Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
The Central Bank Time Machine - 23rd Aug 19
Stock Market August Breakdown Prediction and Analysis - 23rd Aug 19
U.S. To “Drown The World” In Oil - 23rd Aug 19
Modern Monetary Theory Could Destroy America - 23rd Aug 19
Seven Key Words That Explain "Stupidly High" Bond Market Prices - 23rd Aug 19
Is the Fed Too Late Prevent A US Housing Bear Market? - 23rd Aug 19
Manchester Airport FREE Drop Off Area Service at JetParks 1 - Video - 23rd Aug 19
Gold Price Trend Validation - 22nd Aug 19
Economist Lays Out the Next Step to Wonderland for the Fed - 22nd Aug 19
GCSE Exam Results Day Shock! How to Get 9 A*'s Grade 9's in England and Maths - 22nd Aug 19
KEY WEEK FOR US MARKETS, GOLD, AND OIL - Audio Analysis - 22nd Aug 19
USD/JPY, USD/CHF, GBP/USD Currency Pairs to Watch Prior to FOMC Minutes and Jackson Hole - 22nd Aug 19
Fed Too Late To Prevent US Real Estate Market Crash? - 22nd Aug 19
Retail Sector Isn’t Dead. It’s Growing and Pays 6%+ Dividends - 22nd Aug 19
FREE Access EWI's Financial Market Forecasting Service - 22nd Aug 19
Benefits of Acrobits Softphone - 22nd Aug 19
How to Protect Your Site from Bots & Spam? - 21st Aug 19
Fed Too Late To Prevent A US Housing Market Crash? - 21st Aug 19
Gold and the Cracks in the U.S., Japan and Germany’s Economic Data - 21st Aug 19
The Gold Rush of 2019 - 21st Aug 19
How to Play Interest Rates in US Real Estate - 21st Aug 19
Stocks Likely to Breakout Instead of Gold - 21st Aug 19
Top 6 Tips to Attract Followers On SoundCloud - 21st Aug 19
WAYS TO SECURE YOUR FINANCIAL FUTURE - 21st Aug 19
Holiday Nightmares - Your Caravan is Missing! - 21st Aug 19
UK House Building and House Prices Trend Forecast - 20th Aug 19
The Next Stock Market Breakdown And The Setup - 20th Aug 19
5 Ways to Save by Using a Mortgage Broker - 20th Aug 19
Is This Time Different? Predictive Power of the Yield Curve and Gold - 19th Aug 19
New Dawn for the iGaming Industry in the United States - 19th Aug 19
Gold Set to Correct but Internals Remain Bullish - 19th Aug 19
Stock Market Correction Continues - 19th Aug 19
The Number One Gold Stock Of 2019 - 19th Aug 19
The State of the Financial Union - 18th Aug 19
The Nuts and Bolts: Yield Inversion Says Recession is Coming But it May take 24 months - 18th Aug 19
Markets August 19 Turn Date is Tomorrow – Are You Ready? - 18th Aug 19
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
GOLD BULL RUN TREND ANALYSIS - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19

Market Oracle FREE Newsletter

The No 1 Gold Stock for 2019

Overbought Stock Market Expected to Correct Lower

Stock-Markets / US Stock Markets Jan 04, 2009 - 12:03 PM GMT

By: Mike_Burk

Stock-Markets Best Financial Markets Analysis ArticleThe good news is: By current fashion, a bull or bear market is defined as a major index moving 20% off its low or high. By that definition, we are in a bull market with every major index except the Dow Jones Industrial average (DJIA) more that 20% off its November low. The Dow Jones Industrial Average (DJIA) was 19.6% off its low as of Friday's close, the S&P 500 (SPX) 23.8% off its low, the NASDAQ Composite (OTC) 24%, the Russell 2000 (R2K) 31.3% and leading the way, the Value Line Arithmetic up 39.4%.


