Technical Stock Market Report

The good news is:  The small caps held up better than the blue chips during last week’s market tumble and new lows remained at non threatening levels.

The negatives:  NYSE new highs are the only data set deserving some concern.

The chart below covers the past 6 months showing the S&P 500 (SPX) in red and a 10% trend (19 day EMA) of NYSE new highs (NY NH), in green.  Dashed vertical lines have been drawn on the 1st trading day of each month.

NY NH has been falling since late January indicating narrowing leadership.  Although, this time, it is more likely from turmoil in the bond market.

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

OTC NH peaked the day after prices peaked suggesting a more robust environment.  There are few, if any, fixed income issues traded on the NASDAQ.

The positives:  New highs collapsed last week falling from 236 a week ago to 39 last Friday on the NASDAQ and 300 to 56 on the NYSE.  Not pleasant, but not surprising for a week that trimmed all of the major indices by over 2%.

On the other hand, new lows barely changed.  On the NASDAQ there were 38 new lows a week ago and 46 on Friday while NYSE new lows went from 23 to 31.

No significant decline materializes without a substantial increase in the number of new lows.

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 for the indicator.

OTC HL Ratio fell sharply finishing the week at a barely positive 52%.

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

NY HL Ratio also fell, but, finished the week at a fairly comfortable 69%.

Seasonality

Next week includes the last 2 trading days of March and the first 2 trading days of April during the 3rd year of the Presidential Cycle.  The market is closed Friday in observance of Good Friday.

The tables below show the daily change, on a percentage basis for the last 2 trading days of March and the first 2 trading days of April during the 3rd year of the Presidential Cycle.

OTC data covers the period from 1963 to 2014 while SPX data runs from 1928 through 2014.  There are summaries for both the 3rd year of the Presidential Cycle and all years combined.

Average returns for the coming week have been mixed, but stronger in recent (past 20+ years) times.

April

Since 1963, over all years, the OTC in April has been up 67% of the time with an average gain of 1.6%.  During the 3rd year of the Presidential Cycle April has been up 92% of the time with an average gain of 3.8%.  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 black line shows the average during the 3rd. 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 3rd year of the Presidential Cycle the SPX has been up 81% of the time with an average gain of 2.6%.  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 performance over all years since 1928 for the SPX in April in red and the average daily performance during the 3rd year of the Presidential Cycle, over the same period, in black.

Since 1979 the Russell 2000 (R2K) has been up 61% of the time in April with an average gain of 1.6%.  During the 3rd year of the Presidential Cycle the R2K has been up 78% of the time with an average gain of 3.4%.  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, in April, over all years since 1979 in magenta and the average daily performance during the 3rd year of the Presidential Cycle in black.

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 3rd year of the Presidential Cycle the DJIA has been up 75% of the time in April with an average gain of 3.0%.  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 during April, over all years in magenta and the average performance during the 3rd year of the Presidential Cycle in black.

Conclusion

The highs of a week ago were widely confirmed suggesting additional new highs in the near future.

I expect the major averages to be higher on Thursday April 2 than they were on Friday March 27.

Last week’s positive forecast was a miss.

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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.

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