Burk's Technical Market Report
Mike Burk
December 27, 2008
The good news is:
- The Santa Clause rally commenced on schedule.
Short Term
Most of the major indices have not been up or down for more than two consecutive days since late November and they were up both Wednesday and Friday of last week. So Monday is likely to be down. 2009 is the 1st year of the Presidential Cycle and the 1st trading day of the 1st year of the Presidential Cycle has been down every year since 1985, however, 1981, the last time the market was up, the 1st trading day of the year fell on a Friday as it does this year.
The S&P 500 (SPX) has been down every year on the last trading day of the 4th year of the Presidential Cycle since 1989 while the NASDAQ composite (OTC) has been up 3 out of the 5 final days of the 4th year, but with a negative average return.
Dissecting it this way, Tuesday is the only day for which there is much hope.
Intermediate term
NYSE new highs have deteriorated over the past month to where a 10% trend (19 day EMA) is at its lowest value since December 1987.
The chart below covers the past 6 months showing the SPX in red and a 10% trend of NYSE new highs (NY NH) in green. NY NH has been falling most of the month while prices have been rallying.
Calculation of the indicator on the next chart is a little esoteric (4 day momentum of a 14 day oscillator of new highs and new lows calculated from the component issues of the Russell 2000 (R2K) over the trailing 15 trading days).
While the R2K was up over the last 2 trading days the indicator was below the neutral line and falling.
Seasonality
Next week includes the last 3 days of the 4th year of the Presidential Cycle and the 1st day of the 1st year of the Presidential Cycle.
The tables show the daily return on a percentage basis for the last 3 days of the 4th year of the Presidential Cycle and the 1st day of the 1st year of the Presidential Cycle. OTC data covers the period from 1963 â€" 2007 and SPX data from 1929 - 2007. There are summaries for both the 4th / 1st years of the Presidential Cycle and all years combined.
The 4th / 1st years of the Presidential Cycle have been weaker than all years combined.
Report includes the last 3 days of previous December and first 1 days of January.
The year is the year of January, December is from the previous year.
The number following the year represents its position in the presidential cycle.
The number following the daily return represents the day of the week;
1 = Monday, 2 = Tuesday etc.
OTC Presidential Year 1
Day3 Day2 Day1 Day1 Totals
1965-1 -0.70% 2 -0.07% 3 0.27% 4 0.52% 1 0.03%
1969-1 -0.01% 5 -0.27% 1 -1.01% 2 0.09% 4 -1.21%
1973-1 -0.08% 2 0.57% 3 1.36% 5 0.00% 2 1.86%
1977-1 0.07% 3 0.79% 4 0.86% 5 -0.19% 1 1.52%
1981-1 -0.72% 1 0.31% 2 0.77% 3 0.77% 5 1.13%
1985-1 -0.17% 4 0.18% 5 0.52% 1 -0.58% 3 -0.06%
Avg -0.18% 0.31% 0.50% 0.02% 0.65%
1989-1 0.03% 3 0.61% 4 0.61% 5 -0.48% 2 0.78%
1993-1 0.41% 2 0.42% 3 0.76% 4 -0.76% 1 0.84%
1997-1 -0.25% 5 -0.28% 1 0.25% 2 -0.80% 4 -1.08%
2001-1 1.84% 3 0.72% 4 -3.41% 5 -7.23% 2 -8.08%
2005-1 -0.01% 3 0.06% 4 -0.13% 5 -1.07% 1 -1.15%
Avg 0.41% 0.31% -0.38% -2.07% -1.74%
OTC summary for Presidential Year 1 1965 - 2005
Averages 0.04% 0.28% 0.08% -0.88% -0.49%
% Winners 36% 73% 73% 27% 55%
MDD 1/2/2001 10.40% -- 12/31/1968 1.30% -- 1/3/2005 1.20%
OTC summary for all years 1963 - 2008
Averages 0.16% 0.24% 0.31% 0.06% 0.76%