Short Term

Every year the last week and a half of December has a strong upward seasonal bias as does the period from the day before Thanksgiving through the 1st few days of December and the last few days of October and the 1st few days of November. Those seasonally strong periods materialized on schedule last year and were followed by sharp declines. The market was up for 3 consecutive days ending Friday with the DJIA up 6.49%, SPX up 7.17%, the OTC up 8.07% and the R2K up 8.51%. If the pattern continues, we will see a decline early next week.

The chart below covers the past 6 months showing the OTC in blue and an indicator showing the percentage of the past 3 trading days that OTC On Balance Volume (OTC OBV) has been up. OTC OBV is a running total of daily declining volume subtracted from advancing volume. The indicator derived from OTC OBV touches the top of the chart when OTC OBV has been up for 3 consecutive days and it touches the bottom of the chart when OTC OBV has been down for 3 consecutive days. Including the current occurrence the indicator has touched the top of the chart 3 times and the bottom of the chart 6 times. Each previous occurrence of the indicator touching the top of the chart was followed by 2 consecutive down days.

Intermediate term

In a healthy market volume increases with prices. That has not been happening.

The chart below covers the past year showing the OTC in blue and a 5% trend (39 day EMA) of NASDAQ total volume in orange. OTC volume has been falling sharply since the November low in the index. The decline for the past week or so can be attributed to seasonal factors, but volume was falling sharply before that.

Recent headlines have declared 2008 the worst year for the DJIA since 1931. A few weeks ago, I pointed out that SPX volatility reached its highest point since late 1931.

The chart below covers the past 6 months showing the SPX in red and an indicator showing the mean of the absolute value of the daily percentage change in the SPX over the trailing 21 trading days in black.

The indicator peaked at 4.4% at the November low.

The chart below is similar to the one above except it covers the period from May 1931 to August 1932. The period was selected to show the peak in volatility along with its aftermath.

The market rallied for about a month after the volatility peak then declined until the end of December. It then rallied to a high in early March followed by a decline of 49% to the bear market low June 1, 1932.

Ben Bernanke is known to be a knowledgeable student of this period, lets hope he can do better.

Seasonality

Next week includes the 5 trading days prior to the 2nd Friday in January during the 1st year of the Presidential Cycle.

The tables show the daily return on a percentage basis for the 5 trading days prior to the 2nd Friday in January during the 1st 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 1st 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.

Performance for the week has been better over the last 20 years or so than it was prior to that.

