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Is The Bull Market On Its Last Legs?

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Technical Market Report for March 23, 2013

The good news is:
• In a week when the market was essentially flat, new lows declined slightly.


The negatives

Negatives are hard to find.

New highs declined last week, but, that is not surprising in a week that was modestly down for the indices.

The chart below covers the past 6 months showing the NASDAQ composite 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 fell a little last week and has been flattening out for the past month.

OTC New Highs Chart

The next chart 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 a little weaker than OTC NH. NY NH has been flattening out for about 2 months.

NYSE New Highs Chart


The positives

New lows declined slightly in the past week suggesting the current weakness is just a pause in an up market.

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 held up well, ending the week at 88%.

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 SPX in red and NY HL Ratio, in blue, has been calculated from NYSE data.

NY HL Ratio rose a bit to a very strong 93%.

NYSE HL Ratio Chart


Seasonality

Next week includes the last 5 trading days of March during the 1st year of the Presidential Cycle.

The tables below show the daily return on a percentage basis for the last 5 trading days 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 1928 - 2012. There are summaries for both the 1st year of the Presidential Cycle and all years combined.

Average returns have been modestly negative while the percentage of winners has, in every case, been over 50%.

Report for the last 5 days of March.
The number following the year represents its position in the Presidential Cycle.
The number following the daily return represents the day of the week;
1 = Monday, 2 = Tuesday etc.

OTC Presidential Year 1
  Day5 Day4 Day3 Day2 Day1 Totals
1965-1 0.08% 4 -0.14% 5 -0.33% 1 -0.02% 2 0.10% 3 -0.31%
1969-1 0.06% 1 -0.10% 2 -0.29% 3 0.15% 4 0.34% 5 0.16%
 
1973-1 0.06% 1 1.17% 2 0.21% 3 0.90% 4 -0.62% 5 1.72%
1977-1 -0.27% 5 -0.45% 1 0.07% 2 -0.73% 3 -0.11% 4 -1.48%
1981-1 0.78% 3 0.11% 4 -0.34% 5 0.07% 1 0.58% 2 1.19%
1985-1 -0.95% 1 -0.03% 2 0.50% 3 0.22% 4 0.37% 5 0.11%
1989-1 -0.09% 1 0.51% 2 0.27% 3 0.21% 4 0.54% 5 1.44%
Avg -0.10% 0.26% 0.14% 0.13% 0.15% 0.60%
 
1993-1 0.99% 4 0.08% 5 -0.11% 1 0.81% 2 0.57% 3 2.32%
1997-1 -0.92% 1 0.44% 2 1.68% 3 -1.54% 4 -2.22% 1 -2.56%
2001-1 -0.53% 1 2.80% 2 -5.99% 3 -1.81% 4 1.08% 5 -4.44%
2005-1 0.04% 4 0.07% 1 -0.94% 2 1.61% 3 -0.32% 4 0.47%
2009-1 0.82% 3 3.80% 4 -2.63% 5 -2.81% 1 1.78% 2 0.96%
Avg 0.08% 1.44% -1.60% -0.75% 0.18% -0.65%
 
OTC summary for Presidential Year 1 1965 - 2009
Averages 0.01% 0.69% -0.66% -0.25% 0.17% -0.04%
% Winners 58% 67% 42% 58% 67% 67%
MDD 3/29/2001 7.69% -- 3/30/2009 5.37% -- 3/31/1997 3.73%
 
OTC summary for all years 1963 - 2012
Averages 0.12% 0.02% -0.20% -0.09% 0.15% -0.01%
% Winners 54% 48% 56% 56% 63% 56%
MDD 3/30/2000 10.18% -- 3/27/1980 7.82% -- 3/29/2001 7.69%
 
SPX Presidential Year 1
  Day5 Day4 Day3 Day2 Day1 Totals
1929-1 -1.33% 6 -2.78% 1 -0.65% 2 3.04% 3 1.75% 4 0.03%
 