% Winners 53% 64% 76% 57% 76%
MDD 1/2/2001 10.40% -- 1/2/2008 4.21% -- 12/31/2002 2.37%
SPX Presidential Year 1
Day3 Day2 Day1 Day1 Totals
1929-1 1.44% 5 0.29% 6 1.25% 1 1.89% 3 4.87%
1933-1 2.27% 4 2.52% 5 -0.43% 6 -0.87% 2 3.49%
1937-1 0.41% 2 1.53% 3 -0.52% 4 -0.93% 6 0.49%
1941-1 0.57% 6 0.67% 1 0.09% 2 -0.95% 4 0.39%
1945-1 1.00% 4 1.37% 5 0.00% 6 0.38% 2 2.75%
Avg 1.14% 1.28% 0.08% -0.10% 2.40%
1949-1 1.33% 3 0.00% 4 -0.52% 5 -1.64% 1 -0.84%
1953-1 0.57% 1 0.72% 2 -0.08% 3 -0.11% 5 1.10%
1957-1 -0.09% 4 0.45% 5 0.24% 1 -1.01% 3 -0.40%
1961-1 0.45% 3 0.47% 4 0.10% 5 -0.93% 2 0.09%
1965-1 -0.31% 2 0.58% 3 0.53% 4 -0.61% 1 0.20%
Avg 0.39% 0.44% 0.05% -0.86% 0.03%
1969-1 -0.39% 5 -0.90% 1 0.06% 2 0.07% 4 -1.16%
1973-1 0.41% 2 0.54% 3 0.96% 5 0.89% 2 2.79%
1977-1 -0.40% 3 0.51% 4 0.54% 5 -0.43% 1 0.22%
1981-1 -1.13% 1 0.22% 2 0.32% 3 0.43% 5 -0.16%
1985-1 -0.43% 4 0.31% 5 0.59% 1 -1.12% 3 -0.65%
Avg -0.39% 0.14% 0.49% -0.03% 0.21%
1989-1 0.09% 3 0.84% 4 -0.60% 5 -0.87% 2 -0.54%
1993-1 -0.27% 2 0.19% 3 -0.71% 4 -0.08% 1 -0.86%
1997-1 0.13% 5 -0.39% 1 -1.74% 2 -0.50% 4 -2.50%
2001-1 1.04% 3 0.40% 4 -1.04% 5 -2.80% 2 -2.41%
2005-1 -0.01% 3 0.01% 4 -0.13% 5 -0.81% 1 -0.95%
Avg 0.20% 0.21% -0.85% -1.01% -1.45%
SPX summary for Presidential Year 1 1929 - 2005
Averages 0.33% 0.52% -0.06% -0.50% 0.30%
% Winners 60% 85% 50% 25% 50%
MDD 1/2/2001 3.82% -- 1/2/1997 2.61% -- 1/3/1949 2.16%
SPX summary for all years 1929 - 2008
Averages 0.32% 0.46% 0.19% 0.00% 0.94%
% Winners 62% 74% 64% 45% 65%
MDD 1/2/2001 3.82% -- 1/2/1932 3.69% -- 1/2/2008 3.37%
January
Since 1963 the OTC has been up 67% of the time in January with an average return of 3.2% making it the best month of the year. During the 1st year of the Presidential Cycle January has been up 55% of the time with an average return of 3.9%, helped considerably by a 21% gain in 2001 (the best month ever for the OTC in a year when it ended down 21%) and a 13.5% gain in 1999.
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 and each of the last 10. In months when there were more than 21 trading days some of the days in the middle were not counted. In months when there were less than 21 trading days some of the days in the middle of the month were counted twice. Dashed vertical lines have been drawn after the 1st trading day and at 5 trading day intervals after that. The line is solid on the 11th trading day, the dividing point.
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 63% of the time in January with an average return of 1.4% making it the best month of the year for average returns and 2nd to December for the consistency of returns. During the 1st year of the Presidential Cycle January has been up 60% of the time, 2nd to July by that measure. The average return for January during the 1st year of the Presidential cycle has been 1.6%, 2nd to April by that measure. The best January ever for the SPX was 1987, up 11.2%, the worst 1960, down 7.2%.
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.
Conclusion
The Santa Clause rally that began last Wednesday has lacked vigor.
I expect the major indices to be lower on Friday January 2 than they were on Friday December 26.
Last weeks positive forecast was a miss.
Mike Burk
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 dare 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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