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Technical Market Report for February 22, 2014

The good news is:
• The NASDAQ composite (OTC) closed at a multi year high on Tuesday and, last week, the secondaries were stronger than the blue chips.


The negatives

New highs increased last week, but remain below their levels of a month ago when the major indices were all making new highs.

The chart below covers the past 6 months showing the 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 is well below its level at the previous high for the OTC, a month ago.

OTC versus OTC NH Chart

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

NY NH has also had progressively declining highs since last October.

SPX versus NYSE NH Chart


The positives

New lows have disappeared and nothing really bad happens without new lows increasing.

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 finished the week at 90%.

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

OTC versus OTC HL Ratio Chart

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 finished the week at 90%.

SPX versus NYSE HL Ratio Chart


Seasonality

Next week includes the last 5 trading days of February during the 2nd year of the Presidential Cycle.

The tables show the daily percentage return for the last 5 trading days of February during the 2nd year of the Presidential Cycle.

OTC data covers the period from 1963 - 2013 while SPX data runs from 1928 - 2013. There are summaries for both the 2nd year of the Presidential Cycle and all years combined.

Returns for the coming week have been modestly negative over all years, but modestly positive during the 2nd week of the Presidential Cycle.

Report for the last 5 days of February.
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 2
  Day5 Day4 Day3 Day2 Day1 Totals
1966-2 0.97%1 0.03%3 -0.35%4 -0.40%5 0.35%1 0.60%
1970-2 0.02%5 -0.31%2 -0.05%3 0.82%4 -0.16%5 0.32%
 
1974-2 0.82%5 -0.23%1 0.42%2 1.02%3 0.31%4 2.35%
1978-2 0.14%3 0.03%4 0.53%5 -0.47%1 -0.73%2 -0.51%
1982-2 -0.87%1 -0.88%2 0.61%3 0.48%4 -0.01%5 -0.67%
1986-2 -0.04%1 -0.17%2 0.11%3 0.94%4 0.26%5 1.09%
1990-2 0.29%4 -0.76%5 0.34%1 0.39%2 0.76%3 1.02%
Avg 0.07% -0.40% 0.40% 0.47% 0.12% 0.66%
 
1994-2 0.29%2 -0.26%3 -1.23%4 0.56%5 1.11%1 0.48%
1998-2 1.37%1 -0.75%2 1.60%3 0.60%4 -0.37%5 2.45%
2002-2 0.48%5 2.63%1 -0.17%2 -0.85%3 -1.16%4 0.93%
2006-2 0.89%3 -0.17%4 0.34%5 0.88%1 -1.12%2 0.83%
2010-2 -0.08%1 -1.28%2 1.01%3 -0.08%4 0.18%5 -0.24%
Avg 0.59% 0.04% 0.31% 0.22% -0.27% 0.89%
 
OTC summary for Presidential Year 2 1966 - 2010
Averages 0.36% -0.18% 0.26% 0.33% -0.05% 0.72%
% Winners 75% 25% 67% 67% 50% 75%
MDD 2/28/2002 2.17% -- 2/23/1982 1.75% -- 2/24/1994 1.48%
 
OTC summary for all years 1963 - 2013
Averages -0.11% 0.11% 0.13% -0.09% -0.09% -0.06%
% Winners 53% 55% 57% 59% 49% 53%
MDD 2/28/2001 6.79% -- 2/27/2007 4.64% -- 2/27/2009 4.44%
 
SPX Presidential Year 2
  Day5 Day4 Day3 Day2 Day1 Totals
1930-2 -1.05%1 0.04%2 1.85%3 -0.13%4 0.87%5 1.58%
 
1934-2 -2.62%5 -1.71%6 -2.29%1 1.12%2 -0.46%3 -5.96%
1938-2 2.64%3 -1.46%4 0.52%5 -0.26%6 -1.73%1 -0.29%
1942-2 0.24%2 -0.70%3 0.71%4 0.82%5 0.00%6 1.06%
1946-2 2.01%4 -4.57%1 -0.59%2 2.02%3 0.76%4 -0.37%
1950-2 0.23%4 0.41%5 -0.12%6 0.12%1 -0.35%2 0.29%
Avg 0.50% -1.61% -0.35% 0.76% -0.36% -1.05%
 
1954-2 -0.15%5 -0.35%2 0.00%3 0.31%4 0.93%5 0.73%
1958-2 -0.56%1 -0.10%2 0.76%3 -0.59%4 0.39%5 -0.09%
1962-2 -0.48%3 -0.23%5 -0.57%1 0.19%2 0.10%3 -0.99%
1966-2 -0.58%1 -0.42%3 -0.64%4 0.28%5 0.09%1 -1.29%
1970-2 0.31%5 -0.05%2 1.55%3 -0.50%4 0.67%5 1.98%
Avg -0.29% -0.23% 0.22% -0.06% 0.44% 0.07%
 
1974-2 0.72%5 -0.38%1 1.02%2 0.42%3 -0.19%4 1.59%
1978-2 -0.03%3 0.09%4 0.97%5 -0.87%1 -0.78%2 -0.62%
1982-2 -1.44%1 -0.07%2 1.76%3 -0.23%4 -0.09%5 -0.07%
1986-2 -0.12%1 -0.25%2 0.11%3 1.22%4 0.07%5 1.03%
1990-2 -0.60%4 -0.48%5 1.39%1 0.48%2 0.49%3 1.29%
Avg -0.30% -0.22% 1.05% 0.20% -0.10% 0.64%
 
1994-2 0.81%2 -0.16%3 -1.37%4 0.39%5 0.23%1 -0.10%
1998-2 0.38%1 -0.72%2 1.19%3 0.56%4 0.06%5 1.46%
2002-2 0.82%5 1.80%1 0.00%2 0.05%3 -0.28%4 2.38%
2006-2 0.75%3 -0.38%4 0.13%5 0.36%1 -1.04%2 -0.18%
2010-2 -0.10%1 -1.21%2 0.97%3 -0.21%4 0.14%5 -0.41%
Avg 0.53% -0.14% 0.18% 0.23% -0.18% 0.63%
 
SPX summary for Presidential Year 2 1930 - 2010
Averages 0.05% -0.52% 0.35% 0.26% -0.01% 0.14%
% Winners 48% 19% 62% 67% 57% 48%
MDD 2/26/1934 6.47% -- 2/26/1946 5.14% -- 2/28/1938 2.91%
 
SPX summary for all years 1928 - 2013
Averages -0.19% -0.08% 0.06% -0.02% 0.05% -0.17%
% Winners 47% 42% 54% 55% 56% 48%
MDD 2/27/1933 7.21% -- 2/26/1934 6.47% -- 2/26/1946 5.14%


Money Supply (M2)

The money supply chart was provided by Gordon Harms. Money supply growth has been following its trend pretty closely.

M2 Money Supply versus SPX Chart


Conclusion

The market was mixed last week, the secondaries were strong while the blue chips were weak. The breadth indicators were ok. New highs came up a little short while new lows remained dormant.

I expect the major averages to be higher on Friday February 28 than they were on Friday February 21.

Last week the Dow Jones Industrial Average and the SPX were down a little while the OTC and Russell 2000 were up 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://www.alphaim.net/signup.html. If it is not for you, reply with REMOVE in the subject line.

Good Luck,

YTD W 1/L 3/T 4

 

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