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Weekly Stock Market Technical Analysis Report - 13th Jan 07

Stock-Markets / Forecasts & Technical Analysis Jan 13, 2007 - 03:39 PM GMT

By: Mike_Burk

Stock-Markets

The good news is:
• Many of the major indices closed at or near multiyear or all time highs on Friday.

Short Term
Several of the major indices including the NASDAQ composite (OTC), S&P Mid cap, Russell 2000 (R2K) and Wilshire 5000 were up every day last week. This is a sign of strength that does not occur very often, but, it is also an overbought indication.


The chart below covers the past year showing the R2K in red and an indicator showing the percentage of the previous 5 trading that have been up in black. The indicator touches the top of the screen when there have been 5 consecutive up days and it touches the bottom of the screen when there have been 5 consecutive down days. In the past year there have been 3 other times when the indicator touched the top of the screen and each one was followed by a brief decline.

Intermediate term
New lows usually begin to increase before tops.

From the beginning of the year through last Wednesday there has been a modest build up in the number of new lows, but, on Friday we had the fewest new lows since the day after Thanksgiving.

The chart below covers the past year showing the OTC in red and an indicator of new lows (OTC NL) in blue. OTC NL is a 10% trend (19 day EMA) of NASDAQ new lows plotted on an inverted Y axis so fewer new lows move the indicator upward (up is good).

The increase in new lows that began the first of the year was arrested last week. The current value of the indicator is 27 any number of NASDAQ new lows greater than 27 turn the indicator downward again jeopardizing the rally.

Healthy bull markets are accompanied by expanding new highs.

The chart below covers the past year showing the OTC in red and the NASDAQ new high indicator (OTC NH) in green. OTC NH is a 10% trend of NASDAQ new highs.

The indicator peaked around February 1, 2006 and during the rally that began last summer has never come close to that earlier peak. The recent high for the indicator was made in mid November and at Friday's multiyear high for the index, the indicator is substantially lower than it was last November.

Diminishing new highs during a rally indicate narrowing leadership, this is not good.

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Seasonality
The 3rd Monday of January was first observed as Martin Luther King Jr. Day in 1986, it became a paid holiday in all 50 states in 1993 and the market began closing in observance of the holiday in 1998.

The market will be closed next Monday in observance of the Martin Luther King holiday and options expire on Friday.

In the tables below, OTC data covers the period from 1963 - 2003 and SPX data from 1955 – 2003 during the 3rd year of the Presidential Cycle. There are summaries for both the 3rd year of the Presidential Cycle and all years combined beginning with 1963 for the OTC and 1953 for the S&P 500. Data prior to 1953 has been omitted because the market traded 6 days a week.

On average the indices have been up over the coming week, however, they have been down during the last 3 Presidential Cycles.

Report for the week before the 3rd Friday of January.
The number following the year is the position in the presidential cycle.
Daily returns from Monday to witching Friday.

OTC Presidential Year 3
Year Mon Tue Wed Thur Fri Totals
1963-3 0.13% -0.23% 0.26% 0.68% 0.65% 1.49%
1967-3 1.01% -0.25% 0.75% 0.08% 0.96% 2.55%
1971-3 0.07% 0.44% 0.20% 1.26% 2.13% 4.11%
1975-3 -0.55% -0.36% 1.20% 1.46% -1.08% 0.67%
1979-3 0.59% -0.59% -0.12% 0.58% 0.27% 0.74%
1983-3 0.61% -0.20% -0.59% 0.32% -0.82% -0.67%
1987-3 1.26% 0.24% 0.92% 0.67% -0.69% 2.41%
Avg 0.40% -0.09% 0.32% 0.86% -0.04% 1.45%
1991-3 -1.67% 0.44% 2.21% 2.91% 0.31% 4.19%
1995-3 0.79% 0.52% 0.03% -0.50% -0.85% -0.01%
1999-3 0.00% 2.53% 0.32% -2.93% -0.25% -0.32%
2003-3 -0.12% 1.03% -1.52% -1.05% -3.34% -4.99%
Avg -0.33% 1.13% 0.26% -0.39% -1.03% -0.28%
OTC summary for Presidential Year 3 1963 - 2003
Avg 0.21% 0.33% 0.33% 0.32% -0.25% 0.93%
Win% 70% 55% 73% 73% 45% 64%
OTC summary for all years 1963 - 2006
Avg 0.05% 0.27% 0.18% 0.35% 0.03% 0.87%
Win% 63% 61% 64% 70% 61% 75%
SPX Presidential Year 3
Year Mon Tue Wed Thur Fri Totals
1955-3 -1.98% 0.64% 0.46% 0.49% 0.88% 0.48%
1959-3 0.02% -0.56% 0.27% 0.38% -0.04% 0.07%
1963-3 0.54% -0.14% -0.68% 0.71% 0.08% 0.51%
1967-3 -0.26% 1.10% 0.65% 0.03% 0.29% 1.81%
1971-3 0.41% 0.37% 0.02% 0.44% 0.73% 1.97%
1975-3 -0.41% -0.87% 0.64% -0.12% -1.51% -2.28%
1979-3 0.76% -1.22% 0.02% 0.24% 0.03% -0.17%
1983-3 0.04% -0.21% -0.77% 0.70% -1.67% -1.91%
1987-3 0.61% -0.13% 1.03% 1.09% 0.30% 2.89%
Avg 0.28% -0.41% 0.19% 0.47% -0.42% 0.10%
1991-3 -0.87% 0.40% 0.78% 3.73% 1.30% 5.34%
1995-3 0.73% 0.14% -0.07% -0.59% -0.46% -0.25%
1999-3 0.00% 0.61% 0.46% -1.70% -0.81% -1.45%
2003-3 -0.14% 0.58% -1.44% -0.39% -1.40% -2.80%
Avg -0.09% 0.43% -0.07% 0.26% -0.34% 0.21%
SPX summary for Presidential Year 3 1955 - 2003
Avg -0.05% 0.06% 0.10% 0.38% -0.18% 0.33%
Win% 58% 54% 69% 69% 54% 54%
SPX summary for all years 1953 - 2006
Avg -0.03% 0.13% 0.03% 0.14% -0.10% 0.17%
Win% 46% 57% 57% 62% 52% 54%

 

Conclusion
The market is overbought entering a week that recently has had a negative seasonal bias.

I expect the major indices to be lower on Friday January 19 than they were on Friday January 12.

By Mike Burke

Mike Burk is an employee and principle 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. The views expressed are provided for information purposes only and should not be construed in any way as investment advice. Furthermore, the opinions expressed may change without notice. To subscribe to this report : http://alphaim.net/signup.html


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