Notably missing from the above list are the S&P mid cap index (only 0.1% off its all time high) and NASDAQ composite (OTC) (1.1% off its early January multi year high).
The extreme volatility of the past two weeks has distorted the short term indicators. Several of the major indices including the Wil-5, SPX, OTC and R2K have had 4 or more consecutive down days quickly followed by as many as 6 consecutive up days. This kind of volatility has occurred most often near turning points. For example, the last time the Wil-5 had a similar pattern was at the 2004 low in August. The two occurrences before that were around the high of March - April 2003 and near the lows of July and October 2002.
The first chart covers the period from the low nearly a year ago with dashed vertical lines on the 1st trading day of each month. The indicator, in blue shows the percentage of the last 4 trading days that have been up, the index in red is the Wil-5. The indicator reaches the top of the screen when there have been 4 or more consecutive up days and it reaches the bottom of the screen when there have been 4 or more consecutive down days. Before last week, there had not been 4 consecutive down days since the October low.
The secondaries lead both up and down. The chart below covers the period from the April low through last Friday. It shows the OTC in red and Accutrack (AT) a FastTrack relative strength indicator in black. AT is comparing the strength of the R2K to the SPX. When the R2K is stronger than the SPX the indicator moves upward. The indicators current pattern is similar to the high of last August.
Options and futures expired last Friday. The week following the 3rd. Friday in March has been mixed averaging a little up for the OTC during the 2nd year of the Presidential Cycle and a little down over all years. The index has been up about half the time by either measure. What is interesting in the tables below are the extremes, the index has been up or down nearly 2% about half of the time. The same is true for the SPX, but the bias has been a little more negative.
The extreme volatility of the past two weeks inhibits the usefulness of the indicators. On the other hand, extreme volatility is usually seen around major turning points and we are in the midst of the period the high for the 2nd year of the Presidential Cycle is usually observed.
I expect the major indices to be lower on Friday March 24 than they were on Friday March 17.
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Disclaimer: 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.
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