6-15-2012 After the Close

[Mike]

We had a follow-through day on the NASDAQ with the rally into the close. We finished up 1.3% on volume higher than the day before on day 10 of an advance. IBD should put the market in confirmed rally status. It happens fairly often that the market confirms a rally when the world situation seems the most terrible. The FTD is a B1 buy signal putting the exposure count at +1 (30% invested). The next likely signal if the market continues in a rally is the B3 (lows above the 21-day ema).

Over the last 40 years the market has not begun a big rally in the month of June. 75% of the rallies begun in June have lost money. Here is a summary of every rally with a FTD in June since 1974. I used the market exposure model to compute the percent gain in the NASDAQ starting with the close of the FTD and ending when the market went back into correction. These percent gains or losses might approximate the opportunity if you had invested in the QQQ.

6/17/76 -0.1%
6/8/79 +3.2%
6/11/81 -3.0%
6/4/84 -0.9%
6/23/98 +1.5%
6/4/99 +4.4%
6/28/01 -7.7%
6/21/06 -4.1%
6/13/07 -1.4%
6/2/10 -4.8%
6/15/10 -7.4%
6/21/11 -0.7%
6/15/12 ?

June is just not one of the hot months in the stock market. Possibly a look further back in time would produce some stellar counter examples but 40 years is significant.

Stocks doing well so far in the advance are NSM, PETM, DG, BGS, WWWW, CRUS, ROST, UA.
GNC and LQDT (canslim leading issues) did not participate in the rally and might be breaking down at the 50-day.

[mnoel]

Hi Mike,

According to some studies you previously published, there are 3 criteria to validate the chance of success of a FTD.

1) Coppock +/- 4 weeks of a FTD : we are actually in negative territory. Therefore, any upturn in the next 4 weeks will trigger a coppock signal

2) %E needs to be between 7.4% and 16% : %E is actually at 17.78%. (70% failure when %E > 16%).

3) Eureka +/- 10 days of a FTD : we had 2 eurekas since June 6.

For those June failures you are referring to, do you know if they complied to those 3 criteria?

Thanks in advance,

Martin

[Billy]

Hi Mike,

According to some studies you previously published, there are 3 criteria to validate the chance of success of a FTD.

1) Coppock +/- 4 weeks of a FTD : we are actually in negative territory. Therefore, any upturn in the next 4 weeks will trigger a coppock signal

2) %E needs to be between 7.4% and 16% : %E is actually at 17.78%. (70% failure when %E > 16%).

3) Eureka +/- 10 days of a FTD : we had 2 eurekas since June 6.

For those June failures you are referring to, do you know if they complied to those 3 criteria?

Thanks in advance,

Martin

Martin,
About your point 2 above, %E is actually 11.79% when excluding all stocks without a composite rating in Marketsmith. This excludes all ETFs on top of all stocks without an institutional profile (otherwise they would have a composite rating).
Billy

[mnoel]

I thought that Mike was using IBD figures.

[Mike]

Hi Mike,

According to some studies you previously published, there are 3 criteria to validate the chance of success of a FTD.

1) Coppock +/- 4 weeks of a FTD : we are actually in negative territory. Therefore, any upturn in the next 4 weeks will trigger a coppock signal

2) %E needs to be between 7.4% and 16% : %E is actually at 17.78%. (70% failure when %E > 16%).

3) Eureka +/- 10 days of a FTD : we had 2 eurekas since June 6.

For those June failures you are referring to, do you know if they complied to those 3 criteria?

Thanks in advance,

Martin

Martin, Your view of these three terms agree with my records. The poor June rallies I mentioned uses the Market School Exposure Model on the NASDAQ that extends to June 1974. The IBD6000 statistics goes back to late 1994 because that index was created on 11/21/1994. So I have partial data to report as follows:

6/23/98 failed bear market rally: No Eureka, No Coppock buy signal, IBD6000 %E 8.7% (good)
6/4/99 successful bull market rally: No Eureka, No Coppock buy signal, IBD6000 %E 5.2% (low)
6/28/01 failed bear market rally: No Eureka, Coppock buy signal 24 days later (a bit late), IBD6000 %E 5.2% (low)
6/29/06 failed bull market rally: Eureka 6 days prior, No Coppock buy signal (36 days later), IBD6000 %E 16.7% (Ok)
6/2/10 failed bull market rally: Eureka on FTD, No Coppock buy signal (46 days later), IBD6000 %E 25.4% (too high)
6/15/10 failed bull market rally: Eureka on FTD, No Coppock buy signal (37 days later), IBD6000 %E 21.4% (too high)
6/15/12 TBD

1999 was an unusual year with the market going into a feeeding frenzy on liquidity injections. 2012 could end up looking like 2010 examples.

I also watch NASDAQ %ATR trend which is in a longer term uptrend but a possible shorter term down trend as ATR may have topped (changed direction). This is a mixed signal.

We have seen many times in the past that we can get a fake-out rally that fails and the next rally sometime later succeeds. There is no way to know but I trust the Market School Model to navigate the treacherous waters and take us out if that is what is required.

Leading stocks have been breaking out and working to a degree with only one failed (7% loss) breakout to my knowledge (TFM). Leading stocks failing will likely be the first sign of trouble if we are headed that way. GNC and LQDT may already be showing signs of a problem. QCOR and EQIX WFM, EQIX, JBHT, NSM, PETM, DG, BGS and WWWW are however doing well.

