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Technical Market Report for June 28, 2014

The good news is:
• The NASDAQ composite (OTC) closed at a multi year high Friday.


The negatives

New highs declined last week and, on the NASDAQ, remain closer to their lows of the past 2 years than their 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 headed downward while the index hit a multi year high.

OTC NH

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 stronger than OTC NH, but also remains well below its high of the past 2 years.

NY NH


The positives

The secondaries outperformed the blue chips last week and new lows remained insignificant.

The chart below covers the past 6 months showing the SPX in red and a 40% trend (4 day EMA) of NYSE new highs divided by new highs + new lows (NY HL Ratio), in blue. Dashed horizontal lines have been drawn at 10% levels for the indicator, the line is solid at the neutral 50% level.

NY HL Ratio held above 90%, closing at an extremely high 92%.

NY HL Ratio

The next chart is similar to the one above except it shows the OTC in blue and OTC HL Ratio, in red, has been calculated from NASDAQ data.

OTC HL Ratio fell 10% last week as the index rose to a multi year high, but remains comfortably positive.

OTC HL Ratio


Seasonality

Next week includes the last trading day of June and the 1st 3 trading days of July during the 2nd year of the Presidential Cycle.

The tables below show the change, on a percentage basis, of the OTC and SPX for the last trading day of June and the 1st 3 trading days of July during the 2nd year of the Presidential Cycle.

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

Average returns for the coming week have been mixed, but weaker during the 2nd year of the Presidential Cycle than all years combined.

Report for the last day of June and first 3 days of July.
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
  Day1 Day1 Day2 Day3 Totals
1966-2 -0.96% 4 -0.10% 5 0.30% 2 -0.09% 3 -0.86%
1970-2 -1.15% 2 -1.30% 3 -0.74% 4 -0.21% 1 -3.41%
 
1974-2 -1.13% 5 -0.75% 1 -2.10% 2 -0.20% 3 -4.18%
1978-2 0.27% 5 -0.12% 1 -0.77% 3 -0.34% 4 -0.97%
1982-2 0.45% 3 -0.41% 4 -0.32% 5 -0.49% 2 -0.77%
1986-2 0.49% 1 0.52% 2 0.46% 3 0.41% 4 1.88%
1990-2 0.41% 5 -0.05% 1 -0.06% 2 -0.56% 4 -0.26%
Avg 0.10% -0.16% -0.56% -0.23% -0.86%
 
1994-2 0.28% 4 0.13% 5 -0.46% 2 -0.37% 3 -0.43%
1998-2 0.19% 2 1.05% 3 -1.07% 4 0.81% 1 0.98%
2002-2 0.27% 5 -4.06% 1 -3.28% 2 1.65% 3 -5.41%
2006-2 -0.11% 5 0.84% 1 -1.69% 3 0.08% 4 -0.87%
2010-2 -1.21% 3 -0.37% 4 -0.46% 5 0.10% 2 -1.94%
Avg -0.12% -0.48% -1.39% 0.45% -1.54%
 
OTC summary for Presidential Year 2 1966 - 2010
Averages -0.18% -0.39% -0.85% 0.07% -1.35%
% Winners 58% 33% 17% 42% 17%
MDD 7/2/2002 7.20% -- 7/3/1974 4.13% -- 7/6/1970 3.37%
 
OTC summary for all years 1963 - 2013
Averages 0.26% 0.11% -0.22% 0.02% 0.17%
% Winners 63% 61% 51% 51% 55%
MDD 7/2/2002 7.20% -- 7/6/1981 4.18% -- 7/3/1974 4.13%
 
SPX Presidential Year 2
  Day1 Day1 Day2 Day3 Totals
1930-2 2.81% 1 -1.08% 2 1.09% 3 -1.03% 4 1.80%
 
1934-2 0.00% 6 -1.22% 1 -0.31% 2 1.66% 4 0.12%
1938-2 -1.37% 4 3.03% 5 1.93% 6 -1.32% 2 2.28%
1942-2 0.24% 2 -0.84% 3 1.58% 4 0.96% 5 1.93%
1946-2 0.22% 5 0.60% 1 -0.05% 2 -0.22% 3 0.54%
1950-2 1.43% 5 -0.28% 1 0.96% 3 0.56% 4 2.68%
Avg 0.11% 0.26% 0.82% 0.33% 1.51%
 
1954-2 -0.75% 3 0.00% 4 1.30% 5 1.12% 2 1.67%
1958-2 0.76% 1 0.09% 2 0.09% 3 0.33% 4 1.26%
1962-2 0.62% 5 2.03% 1 1.13% 2 0.57% 4 4.35%
1966-2 -0.14% 4 1.03% 5 0.25% 2 1.44% 3 2.58%
1970-2 -0.23% 2 0.44% 3 -0.16% 4 -1.56% 1 -1.52%
Avg 0.05% 0.72% 0.52% 0.38% 1.67
 
