Burk's Technical Market Report

April 23, 2006

The good news is:

  • All of the major indices hit or closed at multi-year or all time highs last week.

Short term

The chart below is an update of the one shown last week. In its original form the McClellan Oscillator (MCO) was calculated by subtracting a 5% trend (39 day EMA) from a 10% trend (19 day EMA) of NYSE advancing- declining issues.

The NASDAQ composite (OTC) is shown in red and an MCO calculated from NASDAQ advancing - declining issues in brown. The MCO is calculated by subtracting a 5% trend (39 day EMA) from a 10% trend (19 day EMA) of NASDAQ advancing - declining issues.

On April 11, the MCO reached its lowest level since the October low. The bounce in prices that followed took the OTC to a new cycle high while level reached by the MCO was well below the levels reached previous short term highs, a non-confirmation.

Intermediate term

In the late 1980's I found the Dow Jones Industrial Average (DJIA) would often make a run to new cycle highs while new lows were increasing.

The chart below is another update from last week showing the DJIA in red and a 10% trend of NYSE new lows on an inverted Y axis (NY NL) in brown. The indicator is down sharply while the index is at a new cycle high.

There has been a rule of thumb that says you need not worry about market risk until NYSE new lows have remained above 40 for several days. April 4th was the last time there were less than 40 new lows on the NYSE. Last week there was a high of 190 new lows on Monday and a low of 74 on Friday.

Jim Miekka writes the SUDBURY BULL AND BEAR REPORT (727-866-8682). Some time ago he developed a signal he calls the Hindenburg Omen which is triggered when the total of NYSE new highs and new lows equals or exceeds 2.8% of issues traded while the 10 week moving average of the NYSE composite is rising along with a few other criteria. There have been some false signals, but the Hindenburg Omen has signaled nearly every major market decline in the past 35 years. There was a Hindenburg Omen signal in early April that has been followed by several confirming signals since.

Seasonality

Next week includes the last 5 trading days of April during the 2nd year of the Presidential cycle.

The tables below show daily returns during the last 5 trading days of April during the 2nd year of the Presidential Cycle with summaries for both the 2nd year and all years combined.

The last 5 trading days of April are usually up, but not during the 2nd year of the Presidential cycle.

Conclusion

Anything is possible and the market could keep moving to new highs all year. However, last weeks highs were unconfirmed by all of the breadth indicators and seasonally the high for the year usually occurs about now.

I expect the major indices to be lower on Friday April 28 than they were on Thursday April 21.

Last weeks negative forecast was a miss all of the major were indices up.

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Mike Burk began developing equity trading systems in the early 1980's.  Through the 1990's he marketed an equity trading system called MIRAT based on breadth indicators, but, primarily new lows.  In the early days of this century he developed the seasonal trading strategies currently used by Alpha Investment Management of Cincinnati.  Mr. Burk has been writing equity market newsletters since the early 1990's.  During the past 10 years the letter observes both breadth and seasonal strategies.

The term “carat” comes from “carob seed,” which was standard for weighing small quantities in the Middle East.