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Technical Market Report

The good news is:
• We are close to or at an intermediate term low.

Short Term

In the past month NASDAQ upside volume has declined from, close to, the high for the year to, close to, the low for the year.

The chart below covers the past year showing the NASDAQ composite (OTC) in blue and a 5% trend (39 day EMA) of NASDAQ volume of advancing issues (OTC UV) in green. Dashed vertical lines have been drawn on the 1st trading day of each month.

OTC UV hit its low for the year just after the 1st of the year. It hit another low near the July index lows. It rose to, close to, a yearly high in early August and has since fallen to, close to, a yearly low.

The next chart is similar to the one above except it shows the 1987 crash and retest 6 weeks later. The patterns are similar.

Intermediate Term

The extreme number of new lows at the July low implies a high likelihood of a retest of those lows and we are close.

The chart below covers the past 6 months showing the S&P 500 (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).

On Thursday the SPX was 1.8% off its July low, pretty close, but I would like it to get closer.

Here is what a similar chart looked like in 1987.

Deja vu all over again?

Seasonality

Next week includes the 5 trading days prior to the 2nd Friday of September 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 2nd Friday of September 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 ignored.

The 4th year of the Presidential cycle has, on average, been stronger than other years with modest gains.

Report for the week before the 2nd Friday of September.
The number following the year is the position in the presidential cycle.
Daily returns from Monday to 2nd Friday.

OTC Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1964-4 0.00% 0.29% 0.38% 0.07% -0.24% 0.50%
 
1968-4 0.16% 0.27% 0.00% -0.01% -0.50% -0.09%
1972-4 0.00% -0.28% -0.54% -0.32% -0.06% -1.21%
1976-4 0.00% 0.21% 0.05% -0.44% 0.36% 0.19%
1980-4 -0.62% 0.21% 0.80% 0.99% 0.75% 2.13%
1984-4 -0.46% 0.51% -0.14% 0.75% 0.89% 1.55%
Avg -0.31% 0.18% 0.04% 0.19% 0.29% 0.52%
 
1988-4 0.00% 0.22% 0.17% 0.47% 0.49% 1.35%
1992-4 0.00% -0.40% 0.65% 1.10% 0.30% 1.66%
1996-4 0.82% 0.06% 0.40% 1.02% 1.96% 4.26%
2000-4 0.00% -2.15% -3.14% 2.12% -2.93% -6.09%
2004-4 0.00% 0.76% -0.43% 1.03% 1.32% 2.68%
Avg 0.82% -0.30% -0.47% 1.15% 0.23% 0.77%
 
OTC summary for Presidential Year 4 1964 - 2004
Avg -0.03% -0.03% -0.18% 0.62% 0.21% 0.63%
Win% 50% 73% 60% 73% 64% 73%
 
OTC summary for all years 1963 - 2007
Avg -0.44% 0.04% -0.27% 0.02% 0.14% -0.26%
Win% 42% 51% 50% 62% 60% 58%
 
SPX Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1956-4 -0.52% -0.38% -0.70% -0.13% 0.47% -1.26%
1960-4 0.00% -0.89% -1.24% -0.09% 0.66% -1.56%
1964-4 0.00% 0.13% 0.22% 0.06% 0.42% 0.83%
 
1968-4 0.03% -0.49% 0.00% -0.21% 0.34% -0.33%
1972-4 0.00% -0.25% -0.61% -0.24% -0.13% -1.22%
1976-4 0.00% 0.70% -0.09% -0.51% 0.24% 0.34%
1980-4 -1.26% 0.62% 0.60% 0.68% -0.10% 0.54%
1984-4 -0.07% 0.12% 0.14% 1.98% 0.50% 2.67%
Avg -0.43% 0.14% 0.01% 0.34% 0.17% 0.40%
 
1988-4 0.00% 0.42% 0.11% 0.00% 0.36% 0.89%
1992-4 0.00% -0.63% 0.46% 0.86% -0.09% 0.60%
1996-4 1.23% 0.01% 0.52% 0.58% 1.40% 3.74%
2000-4 0.00% -0.90% -0.98% 0.69% -0.53% -1.73%
2004-4 0.00% 0.69% -0.45% 0.19% 0.50% 0.92%
Avg 1.23% -0.08% -0.07% 0.46% 0.33% 0.89%
 
SPX summary for Presidential Year 4 1956 - 2004
Avg -0.12% -0.07% -0.17% 0.30% 0.31% 0.34%
Win% 40% 54% 50% 62% 69% 62%
 
SPX summary for all years 1953 - 2007
Avg -0.40% 0.03% -0.15% -0.24% 0.11% -0.41%
Win% 43% 53% 52% 45% 64% 49%

Conclusion

The market is oversold and likely to rally over the next few days. That rally should be followed by a retest of the July lows by the SPX and Dow Jones Industrial Average. The retest should mark the final low for the rest of the year.

I expect the major indices to be higher on Friday September 12 than they were on Friday September 5.

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 weeks positive forecast was a miss.

Thank you,

 

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