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Technical Market Report

The good news is:
• We had a washout last week. On Tuesday the number of new lows on the NYSE hit an all time record at 1304.

Short Term

Since Tuesday's low the market has become overbought.

Here is a list of a few indices and their percentage change from Tuesday through Friday.

Dow Jones Transports

7.5%

Dow Jones Industrials

4.9%

NASDAQ composite (OTC)

3.2%

Russell 2000 (R2K)

5.3%

S&P 500 (SPX)

3.8%

Wilshire 5000

3.7%

The chart below covers the current year showing the SPX in red and an indicator showing the percentage of the last 3 trading days that NYSE On Balance Volume (OBV) has been up. OBV is a running total of volume of declining issues subtracted from the volume of advancing issues. The indicator touches the top of the chart when OBV has been up for 3 or more consecutive days and it touches the bottom of the chart when OBV has been down for 3 or more consecutive days. Dashed vertical lines have been drawn on the 1st trading day of each month.

The indicator touched the top of the chart Friday suggesting a pullback in the next few days.

Intermediate Term

There were 1304 new lows on the NYSE Tuesday, the highest number ever recorded. The NASDAQ recorded 491 new lows, a big number, but, far from a record.

New lows began being calculated with the current methodology in 1978.

The table below shows every example where NYSE new lows exceeding 1000 by the current methodology.

Some column definitions:

% of issues traded is the percentage of total issues traded that recorded new lows on that day.
Rally % off low is low to high change of the SPX.
Rally duration is the number of trading days from the low to the high.
Time to retest is the number of trading days from the low to a retest, the final low.

Date New low
count
% of issues
traded
Rally %
off low
Rally
duration
Time to
retest
7/15/08 1304 40     ?
8/31/98 1183 36 11.3 16 27
10/20/87 1174 60 Day after The low  
8/16/07 1132 32 11.3 38 On going
1/22/08 1114 34 6.5 8 On going
10/19/87 1068 53 14.9 2 33

The chart below covers the past year showing the SPX 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).

The next chart is similar to the previous one except it covers 100 trading days showing the 1998 low.

The next chart is similar to the previous two except it covers the 1987 low.

Bottoms marked by extreme numbers of new lows have all been followed by a retest. Most price lows with half the number or percentage of new lows seen at the extremes illustrated above have also been followed by a retest.

New lows declined dramatically from 1304 on Tuesday to 81 on Thursday and 79 on Friday so it is unlikely that Tuesday's price lows will be penetrated in the next few weeks.

Seasonality

Next week is the week prior to the 4th Friday of July during the 4th year of the Presidential Cycle.

The tables show the daily return on a percentage basis for the week prior to the 4th Friday of July during the 4th year of the Presidential Cycle. 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 omitted.

No data is showing for 1968 or 1980. I assumed, without checking, that July 4th fell on a Friday those years (like this year) and there were not 4 trading Friday's in the month.

The coming week, like the previous one, has been one of the worst of the year.

Report for the week before the 4th Friday of July.
The number following the year is the position in the presidential cycle.
Daily returns from Monday through the 4th Friday.

OTC Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1964-4 -0.02% -0.34% 0.02% 0.05% 0.10% -0.19%
 
1968-4 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
1972-4 0.89% -0.23% 0.14% -0.23% -0.16% 0.41%
1976-4 -0.35% -0.43% -0.16% 0.14% -0.07% -0.87%
1980-4 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
1984-4 -1.01% -0.59% -0.19% 0.78% 0.99% -0.02%
Avg -0.15% -0.42% -0.07% 0.23% 0.25% -0.16%
 
1988-4 0.05% -0.88% 0.09% -0.71% -0.39% -1.84%
1992-4 -0.16% 1.22% 1.03% 0.23% 0.35% 2.67%
1996-4 -1.48% -2.99% -0.64% 1.92% 1.60% -1.59%
2000-4 -2.76% 1.21% -1.04% -3.65% -4.66% -10.90%
2004-4 0.04% 1.76% -2.23% 0.78% -2.12% -1.76%
Avg -0.86% 0.06% -0.56% -0.29% -1.04% -2.69%
 
OTC summary for Presidential Year 4 1964 - 2004
Avg -0.53% -0.14% -0.33% -0.08% -0.48% -1.57%
Win% 33% 33% 44% 67% 44% 22%
 
OTC summary for all years 1963 - 2007
Avg -0.35% -0.20% 0.20% -0.05% -0.12% -0.53%
Win% 39% 55% 58% 61% 61% 47%
 
SPX Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1956-4 -0.04% 0.00% 0.22% 0.08% -0.81% -0.55%
1960-4 -0.62% 0.00% -0.16% -0.92% -0.69% -2.39%
1964-4 -0.46% -0.28% 0.08% 0.21% 0.11% -0.33%
 
1968-4 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
1972-4 1.18% -0.30% -0.07% -0.23% 0.09% 0.68%
1976-4 -0.37% -0.55% 0.10% 0.11% 0.13% -0.59%
1980-4 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
1984-4 -0.40% -0.76% 0.68% 0.84% 0.74% 1.10%
Avg 0.14% -0.53% 0.24% 0.24% 0.32% 0.40%
 
1988-4 -0.57% -0.75% 0.57% -1.24% -1.19% -3.17%
1992-4 -0.01% 1.45% 1.13% 0.40% 0.07% 3.04%
1996-4 -0.78% -1.09% -0.04% 0.72% 0.75% -0.43%
2000-4 -1.07% 0.69% -1.50% -0.19% -2.05% -4.12%
2004-4 -0.04% 0.71% -1.33% 0.27% -0.97% -1.37%
Avg -0.50% 0.20% -0.23% -0.01% -0.68% -1.21%
 
SPX summary for Presidential Year 4 1956 - 2004
Avg -0.29% -0.10% -0.03% 0.00% -0.35% -0.74%
Win% 09% 33% 55% 64% 55% 27%
 
SPX summary for all years 1953 - 2007
Avg -0.19% -0.18% 0.38% 0.07% -0.07% 0.02%
Win% 30% 53% 66% 61% 58% 53%

Conclusion

The vigorous recovery from Tuesday's low has the market overbought and likely to pull back, but the rapid decline in the number of new lows imply that Tuesday's low is likely to hold for at least several weeks. However, the record number of NYSE new lows on Tuesday make a retest of Tuesday's price lows likely in the next few months.

I expect the major indices to be lower on Friday July 25 than they were on Friday July 18.

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's call for a washout materialized, but, the recovery was too vigorous and my negative forecast was a miss.

Thank you,

 

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