Technical market report for December 19, 2009

Technical market report for December 19, 2009

The good news is:

·        Several of the blue chip averages hit new recovery highs last week.

Short Term

I pine for the good old days of a month ago when the market was moving in an easily identifiable pattern peaking mid month and bottoming at the end of the month. 

The chart below illustrates my point, it covers the last 6 months showing the NYSE composite (NYA) in red and two indicators that have traced the same cyclical pattern.  The indicator shown in blue (MoM 10) shows the percentage of NYSE equity issues with positive 10 day momentum.  The indicator shown in green (NFT) shows the percentage of NYSE equity issues with a positive trend.  The dashed horizontal line defines the neutral point for the indicators.  Dashed vertical lines have been drawn on the 1^st trading day of each month.

Late last month the downside part of the swing was cut short then the upside went nowhere.

The next chart shows the NASDAQ composite (OTC) in blue and the NASDAQ advance - decline line (OTC ADL) in green.  OTC ADL is a running total of daily NASDAQ declining issues subtracted from advancing issues.

The earlier cyclical patterns do not show up as well in this indicator, but, the flat line of the last month and a half does.

Intermediate term

Nothing changed in the past week.

The next 2 charts are updates of ones I have been showing for a while.  The first shows the OTC in blue and a 40% trend (4 day EMA) of the ratio of NASDAQ new highs to new lows (OTC HL Ratio) in red.  OTC HL Ratio is calculated by dividing the number of new highs by new highs plus new lows.  Dashed horizontal lines have been drawn at 10% levels of the indicator; the line is solid at the neutral 50% level.

The next chart is similar to the one above except it shows the S&P 500 (SPX) in red and the indicator has been calculated from NYSE data.  The pattern is similar and a little stronger.

These indicators are very strong and, as long as they remain that way, nothing really bad is likely to happen. 

Seasonality

Next week includes the 4 trading days prior to Christmas during the 1^st year of the Presidential Cycle. 

The tables below show the return on a percentage basis for the 4 trading days prior to Christmas during the 1^st year of the Presidential Cycle.  OTC data covers the period from 1963 - 2008 and SPX data from 1953 - 2008.  Prior to 1953 the market traded 6 days a week so that data has been ignored.  There are summaries for both the 1^st year of the Presidential Cycle and all years combined.

Average returns for the coming week during the 1^st year of the Presidential Cycle have been modestly negative while the averages over all years have been slightly positive.

4 days before Christmas.
The number following the year represents its position in the presidential cycle.
The number following the daily return represents the day of the week;
1 = Monday, 2 = Tuesday etc.

OTC Presidential Year 1
               Day4       Day3       Day2       Day1       Totals
 1965-1       0.00% 1   -0.49% 2   -0.63% 3   -0.03% 4    -1.16%

 1969-1       1.28% 5    0.33% 1    0.03% 2   -0.42% 3     1.22%
 1973-1      -0.35% 3    0.03% 4   -0.83% 5   -0.95% 1    -2.10%
 1977-1      -0.77% 2    0.52% 3    0.37% 4    0.51% 5     0.62%
 1981-1      -0.32% 1   -0.37% 2   -0.10% 3    0.13% 4    -0.67%
 1985-1       0.06% 4    0.14% 5   -0.48% 1   -0.38% 2    -0.65%

 Avg         -0.02%      0.13%     -0.20%     -0.22%      -0.32%

 1989-1      -0.39% 2    0.60% 3    0.95% 4    0.79% 5     1.95%
 1993-1       0.12% 1   -0.59% 2    0.06% 3    0.35% 4    -0.07%
 1997-1       0.10% 5    0.49% 1   -1.45% 2   -0.69% 3    -1.55%
 2001-1      -1.09% 3   -3.25% 4    1.42% 5   -0.07% 1    -2.98%
 2005-1      -0.01% 2    0.42% 3    0.66% 4    0.13% 5     1.20%

 Avg         -0.25%     -0.47%      0.33%      0.10%      -0.29%

OTC summary for Presidential Year 1 1965 - 2005
Averages     -0.13%     -0.20%      0.00%     -0.06%      -0.38%
%Winners        36%        64%        55%        45%         36%
MDD  12/20/2001  4.30% --  12/24/1997  2.13% --  12/24/1973  2.09%

OTC summary for all years 1963 - 2008
Averages      0.00%     -0.10%      0.26%      0.32%       0.48%
% Winners      47%        54%        65%        65%         63%

SPX Presidential Year 1
               Day4       Day3       Day2       Day1       Totals
 1953-1      -0.16% 1   -0.76% 2   -0.28% 3    0.45% 4    -0.76%
 1957-1       1.07% 4   -0.80% 5    0.00% 1    0.10% 2     0.36%
 1961-1      -0.70% 2   -0.20% 3   -0.37% 4    0.07% 5    -1.19%
 1965-1      -0.47% 1    0.39% 2    0.30% 3   -0.11% 4     0.12%

 1969-1       0.85% 5   -0.88% 1   -0.39% 2    1.05% 3     0.64%
 1973-1       0.08% 3   -0.28% 4   -1.07% 5   -0.68% 1    -1.95%
 1977-1      -0.20% 2    0.59% 3    0.81% 4    0.95% 5     2.14%
 1981-1      -0.53% 1   -0.37% 2   -0.46% 3    0.19% 4    -1.18%
 1985-1       0.10% 4    0.44% 5   -1.12% 1   -0.69% 2    -1.27%

 Avg          0.06%     -0.10%     -0.45%      0.16%      -0.32%

 1989-1      -0.36% 2    0.11% 3    0.57% 4    0.77% 5     1.08%
 1993-1      -0.11% 1   -0.12% 2    0.43% 3    0.01% 4     0.22%
 1997-1      -0.89% 5    0.73% 1   -1.53% 2   -0.68% 3    -2.37%
 2001-1       0.58% 3   -0.84% 4    0.44% 5   -0.02% 1     0.16%
 2005-1      -0.61% 2    0.25% 3    0.42% 4    0.04% 5     0.11%

 Avg         -0.28%      0.03%      0.07%      0.02%      -0.16%

SPX summary for Presidential Year 1 1953 - 2005
Averages     -0.10%     -0.12%     -0.16%      0.10%      -0.28%
%Winners        36%        43%        43%        64%         57%
MDD  12/24/1997  2.37% --  12/24/1973  2.02% --  12/24/1985  1.80%

SPX summary for all years 1953 - 2008
Averages      0.02%      0.06%     -0.03%      0.27%       0.32%
% Winners      41%        54%        46%        70%         61% 

Money Supply (M2)

The money supply chart was provided by Gordon Harms.

Money supply growth leveled off below trend last week.

Conclusion

The trends that can be identified are modestly positive.

I expect the major indices to be higher on Thursday December 24 than they were on Friday December 18.

Last week was pretty much the opposite of the week before, the blue chips were down a little and the secondaries were up a little so I am calling last week's positive forecast a tie.

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Thank you,
Mike Burk
YTD W23/L17/T8

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.

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