Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stock Markets Oversold, Bottom Imminent

Stock-Markets / US Stock Markets Jan 13, 2008 - 08:28 AM GMT

By: Mike_Burk

Stock-Markets

The good news is: The market is likely to be at or near a short term bottom.

Short Term
My daily history of the S&P mid cap index (MID) begins in 1991. Including the period that ended last Tuesday there have been 3 occasions when the index has fallen for 9 consecutive days. The others were the period before and after 9/11/2001 and late August 1998. 9/11/2001 is obviously a special case, but there are numerous similarities between August 1998 and the current period including a threat to the financial system by the failure of Long Term Capital Management which, like Citibank, Merrill Lynch and Countrywide, was considered too big to fail.


In 1998 the small and mid cap indices peaked in April, hit a low in June, rallied to mid July when the blue chip indices hit their highs, declined into late August, rallied into late September then fell to their final cycle lows in early October.

The recent pattern has been similar. Most of the major indices hit highs in mid July, lows in mid August, rallied into mid October (where the blue chip indices made their tops while the mid and small cap indices did not) then fell to the recent lows.

The recent pattern has played out over about 6 months while the 1998 decline took about 41/2 months from the April highs to the August lows. The magnitude of the 1998 decline was nearly double what we have seen so far.

The first chart covers the past 6 months showing the MID in red and an indicator showing the percentage of the previous 9 trading days that were up in black. Dashed vertical lines have been drawn on the 1 st trading day of each month. The indicator would hit the top of the chart when there have been 9 consecutive up days and it hits the bottom of the chart when there have been 9 consecutive down days.

The next chart is similar to the one above except it covers the period from the April 1998 highs to the bottom in October. After 9 consecutive down days the index rallied for about 3 weeks before falling to its final low in October.

The MID was the only major index to decline for 9 consecutive days. I selected it because it was easier to make the point that we have recently seen an oversold extreme.

Intermediate Term

When the market hits a low with an extreme number of new lows it usually retests that low. Near the August low there were 480 new lows on the NASDAQ implying a retest of that low. Near the late November low there were 359 new lows, less than the August low, but still enough to suggest another retest. Last Wednesday there were 595 new lows on the NASDAQ suggesting another retest to come.

The chart below covers the past year showing the NASDAQ composite (OTC) in blue and a 10% trend (19 day EMA) of NASDAQ new lows (OTC NL) in red. OTC NL has been plotted on an inverted Y axis so decreasing new lows move the indicator upward (up is good). OTC NL is at its lowest point since the 2002 bottom.

The next chart is similar to the one above except it shows the 1998 bottom. The OTC retested the August low in October with a lower low while OTC NL made a higher low not confirming the October price low.

The OTC hit a new low for the cycle on Friday as did OTC NL, however, there were less than half the number of new lows on the NASDAQ on Friday than there were on Wednesday. The comparison was even better on the NYSE.

Money supply (M2)

The money supply chart has been provided by Gordon Harms.

Seasonality

Next week is the week prior to the 3 rd Friday in January during the 4 th year of the Presidential Cycle.

The tables show the daily change of the OTC and SPX during the week prior to the 3 rd Friday in January during the 4 th year of the Presidential Cycle. OTC data covers the period from 1964 – 2004 and SPX data from 1953 – 2004. There are summaries for both the 4 th year of the Presidential Cycle and all years combined. Prior to 1953 the market traded 6 days a week so that data has been ignored.

Historically the SPX has been up about half of the time with modest gains over all years and modest losses during the 4 th year of the Presidential Cycle. The OTC however, has been quite strong, up 82% of the time during the 4 th year of the Presidential Cycle with an average again over 1%.

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 through 3rd Friday.

OTC Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1964-4 -0.19% 0.14% 0.38% 0.14% -0.22% 0.25%
1968-4 0.43% 0.18% -0.85% 0.36% 0.16% 0.28%
1972-4 0.16% 0.62% -0.18% -0.11% -0.09% 0.40%
1976-4 0.49% -1.56% 2.70% 0.13% 0.68% 2.44%
1980-4 0.34% 0.36% 0.66% -0.12% 0.21% 1.47%
1984-4 -0.20% 0.20% 0.12% -0.25% -0.73% -0.85%
Avg 0.25% -0.04% 0.49% 0.00% 0.05% 0.75%
1988-4 0.11% -0.05% -1.96% 0.17% 1.00% -0.73%
1992-4 0.31% 1.31% 0.81% -0.55% -0.08% 1.81%
1996-4 -1.95% 0.74% 0.24% 0.89% 1.12% 1.05%
2000-4 0.00% 1.64% 0.50% 0.92% 1.10% 4.15%
2004-4 1.19% -0.73% 0.70% -0.10% 1.49% 2.56%
Avg -0.08% 0.58% 0.06% 0.27% 0.93% 1.77%
OTC summary for Presidential Year 4 1964 - 2004
Avg 0.07% 0.26% 0.28% 0.13% 0.42% 1.17%
Win% 70% 73% 73% 55% 64% 82%
OTC summary for all years 1963 - 2007
Avg 0.05% 0.25% 0.16% 0.31% 0.04% 0.81%
Win% 63% 60% 62% 69% 62% 73%
SPX Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1956-4 -1.19% 0.75% -0.67% -1.02% -1.14% -3.28%
1960-4 -0.84% -1.07% -0.35% 0.25% 0.30% -1.72%
1964-4 -0.03% 0.18% 0.37% -0.12% 0.01% 0.42%
1968-4 -0.31% -0.62% -0.19% -0.08% -0.33% -1.54%
1972-4 0.30% 0.34% -0.16% 0.00% -0.22% 0.25%
1976-4 1.45% -0.79% 1.63% -0.54% 0.40% 2.17%
1980-4 0.42% 0.69% -0.08% -0.32% 0.33% 1.05%
1984-4 0.10% 0.39% -0.17% -0.30% -0.50% -0.48%
Avg 0.39% 0.00% 0.21% -0.31% -0.06% 0.29%
1988-4 -0.07% -1.02% -2.68% 0.21% 1.38% -2.17%
1992-4 -0.18% 1.47% 0.08% -0.61% 0.16% 0.91%
1996-4 -0.33% 1.44% -0.34% 0.31% 0.59% 1.66%
2000-4 0.00% -0.69% 0.05% -0.71% -0.29% -1.63%
2004-4 0.48% -0.53% 0.83% 0.14% 0.69% 1.60%
Avg -0.03% 0.13% -0.41% -0.13% 0.50% 0.07%
SPX summary for Presidential Year 4 1956 - 2004
Avg -0.02% 0.04% -0.13% -0.23% 0.11% -0.21%
Win% 42% 54% 38% 33% 62% 54%
SPX summary for all years 1953 - 2007
Avg -0.03% 0.13% 0.03% 0.13% -0.09% 0.17%
Win% 46% 58% 56% 61% 53% 53%

 

Conclusion
The market is very oversold and likely to be at or near a short term bottom.

I expect the major indices to be higher on Friday January 18 than they were on Friday January 11.

Last weeks positive forecast based on a rally from an oversold condition was a miss.

By Mike Burk
To subscribe to this report : http://alphaim.net/signup.html

Gordon Harms produces a Power Point for our local timing group. You can get a copy of that at: http://www.stockmarket-ta.com/ .

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 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.

Mike Burk Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in