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Technical Market Report for August 9, 2014

The good news is:
• The market rallied a bit last week and the secondaries outperformed the blue chips.


The negatives

The key sign this period of weakness has ended will be when new lows disappear. That has not happened yet.

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 decreasing new lows move the indicator upward (up is good). Dashed vertical lines have been drawn on the 1st trading day of each month.

OTC NL continued its fall last week. As of Friday's close the value of the indicator was 72 so it will take fewer than 72 new lows to turn the indicator upward. You should look for at least 5 consecutive days of the indicator moving sharply upward before assuming the current period of weakness has ended.

OTC NL

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

NY NL also fell sharply last week. The value of NY NL is 55 so it will require fewer than 55 new lows to turn this indicator upward.

NY NL

The next chart 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 continued its fall last week and is well below the neutral line.

OTC HL

The next chart is similar to the one above except is shows the SPX in red and NY HL Ratio has been calculated from NYSE data.

NY HL Ratio turned upward last week, but remains below the neutral line.

NY HL Ratio


The positives

The market is oversold and seasonality for next week is positive.


Seasonality

Next week includes the 5 trading days prior to the 3rd Friday of August 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 5 trading days prior to the 3rd Friday of August during the 2nd year of the Presidential Cycle.

OTC data covers the period from 1963 to 2013 while SPX data runs from 1953 through 2013. There are summaries for both the 2nd 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.

Average returns for the coming week have all been positive by all measures and stronger during the 2nd year of the Presidential Cycle.

Report for the week before the 3rd Friday of August.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday through 3rd Friday.

OTC Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1966-2 -0.10% -0.30% -1.28% -0.67% -1.14% -3.49%
1970-2 -0.85% 0.62% 0.76% 1.08% 0.41% 2.02%
 
1974-2 -0.47% -2.19% -2.28% -0.55% -1.53% -7.01%
1978-2 0.08% -0.12% 0.62% 1.03% 0.42% 2.04%
1982-2 0.34% 1.63% 3.52% -1.83% 1.24% 4.90%
1986-2 1.11% 0.91% 0.97% 0.69% 0.17% 3.85%
1990-2 0.07% 0.50% 0.27% -2.23% -2.18% -3.58%
Avg 0.23% 0.14% 0.62% -0.58% -0.37% 0.04%
 
1994-2 0.17% 0.36% 0.97% -0.07% 0.04% 1.47%
1998-2 1.55% 2.04% -0.67% -0.56% -1.90% 0.47%
2002-2 0.06% -2.87% 5.12% 0.80% 1.19% 4.30%
2006-2 0.55% 2.22% 1.63% 0.38% 0.29% 5.07%
2010-2 0.39% 1.26% 0.28% -1.66% 0.04% 0.31%
Avg 0.54% 0.60% 1.47% -0.22% -0.07% 2.32%
 
OTC summary for Presidential Year 2 1966 - 2010
Avg 0.24% 0.34% 0.83% -0.30% -0.25% 0.86%
Win% 75% 67% 75% 42% 67% 75%
 
OTC summary for all years 1963 - 2013
Avg 0.22% -0.01% 0.23% -0.12% -0.07% 0.25%
Win% 67% 50% 61% 52% 55% 55%
 
SPX Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1954-2 1.07% 0.23% -0.10% 0.23% 0.16% 1.59%
1958-2 0.27% -0.93% 0.17% 0.21% -0.86% -1.14%
1962-2 0.14% 1.08% 0.70% -0.03% 0.63% 2.52%
1966-2 -0.52% -1.34% -0.55% -1.26% -0.67% -4.34%
1970-2 0.20% 1.15% 1.00% 0.88% 2.06% 5.30%
Avg 0.23% 0.04% 0.24% 0.01% 0.26% 0.78%
 
1974-2 -1.37% -1.58% -2.24% -0.56% -0.83% -6.58%
1978-2 0.01% -0.12% 0.77% 0.41% -0.33% 0.74%
1982-2 0.23% 4.76% -0.47% 0.58% 3.54% 8.64%
1986-2 1.60% 1.11% 0.96% 0.24% 0.37% 4.27%
1990-2 0.06% 1.09% 0.20% -2.26% -1.37% -2.28%
Avg 0.11% 1.05% -0.16% -0.32% 0.27% 0.96%
 
1994-2 -0.16% 0.82% 0.03% -0.43% 0.11% 0.38%
1998-2 1.98% 1.61% -0.28% -0.59% -0.95% 1.76%
2002-2 -0.53% -2.17% 4.00% 1.16% -0.16% 2.30%
2006-2 0.12% 1.37% 0.77% 0.16% 0.37% 2.78%
2010-2 0.01% 1.22% 0.15% -1.69% -0.37% -0.68%
Avg 0.28% 0.57% 0.93% -0.28% -0.20% 1.31%
 
SPX summary for Presidential Year2 1954 - 2010
Avg 0.21% 0.55% 0.34% -0.20% 0.11% 1.02%
Win% 73% 67% 67% 53% 47% 67%
 
SPX summary for all years 1953 - 2043
Avg 0.17% 0.00% -0.01% -0.07% 0.06% 0.15%
Win% 64% 51% 57% 49% 61% 52%


Money Supply (M2)

The money supply chart was provided by Gordon Harms. M2 growth leveled off last week.

S&P500 and M2 Money Supply Chart


Conclusion

The market rallied last week, but new lows remained at threatening levels. There has been no sign of a bottom.

I expect the major averages to be lower on Friday August 15 than they were on Friday August 8.

Last weeks negative forecast was a miss.

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

Good Luck,

YTD W 9/L 12/T 11

 

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