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Technical Market Report for August 13, 2016

The good news is:
• Last Thursday, with great fanfare, the Dow Jones Industrial Average (DJIA), S&P 500 (SPX) and NASDAQ composite (OTC) all closed at all time highs.


The Negatives

The market is overbought.

In spite of being the strongest of the indices for most of this year, the Russell 2000 (R2K) remains nearly 5% off its all time high of June 23, 2015.


The positives

Lots of new highs and few new lows.

The first chart covers the past 6 months showing the NASDAQ composite (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 vertical lines have been drawn on the 1st trading day of each month. Dashed horizontal lines have been drawn at 10% levels for the indicator, the line is solid at the 50%, neutral level.

OTC HL Ratio recovered last week ending the week at a very strong 80%.

OTC and OTC HL Ratio Chart

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

NY HL Ratio gained a little to 95%.

SPX and NY HL Ratio Chart

The next chart shows the OTC in blue and a 10% trend (19 day EMA) of NASDAQ new highs (OTC NH) in green.

OTC NH rose to 137. This is no selling allowed territory.

OTC and OTC NH Chart

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

NY NH finished the week at 218.

SX and NY NH Chart

In the early 1990's I developed a timing system that imposed a No Sell Filter (NSF) when NY NH rose above 130. The huge increase in fixed income issues since then and the Fed's manipulation of rates at all levels since then has made me uncomfortable with that filter now.


Seasonality

Next week includes the 5 trading days prior to the 3rd Friday of August during the 4th year of the Presidential Cycle. The tables below show the daily change, on a percentage basis for that period.

OTC data covers the period from 1963 to 2015 while SPX data runs from 1953 to 2015. There are summaries for both the 4th 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 been positive by all measures and stronger during the 4th year of the Presidential Cycle than other years.

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

OTC Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1964-4 0.22% 0.05% 0.17% 0.00% -0.22% 0.22%
1968-4 0.21% 0.46% 0.00% 0.65% 0.46% 1.78%
1972-4 0.02% -0.17% -0.01% -0.50% 0.48% -0.19%
 
1976-4 -0.04% 0.26% -0.17% -1.21% -0.61% -1.77%
1980-4 0.70% -0.28% 0.23% 0.98% 0.63% 2.26%
1984-4 -0.43% -0.29% -0.37% 0.25% 0.02% -0.82%
1988-4 -1.29% 0.43% 0.15% 0.27% 0.05% -0.39%
1992-4 -0.12% -0.28% -0.57% 0.04% -0.73% -1.66%
Avg -0.24% -0.03% -0.15% 0.07% -0.13% -0.48%
 
1996-4 0.09% -1.06% 0.65% 0.11% -0.09% -0.31%
2000-4 1.59% 0.05% 0.25% 2.06% -0.27% 3.68%
2004-4 1.46% 0.70% 2.01% -0.63% 1.00% 4.54%
2008-4 1.07% -0.38% -0.08% 1.03% -0.05% 1.59%
2012-4 0.05% -0.18% 0.46% 1.04% 0.46% 1.84%
Avg 0.85% -0.18% 0.66% 0.72% 0.21% 2.27%
 
OTC summary for Presidential Year 4 1964 - 2012
Avg 0.27% -0.05% 0.23% 0.34% 0.09% 0.83%
Win% 69% 46% 58% 75% 54% 54%
 
OTC summary for all years 1963 - 2015
Avg 0.24% -0.03% 0.22% -0.16% -0.13% 0.15%
Win% 68% 48% 61% 52% 55% 55%
 
SPX Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1956-4 -1.04% 0.66% 0.18% -0.22% -0.12% -0.54%
1960-4 -0.09% 0.19% 0.21% -0.05% 0.35% 0.62%
1964-4 0.01% 0.05% -0.10% -0.46% 0.16% -0.34%
1968-4 1.03% 0.53% 0.00% -0.47% 0.62% 1.72%
1972-4 0.54% -0.44% -0.36% -0.29% 0.38% -0.17%
Avg 0.09% 0.20% -0.01% -0.30% 0.28% 0.26%
 
1976-4 0.17% 0.35% -0.23% -1.12% -0.99% -1.81%
1980-4 0.95% -0.79% -0.41% 1.60% 0.38% 1.71%
1984-4 0.01% -0.61% -0.99% 0.60% 0.23% -0.77%
1988-4 -0.88% 0.12% 0.08% 0.10% -0.30% -0.88%
1992-4 0.20% 0.14% -0.75% 0.02% -0.82% -1.21%
Avg 0.09% -0.16% -0.46% 0.24% -0.30% -0.59%
 
1996-4 0.55% -0.84% 0.28% 0.04% 0.44% 0.47%
2000-4 1.34% -0.48% -0.31% 1.10% -0.29% 1.36%
2004-4 1.37% 0.22% 1.24% -0.36% 0.65% 3.12%
2008-4 0.69% -1.21% -0.29% 0.55% 0.41% 0.16%
2012-4 -0.13% -0.01% 0.11% 0.71% 0.19% 0.87%
Avg 0.77% -0.46% 0.21% 0.41% 0.28% 1.20%
 
SPX summary for Presidential Year 4 1956 - 2012
Avg 0.31% -0.14% -0.09% 0.12% 0.09% 0.29%
Win% 73% 53% 43% 53% 67% 53%
 
SPX summary for all years 1953 - 2015
Avg 0.18% 0.00% -0.01% -0.09% 0.01% 0.07%
Win% 65% 49% 56% 49% 59% 52%


Money supply (M2) and interest rates

The money supply and interest rate charts were provided by Gordon Harms.

Gordon pointed out in a note with these charts that he has not recalculated the M2 regression line. Apparently, with the M2 rate of expansion accelerating over the past several months, he is considering recalculation of the regression line a likely necessity. There has been a lot written about this recently. Expansion of M2 is considered necessary because the velocity of money has been slowing.

S&P500 and M2 Money Supply Charts

This chart is like watching grass grow. However it is captivating because it is doing something it has never done before, converging with declining rates.

Yield Curve


Conclusion

What? Me worry? No.

Lots of new highs, few new lows, favorable seasonality and it's summer.

I expect the major averages to be higher on Friday August 19 than they were on Friday August 12.

Last week the R2K was down slightly while everything else was up slightly 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.stockmarket-ta.com/signup.html. If it is not for you, reply with REMOVE in the subject line.

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

Good Luck,

YTD W 13 / L 14 / T 5

 

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