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Stocks Technicals Point to Sustainable Rally Underway

Stock-Markets / US Stock Markets Nov 09, 2008 - 06:31 AM GMT

By: Mike_Burk

Stock-Markets

The good news is: The bottom indicators have been moving sharply upward suggesting a high likelihood of a rally lasting at least several weeks.

Short Term - Downside volume has been drying up.


The chart below covers the past 6 months showing the S&P 500 (SPX) in red and a 5% trend (39 day EMA) of NYSE downside volume (NY DV) in black. NY DV has been plotted on an inverted Y axis so decreasing downside volume moves the indicator upward (up is good). Dashed vertical lines have been drawn on the 1st trading day of each month.

NY DV has been ratcheting upward since the October 10 low and that upward movement has accelerated in the past week and a half.

The next chart shows the same index and indicator at the 2002 bottom.

The next chart shows the same index and indicator at the 1998 bottom.

The sharp move upward in DV suggests a short term low is in place.

Intermediate term

On Monday there were 21 new lows on the NYSE, the lowest number since April 8. That number increased to 133 on Thursday.

The chart below covers the past year showing the SPX in red and a 10% trend (19 day EMA) 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).

The next chart is similar to the previous one except it shows the NASDAQ composite (OTC) in blue and the indicator OTC NL has been calculated from NASDAQ new lows.

Currently it would require more than 337 new lows on the NYSE or 247 new lows on the NASDAQ to turn those indicators downward. As long as OTC NL and NY NL do not turn downward it is unlikely the October 24 lows will be penetrated.

Seasonality

Next week is the week prior to the 2nd Friday of November during the 4th year of the Presidential Cycle.

The tables show the daily return on a percentage basis for week prior to the 2nd Friday of November during the 4th year of the Presidential Cycle. OTC data covers the period from 1963 - 2007 and SPX data from 1953 - 2007. There are summaries for both the 4th 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.

Large losses in 2000 skew the averages downward otherwise the indices have been up a little over half of the time with modest gains.

Report for the week before the 2nd Friday of November
The number following the year is the position in the presidential cycle.
Daily returns from Monday to 2nd Friday.

OTC Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1964-4 0.25% 0.25% -0.27% 0.16% 0.30% 0.68%
1968-4 -0.68% 0.00% -0.54% 0.06% -0.09% -1.25%
1972-4 0.18% 0.00% -0.39% -0.18% 0.23% -0.16%
1976-4 -0.82% -0.74% -0.30% 0.38% -0.06% -1.54%
1980-4 -0.21% 0.99% 1.42% 1.25% 0.75% 4.20%
1984-4 0.20% 0.86% -0.32% -0.10% 0.00% 0.64%
Avg -0.27% 0.37% -0.03% 0.28% 0.21% 0.38%
1988-4 -1.18% 0.62% -0.29% 0.17% -1.23% -1.91%
1992-4 0.85% 0.92% 1.14% -0.09% 0.44% 3.26%
1996-4 -0.11% 0.70% 1.37% 0.66% 0.27% 2.89%
2000-4 -1.03% -0.01% -5.39% -0.97% -5.36% -12.75%
2004-4 0.02% 0.20% -0.43% 1.31% 1.17% 2.27%
Avg -0.29% 0.49% -0.72% 0.22% -0.94% -1.25%
OTC summary for Presidential Year 4 1964 - 2004
Avg -0.23% 0.42% -0.36% 0.24% -0.36% -0.33%
Win% 45% 78% 27% 64% 60% 55%
OTC summary for all years 1963 - 2007
Avg -0.03% 0.19% -0.02% 0.17% -0.04% 0.26%
Win% 44% 63% 56% 60% 59% 53%
SPX Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1956-4 1.32% 0.00% -1.03% -0.81% -0.83% -1.35%
1960-4 0.38% 0.00% 0.44% 1.41% -0.46% 1.76%
1964-4 -0.05% -0.41% 0.28% 0.13% 0.02% -0.02%
1968-4 0.04% 0.00% 0.16% 0.22% 0.43% 0.86%
1972-4 -0.21% 0.00% -0.55% 0.13% 0.20% -0.43%
1976-4 -1.21% -0.28% -0.51% 0.84% -0.40% -1.57%
1980-4 0.23% 1.37% 2.54% 1.41% 0.48% 6.04%
1984-4 0.69% 1.09% -0.73% -0.29% -0.64% 0.12%
Avg -0.09% 0.73% 0.18% 0.46% 0.02% 1.01%
1988-4 -0.86% 0.45% -0.66% 0.13% -2.11% -3.05%
1992-4 0.24% 0.01% 0.86% 0.16% -0.10% 1.16%
1996-4 0.42% 1.05% 1.46% 0.42% 0.44% 3.79%
2000-4 0.39% -0.02% -1.58% -0.65% -2.44% -4.30%
2004-4 -0.11% -0.07% -0.10% 0.91% 0.91% 1.54%
Avg 0.02% 0.28% 0.00% 0.19% -0.66% -0.17%
SPX summary for Presidential Year 4 1956 - 2004
Avg 0.10% 0.35% 0.04% 0.31% -0.35% 0.35
Win% 62% 56% 46% 77% 46% 54%
SPX summary for all years 1953 - 2007
Avg -0.05% 0.14% 0.07% 0.18% 0.00% 0.31%
Win% 51% 52% 59% 60% 57% 56%

Money Supply (M2)

The chart was provided by Gordon Harms. Money supply growth has been accelerating sharply enough to enhance the chances of an upswing in equities.

Conclusion

A retest of the October 24 low is possible in the next few days, but with the bottom indicators moving sharply upward, it is unlikely the October low will be penetrated.

I expect the major indices to be higher on Friday November 14 than they were on Friday November 7.

Last weeks positive forecast 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

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