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

OTC Presidential Year 1
Year Mon Tue Wed Thur Fri Totals
1965-1 0.31% 0.65% 0.55% 0.55% 0.31% 2.37%
1969-1 0.21% -1.10% -0.93% -1.97% -0.25% -4.04%
1973-1 0.35% 0.08% -0.02% 0.05% 0.57% 1.03%
1977-1 -0.23% -0.92% -0.40% 0.85% 0.37% -0.33%
1981-1 0.30% -0.05% -3.29% -0.74% 0.90% -2.87%
1985-1 -0.06% -0.02% 0.54% 1.34% 0.60% 2.41%
Avg 0.12% -0.40% -0.82% -0.09% 0.44% -0.76%
1989-1 0.14% -0.18% 0.19% 0.44% 0.02% 0.61%
1993-1 0.77% -0.43% 1.08% 1.30% 0.21% 2.92%
1997-1 0.43% 0.86% -0.55% 0.44% 0.44% 1.62%
2001-1 -0.49% 1.89% 3.40% 4.61% -0.53% 8.88%
2005-1 0.40% -0.83% 0.62% -1.05% 0.84% -0.02%
Avg 0.25% 0.26% 0.95% 1.15% 0.19% 2.80%
OTC summary for Presidential Year 1 1965 - 2005
Avg 0.19% 0.00% 0.11% 0.53% 0.32% 1.14%
Win% 73% 36% 55% 73% 82% 64%
OTC summary for all years 1963 - 2008
Avg 0.42% -0.13% -0.03% 0.48% 0.29% 1.03%
Win% 70% 52% 48% 74% 72% 65%
SPX Presidential Year 1
Year Mon Tue Wed Thur Fri Totals
1953-1 0.45% -0.68% -0.42% -0.15% -0.95% -1.74%
1957-1 -0.51% -0.37% -0.19% 0.24% -0.19% -1.03%
1961-1 0.56% 0.27% 0.29% 0.30% 0.47% 1.90%
1965-1 0.04% 0.25% 0.27% 0.00% 0.43% 0.98%
1969-1 -1.46% -1.22% -0.41% 0.42% -0.29% -2.97%
1973-1 -0.02% -0.10% -0.25% 0.68% -0.78% -0.47%
1977-1 0.18% -1.03% -0.69% 0.77% -0.18% -0.95%
1981-1 1.20% 0.11% -2.20% -1.50% 0.32% -2.08%
1985-1 0.34% -0.15% 0.73% 1.89% -0.24% 2.57%
Avg 0.05% -0.48% -0.57% 0.45% -0.23% -0.78%
1989-1 0.11% -0.21% 0.58% 0.41% 0.25% 1.14%
1993-1 0.44% 0.02% 0.46% 0.67% 0.28% 1.87%
1997-1 -0.05% 0.75% -0.64% 0.86% 0.61% 1.53%
2001-1 -0.19% 0.38% 0.96% 1.03% -0.64% 1.54%
2005-1 0.34% -0.61% 0.40% -0.86% 0.60% -0.13%
Avg 0.13% 0.06% 0.35% 0.42% 0.22% 1.19%
SPX summary for Presidential Year 1 1953 - 2005
Avg 0.10% -0.18% -0.08% 0.37% -0.02% 0.16%
Win% 64% 43% 50% 77% 50% 50%
SPX summary for all years 1953 - 2008
Avg 0.14% -0.21% -0.24% 0.25% 0.10% 0.04%
Win% 59% 38% 41% 71% 55% 52%

Money Supply

The chart below as provided by Gordon Harms. For the past few weeks money supply has been growing at a sharply accelerated rate.

1st year of the Presidential Cycle

Since 1963 the OTC has been up 64% of the time during the 1st year of the Presidential Cycle with an average gain of 6.3% making it 3rd best year of the Presidential Cycle behind year 3 up 92% of the time with an average gain of 34.3% and year 4 up 75% of the time with an average gain of 7.6%. The best ever year 1 was 1985, up 31.1% and the worst ever year 1 was 1973, down 31.1%

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 1st 11 trading days of each month and each of the last 10 trading days of each month. Each of the 12 months is strung together to show an average year. Dashed vertical lines have been drawn on the 1st trading day of each month.

The blue line shows the average of all years since 1963 while the green line shows the average during the 1st year of the Presidential Cycle.

Since 1928 the SPX has been up 50% of the time during the 1st year of the Presidential Cycle with an average gain of 3.1% making it the worst year of the Presidential Cycle behind year 3 up 89% of the time with an average gain of 14.9%, year 4 up 71% of the time with an average gain of 6.7% and year 2 up 55% of the time with an average gain of 4.0%. The best ever year 1 was 1997, up 31.0% and the worst ever year 1 was 1937, down 38.6%

The chart below is similar to the one above except it shows the SPX average for all years since 1928 in red and the average for the 1st year of the Presidential Cycle in green.

On average the low for the year has been in early April.

Conclusion

The market is overbought so the 1st few days of next week are likely to be down.

I expect the major indices to be lower on Friday January 9 than they were on Friday January 2.

Last weeks negative forecast was a miss.

Over the past year you got what you paid for in my weekly forecasts. There were 20 wins, 20 losses and 13 ties. The score for the year is at the end of each letter (just below my name). Everything will be reset to 0 after this week.

Thank you,

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

© 2005-2019 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

6 Critical Money Making Rules