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Technical Market Report for November 16, 2013

The good news is:
• The blue chip indices closed at all time highs on Friday.


The negatives

New lows declined a little last week, but, their levels remained above recent averages.

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 lows (OTC NL) in red. OTC NL has been plotted on an inverted Y axis so increasing numbers of new lows move the indicator downward (up is good). Dashed vertical lines have been drawn on the 1st trading day of each month.

OTC NL continued to fall as the index moved to a new multi year high.

OTC versus OTC New Lows Chart

Advance - decline lines (ADL) are a running total of the number of declining issues subtracted from the number of advancing issues. Their characteristics vary, but in the short to intermediate term, in a strong market, they usually confirm index highs. The next 2 charts show ADL's failing to confirm Friday's index highs.

The next chart covers the past 6 months showing the OTC in blue and an ADL calculated from NASDAQ issues in green.

OTC versus ADL Chart

The next chart is similar to the one above except is shows the S&P 500 (SPX) in red and NYSE ADL, in blue, has been calculated from NYSE issues.

SPX versus NYSE ADL Chart

I complain frequently about the contamination of NYSE data with fixed income issues which make up about half of the issues traded on the NYSE. The problem is, baring changes in interest rates, fixed income issues accumulate value daily until they go ex dividend (one day a month or quarter). This gives ADL's calculated from fixed income issues a wildly positive bias.

The chart below is similar to the one above except it shows the NYSE composite in red and AD ADL, in dark blue, is an ADL calculated from only NYSE common issues.

In the past few days the common only ADL has been stronger than the composite ADL, however, over the past 6 months, it has been noticeably weaker.

NYSE versus AD ADV Chart


The positives

New lows declined a bit last week while new highs increased a little.

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

OTC HL Ratio rose to 80% on Friday.

OTC versus OTC HL Ratio Chart

There are trading systems that impose a No Sell Filter when variations of this indicator are above 80%.

The next chart 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 also recovered last week finishing the week at a very strong 86%.

SPX versus NY HL Ratio Chart


Seasonality

Next week includes the 5 trading days prior to the 4th Friday of November during the 1st year of the Presidential Cycle.

The tables below show the daily percentage return for the 5 trading days prior to the 4th Friday of November during the 1st year of the Presidential Cycle.

OTC data covers the period from 1963 - 2012 while SPX data runs 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.

The 4th Friday of November usually follows Thanksgiving, but this year November 1 fell on a Friday so the calculations by Friday are a little skewed.

Average returns for the coming week have been modestly positive by all measures.

Report for the week before the 4th Friday of November
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday through the 4th Friday.

OTC Presidential Year 1
Year Mon Tue Wed Thur Fri Totals
1965-1 -0.09% 0.04% -0.02% 0.00% 0.47% 0.40%
1969-1 -0.55% -1.24% 0.05% 0.00% -0.11% -1.86%
 
1973-1 -2.35% 0.00% -2.44% 0.00% 0.77% -4.03%
1977-1 0.13% 0.57% 0.79% 0.00% 0.57% 2.05%
1981-1 -0.30% 0.52% 0.49% 0.00% 0.50% 1.22%
1985-1 -0.02% 0.25% 0.05% 0.74% 0.49% 1.51%
1989-1 -0.22% -0.34% 0.22% 0.00% 0.33% -0.02%
Avg -0.55% 0.25% -0.18% 0.74% 0.53% 0.15%
 
1993-1 -1.79% 1.18% 0.85% 0.00% 0.22% 0.47%
1997-1 -2.09% 0.13% 0.35% 0.00% 0.38% -1.23%
2001-1 1.89% -2.79% -0.29% 0.00% 1.50% 0.31%
2005-1 0.66% 0.53% 0.28% 0.00% 0.13% 1.60%
2009-1 1.40% -0.31% 0.32% 0.00% -1.73% -0.33%
Avg 0.01% -0.25% 0.30% 0.00% 0.10% 0.16%
 
OTC summary for Presidential Year 1 1965 - 2009
Avg -0.28% -0.13% 0.05% 0.74% 0.29% 0.01%
Win% 33% 64% 75% 100% 83% 58%
 
OTC summary for all years 1963 - 2012
Avg -0.13% -0.25% 0.28% 0.75% 0.47% 0.47%
Win% 46% 49% 71% 71% 78% 62%
 
SPX Presidential Year 1
Year Mon Tue Wed Thur Fri Totals
1953-1 -0.33% 0.57% 0.08% 0.00% 0.57% 0.90%
1957-1 -0.82% -0.57% 0.28% 1.40% 0.96% 1.25%
1961-1 0.14% 0.08% -0.11% 0.00% 0.20% 0.31%
1965-1 -0.65% 0.15% 0.17% 0.00% 0.10% -0.23%
1969-1 -1.15% -0.32% 0.36% 0.00% 0.58% -0.53%
Avg -0.56% -0.02% 0.16% 1.40% 0.48% 0.34%
 
1973-1 -3.05% -2.04% 1.11% 0.00% -0.32% -4.29%
1977-1 -0.08% 0.88% 0.42% 0.00% 0.21% 1.42%
1981-1 -0.09% 1.57% 0.44% 0.00% 0.84% 2.76%
1985-1 0.30% -0.02% 0.16% 1.22% 0.05% 1.71%
1989-1 -0.66% 0.07% 0.68% 0.00% 0.60% 0.69%
Avg -0.72% 0.09% 0.56% 1.22% 0.28% 0.46%
 
1993-1 -0.75% 0.41% 0.29% 0.00% 0.15% 0.10%
1997-1 -1.70% 0.44% 0.09% 0.00% 0.40% -0.78%
2001-1 1.09% -0.73% -0.49% 0.00% 1.17% 1.04%
2005-1 0.53% 0.51% 0.35% 0.00% 0.21% 1.59%
2009-1 1.36% -0.05% 0.45% 0.00% -1.72% 0.04%
Avg 0.10% 0.12% 0.14% 0.00% 0.04% 0.40%
 
SPX summary for Presidential Year 1 1953 - 2009
Avg -0.39% 0.06% 0.28% 1.31% 0.27% 0.40%
Win% 33% 60% 87% 100% 87% 73%
 
SPX summary for all years 1953 - 2012
Avg -0.19% 0.02% 0.28% 0.50% 0.32% 0.49%
Win% 42% 57% 80% 63% 75% 63%


Money Supply (M2)

The money supply chart was provided by Gordon Harms. Money supply growth declined last week.

M2 Money Supply versus SPX Chart


Conclusion

The index highs were unconfirmed by most of the breadth indicators, but we are coming into a seasonally strong period and the Fed continues to add $85B a month.

I expect the major averages to be higher on Friday November 22 than they were on Friday November 15.

Last weeks negative forecast was a miss.

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.

In his latest newsletter titled "Stories", Jerry Minton discusses explanations for some market behavior. You can sign up for his free newsletter at: http://www.alphaim.net/

Good Luck,

YTD W 20/L 14/T 12

 

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