Technical Stock Market Report

March 1, 2014

The good news is: Most of the major averages closed at all time or multi year highs on Thursday or Friday.

The negatives:  The major indices were up 6% - 9% in February leaving the market overbought.

New highs have picked up quite nicely, however, they are running below levels of previous highs of the last 6 months.

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 highs (OTC NH) in green.  Dashed vertical lines have been drawn on the 1st trading day of each month.

OTC NH has been rising sharply for the past 3 weeks, but remains well below its earlier levels when the index was hitting new highs.

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.

The positivesThere were 3 new lows on the NASDAQ last Thursday, that is about as low a number as you will ever see.

The markets rise in February was broad based.  The Russell 2000, S&P Mid Cap and S&P 500 all closed at all time highs last week.

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 a bit to 93.5% last week.

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 held above 90%. 

Money Supply (M2)

The money supply chart was provided by Gordon Harms.

Money supply growth has been following its trend pretty closely.

March

Since 1963, over all years, the OTC in March has been up 65% of the time with an average gain of 0.9%.  During the 2nd year of the Presidential Cycle March has been up 58% time with an average gain of 1.4%.  The best March ever for the OTC was 2009 (+10.9%), the worst 1980 (-17.1%).

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 March over all years since 1963 in blue, while the green line shows the average during the 2nd year of the Presidential Cycle over the same period.

Since 1928 the SPX has been up 62% of the time in March with an average gain of 0.6%.  During the 2nd year of the Presidential Cycle the SPX has been up 67% of the time with an average gain of 0.6%.  The best March for the SPX was 1928 (+10.8%) the worst 1938 (-25.0%).

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 March in red and the average daily performance during the 2nd year of the Presidential Cycle, over the same period, in green.

Since 1979 the Russell 2000 (R2K) has been up 74% of the time in March with an average gain of 1.4%.  During the 2nd year of the Presidential Cycle the R2K has been up 75% of the time with an average gain of 3.3%.  The best March ever for the R2K 1979 (+9.7%), the worst 1980 (-18.5%)

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

Since 1885 the Dow Jones Industrial Average (DJIA) has been up 60% of the time in March with an average gain of 0.7%.  During the 2nd year of the Presidential Cycle the DJIA has been up 59% of the time in March with an average gain of 0.2%.  The best March for the DJIA 1920 (+12.6%), the worst 1938 (-23.7%)

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

Conclusion

The secondaries have been outperforming the blue chips and the breadth indicators have been strong.  The market looks good.

I expect the major averages to be higher on Friday March 7 than they were on Friday February 28.

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Disclaimer: : Mike Burk is an employee and principal of Alpha Investment Management (Alpha) a registered investment advisor. Charts and figures presented herein are believed to be reliable but we cannot attest to their accuracy.   Recent (last 10-15 yrs.) data has been supplied by CSI (csidata.com), FastTrack (fasttrack.net), Quotes Plus (qp2.com) and the Wall Street Journal (wsj.com).  Historical data is from Barron’s and ISI price books.  The views expressed dare provided for information purposes only and should not be construed in any way as investment advice.  Furthermore, the opinions expressed may change without notice.

Mike Burk began developing equity trading systems in the early 1980's.  Through the 1990's he marketed an equity trading system called MIRAT based on breadth indicators, but, primarily new lows.  In the early days of this century he developed the seasonal trading strategies currently used by Alpha Investment Management of Cincinnati.  Mr. Burk has been writing equity market newsletters since the early 1990's.  During the past 10 years the letter observes both breadth and seasonal strategies.
 
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