.13%
1981-1 0.39% -0.20% 0.52% 0.39% 0.64% 1.75%
1985-1 1.28% 0.93% 0.95% 0.35% 0.72% 4.25%
1989-1 0.07% -0.34% 0.73% 0.57% 0.15% 1.18%
Avg 0.22% -0.13% 0.44% 0.17% 0.32% 1.02%
 
1993-1 0.14% -0.19% 0.09% 0.48% 0.12% 0.64%
1997-1 -0.08% 1.11% -0.89% 0.51% 0.64% 1.29%
2001-1 0.00% -0.30% 2.45% 3.19% 0.07% 5.41%
2005-1 0.00% 0.87% -1.54% -1.34% -0.57% -2.58%
2009-1 -2.09% 0.50% -3.67% 1.49% 1.16% -2.62%
Avg -0.68% 0.40% -0.71% 0.87% 0.28% 0.43%
 
OTC summary for Presidential Year 1 1965 - 2009
Avg -0.14% 0.07% -0.12% 0.49% 0.35% 0.67%
Win% 50% 42% 58% 83% 83% 75%
 
OTC summary for all years 1963 - 2012
Avg 0.03% 0.24% 0.03% 0.25% -0.01% 0.53%
Win% 63% 62% 58% 66% 58% 68%
 
SPX Presidential Year 1
Year Mon Tue Wed Thur Fri Totals
1953-1 -0.84% 0.62% 0.23% 0.19% -0.42% -0.22%
1957-1 -0.69% -1.48% 0.11% -0.02% -1.28% -3.37%
1961-1 -0.03% -0.40% 0.57% 0.15% 0.32% 0.61%
1965-1 0.32% 0.16% -0.03% -0.09% 0.25% 0.61%
1969-1 -0.53% 0.73% 0.48% 0.55% -0.15% 1.09%
Avg -0.35% -0.08% 0.27% 0.16% -0.26% -0.26%
 
1973-1 -0.72% -0.25% 0.46% 0.14% -0.06% -0.43%
1977-1 -0.27% -0.40% 0.51% -0.85% 0.34% -0.66%
1981-1 0.03% -0.17% 0.14% 0.64% 0.34% 0.96%
1985-1 1.55% 0.18% 0.22% -0.27% 0.35% 2.02%
1989-1 0.10% -0.21% 1.05% 0.13% -0.09% 0.97%
Avg 0.14% -0.17% 0.48% -0.04% 0.17% 0.57%
 
1993-1 -0.07% -0.39% -0.40% 0.49% 0.14% -0.24%
1997-1 0.00% 1.23% -0.22% 0.33% 0.83% 2.18%
2001-1 0.00% 0.63% 0.21% 1.39% -0.40% 1.83%
2005-1 0.00% 0.97% -0.95% -0.78% -0.64% -1.40%
2009-1 -2.26% 0.18% -3.35% 0.13% 0.76% -4.54%
Avg -0.77% 0.52% -0.94% 0.31% 0.14% -0.43%
 
SPX summary for Presidential Year 1 1953 - 2009
Avg -0.26% 0.09% -0.06% 0.14% 0.02% -0.04%
Win% 38% 53% 67% 67% 53% 53%
 
SPX summary for all years 1953 - 2012
Avg -0.05% 0.11% -0.05% 0.05% -0.11% -0.06%
Win% 46% 60% 53% 59% 53% 50%


Conclusion

The market is overbought, but the breadth indicators are strong and seasonality is modestly positive.

I expect the major averages to be higher on Friday January 18 than they were on Friday January 11.

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.

Good Luck,

YTD W 2 /L 0/T 0

 

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