Technical Stock Market Report

November 1, 2014

The good news is:   All of the Blue chip indices closed at all time-highs on Friday and the NASDAQ composite (OTC) closed at a multi-year high.

The negatives:   The market bottomed a little over 2 weeks ago and has rallied to new highs on very strong volume (good).  There are several items that raise suspicion about this rally.  New lows and downside volume have diminished, but they have not disappeared and the secondaries have not hit new highs.

The chart below covers the past 6 months showing the S&P500 (SPX) in red and a 5% trend (39 day EMA) of NYSE downside volume, (NY DV) in maroon.  NY DV has been plotted on an inverted Y axis so decreasing downside volume moves the indicator upward (up is good).  Dashed vertical lines have been drawn on the 1st trading day of each month.

The SPX hit an all-time high while NY DV has remained at a relatively high level.

spx

The next chart is similar to the one above except is shows the OTC in blue and OTC DV has been calculated from NASDAQ data.

The picture on the NASDAQ is similar to the NYSE.

The positivesNew lows have declined significantly, but remain at modestly uncomfortable levels while new highs have increased substantially.  The ratios of these data sets are now at comfortable levels.

The chart below covers the past 6 months showing the SPX in red and 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 of the indicator, the line is solid at the neutral 50% level.

NY HL Ratio finished the week at 81%, strong.

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

OTC HL Ratio finished the week at a comfortable 73%.

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

s&p500 daily

November

Since 1963, over all years, the OTC in November has been up 69% of the time with an average gain of 1.6%.  During the 2nd year of the Presidential Cycle November has been up 67% time with an average gain of 3.7% The best November ever for the OTC was 2001 (+14.2%), the worst 2000 (-22.9%).

The average month has 21 trading days.  The chart below has been calculated by averaging the daily percentage change of the OTC 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 of the OTC in November 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 november

Since 1928 the SPX has been up 58% of the time in November with an average gain of 0.6%.  During the 2nd year of the Presidential Cycle the SPX has been up 62% of the time with an average gain of 2.0%.  The best November ever for the SPX was 1928 +12.0% the worst 1929 -13.4%.

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

spx november

Since 1979 the Russell 2000 (R2K) has been up 66% of the time in November with an average gain of 1.8%.  During the 2nd year of the Presidential Cycle the R2K has been up 75% of the time in November with an average gain of 3.9%.  The best November ever for the R2K, 2002 +8.8%, the worst 2008 -12.0%.

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

r2k november

Since 1885 the DJIA has been up 59% of the time in November with an average gain of 0.8%.  During the 2nd year of the Presidential Cycle the DJIA has been up 65% of the time in November with an average gain of 1.3%.  The best November ever for the DJIA, 1928 +16.3%, the worst 1973 -14.0%.

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

DIJA November

Conclusion

For the past two weeks the market has made a moon shot, up about 10%.  Strong seasonality suggests it should last at least another week.

I expect the major averages to be higher on Friday November 7 than they were on Friday October 31.

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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 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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