1974-2 -0.36% 5 0.02% 1 -2.00% 2 -0.06% 3 -2.39%
1978-2 -0.04% 5 -0.46% 1 -0.86% 3 0.05% 4 -1.31%
1982-2 -0.54% 3 -0.82% 4 -0.98% 5 -0.33% 2 -2.67%
1986-2 0.50% 1 0.48% 2 0.26% 3 -0.36% 4 0.88%
1990-2 0.11% 5 0.42% 1 0.17% 2 -1.24% 4 -0.54%
Avg -0.07% -0.07% -0.68% -0.39% -1.21%
 
1994-2 -0.75% 4 0.43% 5 0.04% 2 -0.05% 3 -0.33%
1998-2 -0.41% 2 1.31% 3 -0.19% 4 0.95% 1 1.65%
2002-2 0.00% 5 -2.22% 1 -2.12% 2 0.62% 3 -3.72%
2006-2 -0.21% 5 0.79% 1 -0.72% 3 0.25% 4 0.10%
2010-2 -1.01% 3 -0.32% 4 -0.47% 5 0.54% 2 -1.27%
Avg -0.48% 0.00% -0.69% 0.46% -0.71%
 
SPX summary for Presidential Year 2 1930 - 2010
Averages 0.04% 0.16% 0.04% 0.14% 0.38%
% Winners 38% 57% 52% 57% 62%
MDD 7/2/2002 4.30% -- 7/6/1982 2.65% -- 7/3/1974 2.39%
 
SPX summary for all years 1928 - 2013
Averages 0.14% 0.32% 0.18% 0.31% 0.93%
% Winners 57% 71% 58% 61% 71%
MDD 7/2/2002 4.30% -- 7/6/1981 3.43% -- 7/2/2009 3.32%


Money Supply (M2)

The money supply chart was provided by Gordon Harms. M2 growth turned up last week.

SPX and M2 Money Supply Charts


July

Since 1963, over all years, the OTC in July has been up 51% of the time with an average gain of 0.3%. During the 2nd year of the Presidential Cycle the OTC in July has been up 33% of the time with an average loss of (-1.7%). The best July ever for the OTC was 1997 (+10.5%), the worst 2002 (-9.2%).

The average month has 21 trading days. The chart below has been calculated by averaging the daily percentage change for each of the 1st 11 trading days and each of the last 10. In months when there were more than 21 trading days some of the days in the middle were not counted. In months when there were less than 21 trading days some of the days in the middle of the month were counted twice. Dashed vertical lines have been drawn after the 1st trading day and at 5 trading day intervals after that. The line is solid on the 11th trading day, the dividing point.

In the chart below the blue line shows the average daily performance of the OTC in July over all years since 1963, while the green line shows the average during the 2nd year of the Presidential Cycle over the same period.

OTC in July over all years since 1963

Since 1928 the SPX has been up 57% of the time in July with an average gain of 1.5%. During the 2nd year of the Presidential Cycle the SPX has also been up 57% of the time, but, with an average gain of 0.6%. The best July ever for the SPX was 1932 (+37.7%) the worst 1934 (-11.5%).

The chart below is similar to the one above except it shows the average daily performance over all years since 1928 for the SPX in July in red and the average daily performance during the 2nd year of the Presidential Cycle, over the same period, in green.

Average daily performance over all years since 1928 for the SPX in July

Since 1979 the Russell 2000 (R2K) has been up 49% of the time in July with an average loss of -0.3%. During the 2nd year of the Presidential Cycle the R2K has been up 25% of the time with an average loss of (-4.2%), helped considerably by a 15.2% loss in 2002. The best July ever for the R2K, 1980 (+11.0%), the worst 2002 (-15.2%)

The chart below is similar to those above except it shows the average daily performance of the R2K, over all years since 1979, in July in magenta and the average daily performance during the 2nd year of the Presidential Cycle in magenta.

Average daily performance of the R2K, over all years since 1979, in July

Since 1885 the Dow Jones Industrial Average (DJIA) has been up 61% of the time in July with an average gain of 1.2%. During the 2nd year of the Presidential Cycle the DJIA has been up 59% of the time in July with an average gain of 0.7%. The best July ever for the DJIA 1932 (+26.7%), the worst 1893 (-15.7%)

The chart below is similar to those above except it shows the average daily performance over all years for the DJIA in July in black and the average performance during the 2nd year of the Presidential Cycle in green.

Average daily performance over all years for the DJIA in July


Conclusion

In earlier times, during the 2nd year of the Presidential Cycle, the market was stronger in the coming week and the month of July, but for the past 40 years the coming week and the month of July have been weak.

I expect the major averages to be lower on Thursday July 3 than they were on Friday June 27.

Last week the secondaries were up a little while the blue chips were down a little so I am calling last weeks negative forecast a tie.

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These reports are archived at: http://www.safehaven.com/

Good Luck,

YTD W 8/L 9/T 9

 

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