1933-1 -2.09% 1 1.97% 2 -2.25% 3 -0.33% 4 -3.31% 5 -6.01%
1937-1 -0.11% 4 0.40% 6 -0.68% 1 1.82% 2 -0.17% 3 1.25%
1941-1 -0.30% 3 0.81% 4 -0.70% 5 -0.20% 6 0.40% 1 0.01%
1945-1 -1.69% 1 0.60% 2 0.82% 3 0.22% 4 0.22% 6 0.17%
1949-1 0.00% 6 0.27% 1 1.94% 2 -0.07% 3 -0.99% 4 1.16%
Avg -0.84% 0.81% -0.17% 0.29% -0.77% -0.68%
 
1953-1 -0.27% 3 -0.57% 4 0.15% 5 -1.46% 1 -1.25% 2 -3.40%
1957-1 -0.41% 1 0.07% 2 0.41% 3 0.20% 4 -0.16% 5 0.12%
1961-1 -0.17% 5 -0.11% 1 0.05% 2 0.85% 3 0.20% 4 0.82%
1965-1 -0.29% 4 -0.74% 5 -0.20% 1 0.20% 2 -0.05% 3 -1.07%
1969-1 -0.13% 1 0.16% 2 0.73% 3 0.71% 4 0.41% 5 1.88%
Avg -0.25% -0.24% 0.23% 0.10% -0.17% -0.33%
 
1973-1 0.88% 1 1.57% 2 0.05% 3 0.98% 4 -1.06% 5 2.42%
1977-1 -0.64% 5 -0.06% 1 0.70% 2 -1.15% 3 -0.12% 4 -1.28%
1981-1 1.81% 3 -0.61% 4 -1.19% 5 -0.27% 1 1.28% 2 1.02%
1985-1 -0.60% 1 0.26% 2 0.62% 3 0.00% 4 0.62% 5 0.91%
1989-1 0.55% 1 0.35% 2 0.26% 3 0.06% 4 0.80% 5 2.02%
Avg 0.40% 0.30% 0.09% -0.08% 0.31% 1.02%
 
1993-1 0.63% 4 -0.69% 5 0.67% 1 0.27% 2 -0.07% 3 0.81%
1997-1 0.86% 1 -0.23% 2 0.18% 3 -2.10% 4 -2.17% 1 -3.45%
2001-1 1.13% 1 2.56% 2 -2.44% 3 -0.46% 4 1.08% 5 1.86%
2005-1 -0.09% 4 0.24% 1 -0.76% 2 1.38% 3 -0.07% 4 0.70%
2009-1 5.18% 3 2.33% 4 -2.03% 5 -3.48% 1 1.31% 2 3.31%
Avg 1.54% 0.84% -0.88% -0.88% 0.02% 0.64%
 
SPX summary for Presidential Year 1 1929 - 2009
Averages 0.14% 0.28% -0.21% 0.01% -0.06% 0.16%
% Winners 33% 62% 57% 52% 48% 76%
MDD 3/31/1933 5.95% -- 3/30/2009 5.44% -- 3/26/1929 4.70%
 
SPX summary for all years 1928 - 2012
Averages -0.01% -0.01% -0.06% -0.04% -0.14% -0.27%
% Winners 37% 48% 52% 45% 43% 52%
MDD 3/31/1938 9.09% -- 3/31/1939 8.80% -- 3/31/1932 7.00%


Money supply (M2)

The money supply chart was provided by Gordon Harms. Money supply growth appears to be collapsing.

M2 Money Supply Graph


Conclusion

The market paused last week without sustaining any significant technical damage. The pause could last a little longer, but new index highs are likely in the near future.

I expect the major averages to be higher on Friday March 29 than they were on Friday March 22.

Last weeks positive 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, after heaping some well deserved abuse on the FOMC, goes on to discuss broad seasonal patterns in the market. You can sign up at: http://www.alphaim.net/

Good Luck,

YTD W 5/L 3/T 4

 

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