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Technical Market Report for May 18, 2013

The good news is:
• All of the major indices closed at multi year or all time highs again on Friday.


The negatives

The market is still over bought.

The chart below covers the past 6 months showing the major indices on log scales so you can see their relative performance. Dashed vertical lines has been drawn on the 1st trading day of each month.

All of the indices shown are at highs for the period shown. The secondaries, represented by the Russell 2000 (R2K) have been leading while the blue chips represented by the Dow Jones Industrial Average (DJIA) have been the laggard. That kind of stratification is a positive.

The next chart is similar to the one above except it covers the last month. The problem is the annualized rate of increase has increased from 32% - 39% to 49% to 71% which is unsustainable. The desirable stratification has shifted a little, but the blue chips are still the laggards which is good.


The positives

New highs were strong last week while new lows remained insignificant.

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 / (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 increased a little to a very strong 92% Friday. 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 S&P 500 (SPX) in red and NY HL Ratio, in blue, has been calculated from NYSE data.

NY HL Ratio actually fell a little last week and closed at, a very strong 94%.

NYSE HL Ratio Chart


Seasonality

Next week includes the 5 trading days prior Memorial Day during the 1st year of the Presidential Cycle. Until 1971, Memorial Day was observed on May 30. The Uniform Monday Holiday Act of 1968 changed that to the last Monday in May beginning in 1971 so the data shown in the tables below all begins in 1971.

The tables below show the daily return on a percentage basis for the 5 trading days prior Memorial Day during the 1st year of the Presidential Cycle.

All of the data covers the period from 1971 - 2012. There are summaries for both the 1st year of the Presidential Cycle and all years combined.

The coming week has been strong by all measures. The OTC has not been down, during the 1st year of the Presidential Cycle since 1977.

Report for the 5 trading days before Memorial Day.
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
1973-1 -2.07% 1 0.82% 2 0.49% 3 2.14% 4 0.86% 5 2.24%
1977-1 -0.87% 1 -0.50% 2 -0.50% 3 -0.01% 4 -0.28% 5 -2.16%
1981-1 0.20% 1 -0.38% 2 0.70% 3 0.33% 4 0.40% 5 1.25%
1985-1 0.95% 1 -0.18% 2 -0.31% 3 -0.30% 4 0.00% 5 0.16%
1989-1 -0.06% 1 -0.37% 2 0.30% 3 0.32% 4 0.52% 5 0.72%
Avg -0.37% -0.12% 0.14% 0.49% 0.30% 0.44%
 
1993-1 0.06% 1 0.05% 2 1.30% 3 0.07% 4 -0.58% 5 0.90%
1997-1 0.04% 1 1.69% 2 0.73% 3 -0.09% 4 1.25% 5 3.61%
2001-1 4.85% 1 0.36% 2 -3.04% 3 1.72% 4 -1.36% 5 2.53%
2005-1 0.50% 1 0.24% 2 -0.56% 3 1.03% 4 0.22% 5 1.43%
2009-1 3.11% 1 0.13% 2 -0.39% 3 -1.89% 4 -0.19% 5 0.77%
Avg 1.71% 0.49% -0.39% 0.17% -0.13% 1.85%
 
OTC summary for Presidential Year 1 1973 - 2009
Averages 0.67% 0.19% -0.13% 0.33% 0.08% 1.15%
% Winners 70% 60% 50% 60% 50% 90%
MDD 5/23/2001 3.04% -- 5/22/2009 2.45% -- 5/27/1977 2.14%
 
OTC summary for all years 1971 - 2012
Averages -0.15% -0.19% 0.04% 0.25% 0.12% 0.07%
% Winners 44% 45% 57% 60% 60% 62%
 
SPX Presidential Year 1
  Day5 Day4 Day3 Day2 Day1 Totals
1973-1 -1.09% 1 0.83% 2 0.47% 3 2.95% 4 0.75% 5 3.91%
1977-1 -1.31% 1 -0.49% 2 -0.92% 3 0.25% 4 -0.76% 5 -3.23%
1981-1 0.28% 1 -0.34% 2 -0.07% 3 -0.19% 4 -0.32% 5 -0.64%
1985-1 1.23% 1 -0.04% 2 -0.57% 3 -0.51% 4 0.37% 5 0.47%
1989-1 0.23% 1 -1.14% 2 0.26% 3 0.01% 4 0.76% 5 0.12%
Avg -0.13% -0.24% -0.17% 0.50% 0.16% 0.13%
 
1993-1 0.48% 1 0.19% 2 1.02% 3 -0.23% 4 -0.49% 5 0.98%
1997-1 0.42% 1 1.01% 2 -0.27% 3 -0.44% 4 1.36% 5 2.08%
2001-1 1.62% 1 -0.26% 2 -1.55% 3 0.32% 4 -1.18% 5 -1.06%
2005-1 0.39% 1 0.02% 2 -0.34% 3 0.64% 4 0.10% 5 0.80%
2009-1 3.04% 1 -0.17% 2 -0.51% 3 -1.68% 4 -0.15% 5 0.53%
Avg 1.19% 0.16% -0.33% -0.28% -0.07% 0.66%
 
SPX summary for Presidential Year 1 1973 - 2009
Averages 0.53% -0.04% -0.25% 0.11% 0.04% 0.40%
% Winners 80% 40% 30% 50% 50% 70%
MDD 5/27/1977 3.20% -- 5/25/2001 2.66% -- 5/22/2009 2.50%
 
SPX summary for all years 1971 - 2012
Averages -0.02% -0.07% -0.05% 0.13% 0.09% 0.07%
% Winners 55% 48% 52% 55% 57% 60%


Conclusion

The market is overbought, but, seasonally the coming week has been very strong and the Fed is throwing $85 billion a month at the markets.

I expect the major averages to be higher on Friday May 24 than they were on Friday May 17.

This report is free to anyone who wants it, so please tell your friends. They can sign up at: http://www.alphaim.net/signup.html. If it is not for you, reply with REMOVE in the subject line.

Jerry Minton, in his latest newsletter discusses the 5 quarter period from Q4 mid term to Q4 pre election. A 5 quarter period that has not been down since 1931. You can sign up for his free letter at: http://www.alphaim.net/index.html

Good Luck,

YTD W 11/L 5/T 4

 

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