[Mike]

Martin,
About your point 2 above, %E is actually 11.79% when excluding all stocks without a composite rating in Marketsmith. This excludes all ETFs on top of all stocks without an institutional profile (otherwise they would have a composite rating).
Billy

Billy you bring up an interesting point. The composition of the IBD 6000 has changed over the period of my analysis. The addition of ETFs has been prolific. My testing has relied on printed IBD6000 data. I can't backtest a different historical subselection of index data as the older data isn't available to me so need to watch this in the future. The thresholds for IBD6000 %E would probably change if different data were used. I don't know if 11.79% would be high or low...

[Billy]

Billy you bring up an interesting point. The composition of the IBD 6000 has changed over the period of my analysis. The addition of ETFs has been prolific. My testing has relied on printed IBD6000 data. I can't backtest a different historical subselection of index data as the older data isn't available to me so need to watch this in the future. The thresholds for IBD6000 %E would probably change if different data were used. I don't know if 11.79% would be high or low...

If it can help you, I keep track of the ratings only for stocks with composite ratings since 2/7/2011. See attached file which you can easily update going forward. These are also the numbers I am using for my correlation research for IWM.

Billy
14721

[mnoel]

Thank you Mike. Trading in the market direction with stops is the best we can do.

[mnoel]

If it can help you, I keep track of the ratings only for stocks with composite ratings since 2/7/2011. See attached file which you can easily update going forward. These are also the numbers I am using for my correlation research for IWM.

Billy
14721

Thanks Billy!

Is it possible to get this data with the IBD subscription or only with MarketSmith?

Thanks in advance,

Martin

[Billy]

Thanks Billy!

Is it possible to get this data with the IBD subscription or only with MarketSmith?

Thanks in advance,

Martin

Marketsmith is necessary. It allows you to download daily data with all your criteria filters, but unfortunately not past data and ratings.
Billy

[mnoel]

Thanks Billy. It's unfortunate that historical data are not accessible.

Regards,

Martin

[adam ali]

Mike,

Have you parsed out historical returns for June in election years only? See link below:

http://www.ritholtz.com/blog/2012/05/sell-in-may-and-go-awayexcept-in-election-years/

[Mike]

Mike,

Have you parsed out historical returns for June in election years only? See link below:

http://www.ritholtz.com/blog/2012/05/sell-in-may-and-go-awayexcept-in-election-years/


Adam, I have parsed the election years. Pardon the unformated list below which is every rally that began in an election year in my database. Missing here will be any rally that began the year before and carried into an election year. There are plenty of rallies that started earlier in the year and carried into June for good gains. There just aren't any that entered June in a correction and began a healthy ascent.

Date (length of raly days) Percent Gain
1/6/1976 ( 67) 10.70%
4/20/1976 ( 21) -1.50%
6/17/1976 ( 46) -0.10%
9/1/1976 ( 21) -0.20%
11/4/1976 ( 3) -2.20%
11/18/1976 ( 66) 6.60%
4/2/1980 (175) 39.00%
12/17/1980 ( 22) 2.40%
1/4/1984 ( 15) -1.30%
3/16/1984 ( 14) -3.00%
5/1/1984 ( 15) -3.80%
6/4/1984 ( 23) -0.90%
8/1/1984 ( 38) 7.10%
10/18/1984 ( 20) -1.50%
12/18/1984 ( 66) 13.50%
5/31/1988 ( 40) 3.50%
11/30/1988 ( 77) 7.80%
4/14/1992 ( 8) -4.70%
7/9/1992 ( 32) -1.70%
9/10/1992 (109) 14.50%
1/19/1996 ( 29) 6.60%
4/16/1996 ( 44) 5.20%
8/1/1996 (145) 19.50%
2/3/2000 ( 39) 5.90%
4/25/2000 ( 10) -3.40%
5/16/2000 ( 4) -9.50%
5/30/2000 ( 42) 5.90%
8/17/2000 ( 18) -1.20%
9/28/2000 ( 2) -5.50%
10/26/2000 ( 10) -2.20%
12/5/2000 ( 8) -8.20%
12/27/2000 ( 3) -9.70%
3/29/2004 ( 22) -1.70%
5/25/2004 ( 31) -1.40%
8/18/2004 ( 97) 14.20%
1/31/2008 ( 25) -7.40%
4/1/2008 ( 59) 0.20%
7/29/2008 ( 27) -2.70%
9/25/2008 ( 2) -9.30%
10/16/2008 ( 4) -5.90%
11/4/2008 ( 2) -9.60%
12/2/2008 ( 29) 2.70%

[adam ali]

Ok - I note if one went back one week in time, you'd find an additional three instances of market rally signals being generated:

5/25/04 - (1.40%)
5/30/00 - 5.90%
5/31/88 - 3.10%
6/17/76 - (0.10%)
6/4/84 - (0.90%)

To me, a bit inconclusive.

[Mike]

Ok - I note if one went back one week in time, you'd find an additional three instances of market rally signals being generated:

5/25/04 - (1.40%)
5/30/00 - 5.90%
5/31/88 - 3.10%
6/17/76 - (0.10%)
6/4/84 - (0.90%)

To me, a bit inconclusive.

Here are all rallies including election years. The only May or June rally that added up to anything was May 4 1993 that went up 11.7%. I am sure if I could go back more than 40 years I could find some other examples. One day I will be in position go go back 100 years on the Dow.

14741

[adam ali]

Thanks, Mike.

This is quite interesting and useful. I see your point about the size of rallies beginning at or around June.