Technical Market Report
The good news is:
• Last weeks strength turned all of the short and intermediate term indicators sharply upward.
The NASDAQ new low indicator (OTC NL) is a 10% trend (19 day EMA) of NASDAQ new lows. OTC NL is plotted on an inverted Y axis so that when new lows are increasing the indicator moves downward and when new lows are decreasing the indicator moves upward (up is good). OTC NL is the best indicator I know of for identifying market bottoms. On a daily basis, OTC NL often gives false positives so it is prudent to wait until the indicator has been moving upward for 5 consecutive days before assuming a change in trend.
In the chart below the NASDAQ composite (OTC) is shown in red and OTC NL in blue vertical dashed lines are drawn at the 1st trading day of each month.
This indicator moved sharply upward all of last week giving us the comfort of the first run of 5 consecutive up days since last July. The numbers of new lows have remained a little high averaging in the low 40's last week, but as long as the number remains below 65 (the current value of the indicator) the indicator will continue moving upward.
The next chart shows the OTC in red and the NASDAQ new high indicator ( OTC NH) in green. OTC NH is a 10% trend of NASDAQ new highs. The indicator is moving sharply upward and, most importantly, continued moving upward last Tuesday which was a down day. The current value of the indicator is 74 so any number of NASDAQ new highs above 74 will keep that indicator moving upward.
As of last Friday most of the major indices had been up for 3 consecutive days.
The chart below shows the OTC in red and an indicator showing the percentage of the previous 3 trading days that have been up in blue. It covers the period from April 5 to November 4.
When the indicator has a sharp point at the top or bottom of the screen it means that prices reversed (at least temporarily) after moving one direction for 3 days. When the indicator has a blunt point it means that prices moved in the same direction for more than 3 consecutive days.
When the market rose from its late April lows there was a period of more than 3 consecutive up days marking the change of trend. There were several more periods of more than 3 consecutive up days before the early August high. There was only one period, in late June, of 3 consecutive down days and no periods exceeding 3 consecutive down days until early August which marked the change of trend from up to down.
By this measure Monday is important.
If Monday is up it will be the first time the OTC has been up for more than 3 consecutive days since early July. By this indicator that will mean the trend has changed from down to up.
Summation indices (SI) are running totals of oscillator values.
The chart below shows the OTC in red, OTC AD SI calculated from NASDAQ advancing issues - declining issues, OTC HL SI calculated from NASDAQ new highs - new lows and OTC UD SI calculated from NASDAQ upside - downside volume. The direction of SI's make good intermediate term indicators and they are all moving sharply upward.
The chart below shows an interesting anomaly.
The OTC is shown in red and the indicator in brown is the average daily point change of the NASDAQ AD line over the preceding 10 days. Absolute values are used so you are looking at total ADL points both ways.
The indicator normally rises in down markets and falls in up markets. You can see a spike near the April bottom on the left side of the chart. The interesting anomaly is the indicator has continued to move upward after the early October spike.
In broad terms, late October - early November marks the beginning of a seasonally strong period that lasts until early May.
Narrowly defined, next week includes the 1st Monday of November and the 2nd Tuesday - Friday of November during the 1st year of the Presidential Cycle.
|1st year||All years|
|The numbers are derived from OTC data 1963 - 2004 and
indicate the % of the time the day was up.
The evidence of a bottom continues to build, however, the characteristics that we look for at bottoms (rapidly diminishing new lows and downside volume) have still not materialized. Seasonally next week is positive, but not as strong as last week.
I expect the major indices to be higher on Friday November 11 than they were on Friday November 4.
Gordon Harms produces a Power Point for our local market timing group. You can download that Power Point from: http://www.stockmarket-ta.com/research/Nov1,2005.PPT
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