Technical Stock Market Report

March 29, 2014

The good news is:  In spite of a pretty rough week for many of the indices, new lows remained at benign levels.

The negatives:  The new high indicators continued to deteriorate last week.  If we get a rally to new highs (which is in the cards seasonally), the highs will likely be unconfirmed by a long series of declining highs in the new high indicators.

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 fell to near its low for the past 6 months.

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 a pattern similar to OTC NH.

The next chart covers the past year showing the OTC in blue and a 5% trend (39 day EMA) of NASDAQ downside volume (OTC DV) in red.  OTC DV has been plotted on an inverted Y axis so decreasing downside volume moves the indicator upward (up is good). 

OTC DV is at its lowest point in over a year.

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

NY DV, although declining, is much stronger than OTC DV.

The positives: The number of new lows remains minimal.

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 fell sharply to 51% last week.

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 up quite well, finishing the week at 78%. 

Money Supply (M2):  The money supply chart was provided by Gordon Harms.

Money supply growth leveled off last week.

April

Historically, April has been a pivotal month during the 2nd year of the Presidential Cycle.  On average the high for the year occurs in mid to late April and the low for the year usually arrives in early October.  At this point there is nothing to suggest this year should be unusual.

Since 1963, over all years, the OTC in April has been up 69% of the time with an average gain of 1.7%.  During the 2nd year of the Presidential Cycle April has been up 50% of the time with an average loss of -1.2% (helped considerably by a 18.5% loss in 1970).  The best April ever for the OTC was 2001 (+15.0%), the worst 1970 (-18.5%).

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 April 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 April with an average gain of 1.3%.  During the 2nd year of the Presidential Cycle the SPX has been up 57% of the time with an average gain of 0.6%.  The best April ever for the SPX was 1933 (+42.2%) the worst 1932 (-20.2%).

The chart below is similar to the one above except it shows the average daily average performance over all years since 1928 for the SPX in April 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 63% of the time in April with an average gain of 1.7%.  During the 2nd year of the Presidential Cycle the R2K has been up 75% of the time with an average gain of 1.3%.  The best April ever for the R2K 2009 (+15.3%), the worst 2000 (-6.1%)

The chart below is similar to those above except it shows the average daily performance of the R2K, over all years since 1979, in April 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 59% of the time in April with an average gain of 1.3%.  During the 2nd. year of the Presidential Cycle the DJIA has been up 53% of the time in April with an average gain of 0.5%.  The best April ever for the DJIA 1933 (+40.2%), the worst 1932 (-23.4%)

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

Conclusion:  The market is oversold and the seasonal pattern suggests the next 2-3 weeks should be up.

I expect the major averages to be higher on Friday April 4 than they were on Friday March 28.

Last week the Dow Jones Industrial Average was up slightly while all of the other indices were down, so I am calling last weeks negative forecast a tie.

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Disclaimer: : Charts and figures presented herein are believed to be reliable but I 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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