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Technical Market Report for March 2, 2013

The good news is:
• The Dow Jones Industrial Average closed at a multi year high on Friday.


The negatives

New index highs are a good thing, but, some are better than others.

New index highs with the secondaries leading the way up are the best, it indicates a robust market. Unfortunately that is not what we have been experiencing. The Dow Jones Industrial Average, the bluest of the blue chips, closed at a new multi year high Friday leaving the broader indices behind.

New highs, although still robust, have been declining.

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 continued to fall in spite of the rally last week.

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

NY NH has been weaker than OTC NH.


The positives

The mid February highs were widely confirmed implying marginal new highs in the near future. Without some strengthening of the breadth indicators, those coming new highs are likely to be the last we see for a while.

New lows picked up a bit last week, but remain at unthreatening levels.

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 horizontal lines have been drawn at 10% levels for the indicator; the line is solid at the neutral 50% level.

OTC HL Ratio dropped and recovered to, a still very high, 78% last week.

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

NY HL Ratio also declined and recovered last week and remains very high at 82%.


Seasonality

Next week includes the 5 trading days prior to the 2nd Friday of March during the 1st 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 March during the 1st year of the Presidential Cycle.

OTC data covers the period from 1963 - 2012 and SPX data covers the period from 1953 - 2012. 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 have been positive by most measures thanks to huge gains in 2009.

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

OTC Presidential Year 1
Year Mon Tue Wed Thur Fri Totals
1965-1 -0.37% 0.10% -0.04% 0.17% 0.33% 0.19%
1969-1 0.44% 0.42% 0.73% 2.12% -2.07% 1.64%
 
1973-1 0.37% 1.13% 0.30% -0.14% -0.10% 1.56%
1977-1 0.10% 0.06% -0.50% 0.20% 0.14% 0.00%
1981-1 0.13% -0.55% -0.44% 1.27% 0.75% 1.15%
1985-1 -0.03% 0.01% -0.57% -0.79% -0.29% -1.68%
1989-1 0.56% -0.02% 0.05% -0.18% 0.06% 0.47%
Avg 0.22% 0.13% -0.23% 0.07% 0.11% 0.30%
 
1993-1 0.86% 0.25% 0.57% 0.20% -0.22% 1.67%
1997-1 0.78% -0.39% -0.96% -0.83% -0.02% -1.43%
2001-1 1.19% 2.87% 0.88% -2.48% -5.34% -2.88%
2005-1 0.95% -0.80% -0.59% -0.08% -0.88% -1.40%
2009-1 -1.95% 7.07% 0.98% 3.97% 0.38% 10.45%
Avg 0.37% 1.80% 0.18% 0.16% -1.22% 1.28%
 
OTC summary for Presidential Year 1 1965 - 2009
Avg 0.25% 0.85% 0.03% 0.29% -0.61% 0.81%
Win% 75% 67% 50% 50% 42% 67%
 
OTC summary for all years 1963 - 2012
Avg -0.07% 0.39% 0.02% 0.34% -0.08% 0.60%
Win% 46% 59% 62% 66% 52% 70%
 
SPX Presidential Year 1
Year Mon Tue Wed Thur Fri Totals
1953-1 -0.04% 0.31% 0.81% 0.04% 0.19% 1.31%
1957-1 0.73% 0.36% 0.25% -0.27% -0.32% 0.76%
1961-1 0.16% -0.91% -0.05% 0.09% -0.03% -0.73%
1965-1 0.03% -0.16% -0.17% 0.42% 0.36% 0.47%
1969-1 0.34% 0.33% -0.27% -0.67% -0.40% -0.66%
Avg 0.25% -0.01% 0.11% -0.08% -0.04% 0.23%
 
1973-1 0.36% 1.26% 0.31% -0.19% -0.39% 1.35%
1977-1 0.05% -0.38% -0.76% 0.57% -0.02% -0.54%
1981-1 0.98% -0.50% -0.39% 2.49% -0.06% 2.52%
1985-1 -0.64% 0.09% -0.87% -0.63% -0.23% -2.27%
1989-1 1.25% -0.32% 0.07% -0.05% -0.36% 0.59%
Avg 0.40% 0.03% -0.33% 0.44% -0.21% 0.33%
 
1993-1 1.93% -0.07% 0.42% -0.57% -0.86% 0.86%
1997-1 1.08% -0.28% -0.87% -1.83% 0.46% -1.45%
2001-1 0.59% 1.00% 0.65% 0.23% -2.48% -0.02%
2005-1 0.26% -0.48% -1.02% 0.19% -0.76% -1.81%
2009-1 -1.00% 6.37% 0.24% 4.07% 0.77% 10.46%
Avg 0.57% 1.31% -0.12% 0.42% -0.57% 1.61%
 
SPX summary for Presidential Year 1 1953 - 2009
Avg 0.40% 0.44% -0.11% 0.26% -0.27% 0.72%
Win% 80% 47% 47% 53% 27% 53%
 
SPX summary for all years 1953 - 2012
Avg -0.06% 0.24% 0.06% 0.18% -0.05% 0.38%
Win% 51% 57% 55% 61% 46% 60%


Money supply (M2)

The money supply chart was provided by Gordon Harms. Money supply growth has been declining slightly.

M2


Conclusion

The market has been in a pattern of a developing top, which may only be seasonal weakness, but, is worth watching closely. Recently the signs have not been good.

I expect the major averages to be lower on Friday March 8 than they were on Friday March 1.

Last week the blue chips were up while the secondaries 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.

Good Luck,

YTD W 5/L 0/T 4

 

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