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Technical Market Report

The good news is:
• We are going into a bottom that is likely to be the final low for the decline that began last July.

Short Term

Last Wednesday's low is not likely to hold.

Many indicators look like the one shown below, that is, they confirmed last Wednesday's low while they did not confirm short term lows earlier this year.

The chart covers the past 6 months showing the Russell 2000 (R2K) in red and an oscillator of upside - downside volume of the component issues of the R2K in black. Dashed vertical lines have been drawn on the 1st trading day of each month.

I have drawn a dark line at previous indicator and price lows showing how the indicator was making a higher low as the index went to a lower low. Last Wednesday the indicator hit its lowest level in several months suggesting prices will, at least, return to last Wednesday's levels.

The next chart covers the past 2 years showing the S&P 500 (SPX) in red and an Advance - Decline line (ADL) calculated from the component issues of the SPX in black. ADL's are a running total of advancing - declining issues. The ADL rose in every rally of the past 2 years except the rally off the March lows. The last time we saw this kind of behavior in this indicator was in early 2000.

Intermediate Term

Near the low last August there were 1132 new lows on the NYSE, at the January low there were 1114 new lows and at the March low there were 759 new lows. At each of those points I pointed out there was a high likelihood of a retest because of the high number of new lows. Those statements were made based on research I had done with NYSE new lows and the Dow Jones Industrial Average (DJIA). Last Wednesday the DJIA closed 2.9% above its March low and there were 235 new lows on the NYSE. It appears likely the DJIA will retest its March lows and unlikely there will be enough new lows to suggest another retest.

The chart below covers the past year showing the DJIA in red and a 10% trend (19 day EMA) of NYSE new lows (NY NL) in blue. NY NL has been plotted on an inverted Y axis so decreasing new lows move the indicator upward (up is good). NY NL hit its lowest low for the period last August, came close to the previous low in January, made a much higher low in March and is likely to be higher yet if the DJIA retests its March low.

Unless things get a lot worse, very soon, it appears the market is developing a bottom that should hold for quite a while.

Seasonality

Next week includes the 5 trading days prior to the 3rd Friday in June during the 4th year of the Presidential Cycle.

The tables show the daily return on a percentage basis for the 5 trading days prior to the 3rd Friday in June during the 4th year of the Presidential Cycle. NASDAQ composite (OTC) data covers the period from 1963 - 2007 and SPX data from 1953 - 2007. There are summaries for both the 4th year of the Presidential Cycle and all years combined. Prior to 1953 the market traded 6 days a week so that data has been ignored.

Over the coming week the OTC has had modest losses over all periods while the SPX has for all practical purposes been flat.

Report for the week before the 3rd Friday of June
The number following the year is the position in the presidential cycle.
Daily returns from Monday through 3rd Friday.

OTC Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1964-4 -0.13% 0.18% 0.46% 0.69% 0.05% 1.25%
 
1968-4 -0.34% -1.15% 0.00% -0.76% -0.14% -2.40%
1972-4 -0.15% 0.31% 0.51% -0.12% -0.01% 0.54%
1976-4 0.79% 0.06% 0.54% 0.89% 0.37% 2.64%
1980-4 0.13% 0.12% 0.13% -0.29% -0.14% -0.05%
1984-4 -0.93% -0.45% 0.31% -0.91% 0.01% -1.97%
Avg -0.10% -0.22% 0.38% -0.24% 0.02% -0.25%
 
1988-4 0.14% 0.44% 0.14% -0.51% -0.05% 0.18%
1992-4 -0.09% -0.87% -1.92% -0.74% 0.92% -2.70%
1996-4 -0.42% -2.07% -0.51% -0.83% 0.69% -3.14%
2000-4 -2.76% 2.21% -1.39% 1.27% 0.39% -0.29%
2004-4 -0.62% 1.00% 1.35% -0.27% 0.49% 1.95%
Avg -0.75% 0.14% -0.47% -0.21% 0.49% -0.80%
 
OTC summary for Presidential Year 4 1964 - 2004
Avg -0.40% -0.02% -0.04% -0.14% 0.23% -0.36%
Win% 27% 64% 70% 27% 64% 45%
 
OTC summary for all years 1963 - 2007
Avg -0.15% 0.03% 0.10% -0.06% 0.02% -0.06%
Win% 42% 58% 66% 45% 59% 53%
 
SPX Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1956-4 1.26% 1.42% 0.13% -0.24% 0.13% 2.71%
1960-4 0.03% -0.14% -0.59% -0.12% -0.10% -0.92%
1964-4 0.46% 0.54% 0.51% -0.02% 0.12% 1.61%
 
1968-4 -0.99% -0.14% 0.00% 0.52% 0.15% -0.46%
1972-4 0.14% 0.50% 0.78% 0.05% -0.07% 1.40%
1976-4 1.02% -0.48% 0.54% 1.57% 0.14% 2.80%
1980-4 0.24% -0.05% 0.20% -1.38% -0.52% -1.51%
1984-4 -1.36% -0.57% -0.04% -1.14% -0.90% -4.02%
Avg -0.19% -0.15% 0.37% -0.08% -0.24% -0.36%
 
1988-4 0.06% 1.06% 0.05% -1.71% 0.34% -0.19%
1992-4 0.13% -0.48% -1.48% -0.32% 0.68% -1.48%
1996-4 -0.10% -0.47% -0.02% 0.02% 0.72% 0.15%
2000-4 -0.75% 1.62% 0.07% 0.55% -0.95% 0.54%
2004-4 -0.42% 0.36% 0.85% -0.30% -0.55% -0.04%
Avg -0.22% 0.42% -0.10% -0.35% 0.05% -0.21%
 
SPX summary for Presidential Year 4 1956 - 2004
Avg -0.02% 0.24% 0.08% -0.19% -0.06% 0.04%
Win% 62% 46% 67% 38% 54% 46%
 
SPX summary for all years 1953 - 2007
Avg -0.02% 0.10% 0.07% -0.19% 0.00% -0.04%
Win% 58% 55% 52% 42% 57% 53%

Money supply (M2)

The chart below has been provided by Gordon Harms. Money supply growth peaked in March and has since fallen to its lowest level in several years.

Conclusion

The market appears to be putting in a bottom that should hold for quite a while.

I expect the major indices to be lower on Friday June 19 than they were on Friday June 13.

This report is free to anyone who wants it, so please tell your friends. They can sign up at: http://alphaim.net/signup.html If it is not for you, reply with REMOVE in the subject line.

Last week the DJIA was up a little while all of the other major indices were down so I am calling last weeks negative forecast a tie.

Thank you,

 

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