Technical Stock Market Report

The good news is:  There has been no significant increase in new lows on the NASDAQ. The negatives: New highs have disappeared.

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 1^st trading day of each month.

NY NH peaked last May, failed to confirm the SPX high in early August and has continued to fall.

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

OTC NH took out its lows for this year.

The chart below covers the past 6 months showing the SPX in red and a 40% trend (4 day EMA) of NYSE new highs / (new highs + new lows), (NY 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.

NY HL Ratio has been unable to hold above the neutral line.

The positives

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

OTC HL ratio has managed to hold above the neutral line.

NYSE new lows picked up a little last week, but remained well below their levels of 2 weeks ago.

The chart below covers the past 6 months showing the SPX in red and a 10% trend of NYSE new lows (NY NL) in blue.  NY NL has been plotted on an inverted Y axis so decreasing new lows move the indicator upward (up is good).

NY NL continued moving sharply upward in spite of prices in general having a down week.

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

OTC NL also moved upward last week, but not as impressively as NY NL.

Seasonality

Next week includes the first 4 trading days of September during the 1^st year of the Presidential Cycle.

The tables below show the daily return on a percentage basis for the first 4 trading days September during the 1^st year of the Presidential Cycle.

OTC  data covers the period from 1963 – 2012 while SPX data runs from 1928 - 2012.  There are summaries for both the 1^st year of the Presidential Cycle and all years combined.

Returns for the coming week have been modestly positive over all years, but, modestly negative during the 1^st year of the Presidential Cycle.

Money Supply (M2)

The money supply chart was provided by Gordon Harms.

Money supply growth took a dive last week.

September

The charts for September are not the best because of the way the charts are calculated and the extreme activity around 911 which was in the 1^st year of the Presidential Cycle.

Since 1963, over all years, the OTC in September has been up 60% of the time and as been on average flat for the month.  During the 1^st year of the Presidential Cycle September has been up 67% time with an average loss of -0.1% (helped considerably by a 17% loss in 2001).  The best September ever for the OTC was 1998 (+13.0%), the worst 2001 (-17.0%).

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 1^st 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 1^st trading day and at 5 trading day intervals after that.  The line is solid on the 11^th trading day, the dividing point.

In the chart below the blue line shows the average of the OTC in September over all years since 1963 while the black line shows the average during the 4^th year of the Presidential Cycle over the same period.

Since 1928 the SPX has been up 45% of the time in September with an average loss of -1.1%.  During the 1^st year of the Presidential Cycle the SPX has been up 38% of the time with an average loss of -1.8%.  The best September ever for the SPX was 1939 +16.5% the worst 1931 -29.9%.

The chart below is similar to the one above except it shows the average daily performance over all years for the SPX in September in red and the performance during the 4^th year of the Presidential Cycle in black.

Since 1979 the Russell 2000 (R2K) has been up 56% of the time in September with an average loss of -0.5%.  During the 1^st year of the Presidential Cycle the R2K has been up 63% of the time with an average loss of 1.6% (helped by a 13.6% loss in 2001).  The best September ever for the R2K, 2010 +12.3%, the worst 2001 (-13.6%)

The chart below is similar to those above except it shows the daily performance over all years of the R2K in September in magenta and the performance during the 4^th year of the Presidential Cycle in black.

Since 1885 the DJIA has been up 44% of the time in September with an average loss of -1.0%.  During the 1^st year of the Presidential Cycle the DJIA has been up 50% of the time in September with an average loss of 1.2%.  The best September ever for the DJIA, 1939 +13.5%, the worst 1930 -30.7%.

The chart below is similar to those above except it shows the daily performance over all years of the DJIA in September in cyan and the performance during the 4^th year of the Presidential Cycle in black.

Conclusion

Seasonality for the coming week is modestly negative and there is nothing in the breadth indicators suggesting strength.

I expect the major averages to be lower on Friday September 6 than they were on Friday August 30.

Last weeks positive forecast was a miss.

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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.