Technical Market Report December 18/04
by Mike Burk
December 18/04
The good news is:
New lows remained minimal during the past week and declined on Thursday
and Friday when prices also declined.
We are entering what is seasonally the strongest period of the year.
Through a market cycle (bottom to bottom) downside volume (DV) quickly
dries up when the sellers are exhausted making it a good bottom indicator.
The chart below shows the NASDAQ composite in red and a 4% trend (55 day
EMA) of NASDAQ DV in brown. DV is on an inverted Y axis so decreasing
DV moves the indicator upward while increasing DV moves the indicator
downward. In the past two weeks DV has increased substantially without
breaking the uptrend in prices. As we approach the holidays DV as well
as overall volume should decrease as if sellers take care of their business
before the holidays.
The chart below is an example of an ideal DV/Price pattern.
It covers the period from June 1999 to June 2000. DV increased during
the entire run up, peaking with the April 2000 bottom. There was a slightly
lower price low in May that was unconfirmed by DV. If you look carefully
you see there were sharp price advances during brief periods when DV decreased.
Because of the approaching holidays I think we are likely to see one of
those brief periods of sharply increasing prices and decreasing DV.
The 4 days prior to Christmas usually begin weak and end strong and are
a little better for the small caps than the blue chips. In the past 16
years the Russell 2000 (R2K) has only been down once during the period
and the average advance has been nearly 2%. Returns during the 4th year
of the presidential cycle have been less robust. The R2K has been up in
every 4th year averaging a modest 0.36% while the S&P 500 (SPX) has
been down 3 out of the 4 recent 4th years.
4 days before Christmas.
The number following the % change represents the day of the week
1=Monday, 5=Friday etc.
The number following the year is the year of the presidential cycle.
MDD = Maximum Draw Down of the trade
R2K
Day4
Day3
Day2
Day1
Totals
1988-4 -0.03%
2 -0.20% 3
0.21% 4 0.26%
5 0.24%
1989-1 -0.68%
2 0.12% 3
0.56% 4 0.77%
5 0.77%
1990-2
0.47% 3 0.12%
4 0.09% 5
-0.30% 1
0.39%
1991-3 -0.66%
4 -0.07% 5
1.04% 1 0.93%
2 1.23%
1992-4 -0.26%
1 -0.09% 2
0.21% 3 0.46%
4 0.33%
1993-1 -0.13%
1 -0.56% 2
-0.05% 3 0.38%
4 -0.37%
1994-2
0.07% 2 1.12%
3 0.12% 4
0.46% 5
1.78%
1995-3 0.75%
2 0.92% 3
0.60% 4 0.53%
5 2.80%
1996-4
0.86% 4 0.17%
5 -0.36% 1
0.13% 2
0.79%
1997-1 -0.08%
5 0.68% 1
-0.20% 2 -0.23%
3 0.17%
1998-2
1.11% 1 -0.40%
2 1.14% 3
0.19% 4
2.04%
1999-3 0.21%
1 1.84% 2
0.45% 3 0.94%
4 3.44%
2000-4 -0.96%
2 -3.27% 3
0.73% 4 3.57%
5 0.07%
2001-1 -0.70%
3 -1.66% 4
2.10% 5 0.37%
1 0.10%
2002-2 -0.14%
4 0.90% 5
0.74% 1 -0.41%
2 1.09%
2003-3 0.00%
5 0.46% 1
1.03% 2 -0.48%
3 1.00%
Averages -0.01%
0.01%
0.53%
0.47%
1.98%
% Winners
38%
56%
81%
75%
94%
MDD 12/20/2000 4.20% --
12/20/2001 2.35% --
12/22/1993 .74%
Presidential year 4
R2K
Day4
Day3
Day2
Day1
Totals
1988-4 -0.03%
2 -0.20% 3
0.21% 4 0.26%
5 0.24%
1992-4 -0.26%
1 -0.09% 2
0.21% 3 0.46%
4 0.33%
1996-4
0.86% 4 0.17%
5 -0.36% 1
0.13% 2
0.79%
2000-4 -0.96%
2 -3.27% 3
0.73% 4 3.57%
5 0.07%
Averages -0.10%
-0.85%
0.20% 1.10%
0.36%
Winners
25%
25%
75%
100%
100%
DD 12/20/2000 4.20% --
12/23/1996 .36% --
12/22/1992 .35%
SPX
Day4
Day3
Day2
Day1
Totals
1988-4 -0.52%
2 -0.03% 3
-0.18% 4 0.36%
5 -0.37%
1989-1 -0.36%
2 0.11% 3
0.57% 4 0.77%
5 1.08%
1990-2
0.05% 3 -0.02%
4 0.49% 5
-0.56% 1 -0.04%
1991-3 -0.25%
4 1.18% 5
2.53% 1 0.63%
2 4.09%
1992-4 -0.13%
1 -0.09% 2
-0.29% 3 0.17%
4 -0.34%
1993-1 -0.11%
1 -0.12% 2
0.43% 3 0.01%
4 0.22%
1994-2 -0.18%
2 0.55% 3
0.01% 4 0.03%
5 0.42%
1995-3 0.84%
2 -0.98% 3
0.75% 4 0.24%
5 0.86%
1996-4
1.94% 4 0.42%
5 -0.26% 1
0.55% 2
2.65%
1997-1 -0.89%
5 0.73% 1
-1.53% 2 -0.68%
3 -2.37%
1998-2
1.25% 1 0.06%
2 2.07% 3
-0.18% 4
3.20%
1999-3 -0.21%
1 1.08% 2
0.19% 3 1.55%
4 2.61%
2000-4 -1.30%
2 -3.13% 3
0.80% 4 2.44%
5 -1.18%
2001-1
0.58% 3 -0.84%
4 0.44% 5
-0.02% 1
0.16%
2002-2 -0.77%
4 1.30% 5
0.18% 1 -0.55%
2 0.16%
2003-3 -0.05%
5 0.39% 1
0.28% 2 -0.18%
3 0.45%
Averages -0.01%
0.04%
0.41%
0.29%
1.45%
% Winners
31%
56%
75%
63%
69%
MDD 12/20/2000 4.38% --
12/24/1997 2.37% --
12/20/1995 .98%
Presidential Year 4
SPX
Day4
Day3
Day2
Day1
Totals
1988-4 -0.52%
2 -0.03% 3
-0.18% 4 0.36%
5 -0.37%
1992-4 -0.13%
1 -0.09% 2
-0.29% 3 0.17%
4 -0.34%
1996-4
1.94% 4 0.42%
5 -0.26% 1
0.55% 2
2.65%
2000-4 -1.30%
2 -3.13% 3
0.80% 4 2.44%
5 -1.18%
Averages 0.00%
-0.71%
0.02% 0.88%
0.19%
% Winners
25%
25%
25%
100%
25%
MDD 12/20/2000 4.38% --
12/22/1988 .73% --
12/23/1992 .51%
We are approaching the normally strong pre-Christmas period with a very strong market. The recent high level of DV indicates accelerated selling has been unable to take prices down.
I expect the major indices to be higher on Thursday December 23 than they were on Friday December 17.
The market rose last week in spite of negative technical and seasonal conditions making my negative forecast a miss.
This report is free to anyone who wants it, so please tell your friends.
Mike Burk
Guaranteed-Profits.com
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