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Technical Market Report

The good news is as of Monday's close we are entering the strongest 6 trading days of the year.

Last week I wrote "I do not think the blue chips will extend their cycle for more than a day or two longer and when they begin declining the secondaries will continue their under performance.", that forecast was half right. The secondaries continued their under performance, but the blue chips continued to defy gravity.

This week, seasonality is the whole story and it can be viewed two ways, both positive.

First, the 3 trading days before Christmas.
The tables below show the performance Russell 2000 (R2k) and the S&P 500 (SPX) over the past 15 years during this period.

3 days before Christmas.
The number following the % change represents the day of the week 1=Monday, 5=Friday etc.
The number following the year is the year of the presidential cycle.

R2K Day3 Day2 Day1 Totals
1988-4 -0.20% 3 0.21% 4 0.26% 5 0.27%
1989-1 0.12% 3 0.56% 4 0.77% 5 1.46%
1990-2 0.12% 4 0.09% 5 -0.30% 1 -0.08%
1991-3 -0.07% 5 1.04% 1 0.93% 2 1.89%
1992-4 -0.09% 2 0.21% 3 0.46% 4 0.59%
1993-1 -0.56% 2 -0.05% 3 0.38% 4 -0.24%
1994-2 1.12% 3 0.12% 4 0.46% 5 1.71%
1995-3 0.92% 3 0.60% 4 0.53% 5 2.05%
1996-4 0.17% 5 -0.36% 1 0.13% 2 -0.06%
1997-1 0.68% 1 -0.20% 2 -0.23% 3 0.24%
1998-2 -0.40% 2 1.14% 3 0.19% 4 0.93%
1999-3 1.84% 2 0.45% 3 0.94% 4 3.23%
2000-4 -3.27% 3 0.73% 4 3.57% 5 1.03%
2001-1 -1.66% 4 2.10% 5 0.37% 1 0.81%
2002-2 0.90% 5 0.74% 1 -0.41% 2 1.23%
Averages -0.02% 0.49% 0.54% 1.00%
% Winners 53% 80% 80%  
 
SPX Day3 Day2 Day1 Totals
1988-4 -0.03% 3 -0.18% 4 0.36% 5 0.14%
1989-1 0.11% 3 0.57% 4 0.77% 5 1.44%
1990-2 -0.02% 4 0.49% 5 -0.56% 1 -0.09%
1991-3 1.18% 5 2.53% 1 0.63% 2 4.34%
1992-4 -0.09% 2 -0.29% 3 0.17% 4 -0.21%
1993-1 -0.12% 2 0.43% 3 0.01% 4 0.33%
1994-2 0.55% 3 0.01% 4 0.03% 5 0.60%
1995-3 -0.98% 3 0.75% 4 0.24% 5 0.01%
1996-4 0.42% 5 -0.26% 1 0.55% 2 0.71%
1997-1 0.73% 1 -1.53% 2 -0.68% 3 -1.48%
1998-2 0.06% 2 2.07% 3 -0.18% 4 1.95%
1999-3 1.08% 2 0.19% 3 1.55% 4 2.82%
2000-4 -3.13% 3 0.80% 4 2.44% 5 0.11%
2001-1 -0.84% 4 0.44% 5 -0.02% 1 -0.42%
2002-2 1.30% 5 0.18% 1 -0.55% 2 0.94%
Averages 0.01% 0.41% 0.32% 0.75%
% Winners 53% 73% 67%  

The next two tables show the performance of the same indices over the last 6 trading days of the year.

Last 6 days of previous December.

R2K Day6 Day5 Day4 Day3 Day2 Day1 Totals
1988-4 0.21% 4 0.26% 5 -0.14% 2 0.19% 3 0.52% 4 1.14% 5 2.18%
1989-1 0.56% 4 0.77% 5 0.13% 2 0.37% 3 0.15% 4 1.23% 5 3.21%
1990-2 0.09% 5 -0.30% 1 0.28% 3 -0.16% 4 -0.12% 5 1.33% 1 1.12%
1991-3 1.04% 1 0.93% 2 1.56% 4 1.03% 5 1.96% 1 1.11% 2 7.63%
1992-4 0.21% 3 0.46% 4 -0.17% 1 0.44% 2 -0.25% 3 2.17% 4 2.88%
1993-1 0.38% 4 0.44% 1 0.52% 2 0.90% 3 0.07% 4 0.94% 5 3.24%
1994-2 0.12% 4 0.46% 5 0.49% 2 -0.27% 3 0.66% 4 1.41% 5 2.87%
1995-3 0.60% 4 0.53% 5 0.17% 2 0.40% 3 -0.03% 4 0.63% 5 2 .29%
1996-4 -0.36% 1 0.13% 2 0.52% 4 0.41% 5 0.23% 1 0.73% 2 1.65%
1997-1 -0.20% 2 -0.23% 3 0.11% 5 1.23% 1 1.72% 2 0.69% 3 3.31%
1998-2 1.14% 3 0.19% 4 0.67% 1 0.52% 2 0.37% 3 2.44% 4 5.32%
1999-3 0.94% 4 0.42% 1 0.83% 2 1.75% 3 -0.09% 4 1.64% 5 5.49%
2000-4 0.73% 4 3.57% 5 0.79% 2 2.72% 3 3.07% 4 -2.13% 5 8.75%
2001-1 2.10% 5 0.37% 1 0.90% 3 0.50% 4 0.20% 5 -1.04% 1 3.03%
2002-2 0.74% 1 -0.41% 2 0.33% 4 -1.35% 5 -0.50% 1 0.22% 2 -0.97%
Averages 0.55% 0.51% 0.46% 0.58% 0.53% 0.83% 3.47%
% Winners 87% 80% 87% 80% 67% 87%  
 
SPX Day6 Day5 Day4 Day3 Day2 Day1 Totals
1988-4 -0.18% 4 0.36% 5 -0.37% 2 0.09% 3 0.84% 4 -0.60% 5 0.13%
1989-1 0.57% 4 0.77% 5 -0.18% 2 0.58% 3 0.53% 4 0.78% 5 3.04%
1990-2 0.49% 5 -0.56% 1 0.29% 3 -0.77% 4 0.13% 5 0.46% 1 0.04%
1991-3 2.53% 1 0.63% 2 1.38% 4 0.40% 5 2.14% 1 0.47% 2 7.54%
1992-4 -0.29% 3 0.17% 4 -0.14% 1 -0.27% 2 0.19% 3 -0.71% 4 -1.05%
1993-1 0.01% 4 0.68% 1 0.09% 2 -0.08% 3 -0.41% 4 -0.47% 5 -0.18%
1994-2 0.01% 4 0.03% 5 0.57% 2 -0.35% 3 0.07% 4 -0.41% 5 -0.07%
1995-3 0.75% 4 0.24% 5 0.38% 2 0.04% 3 -0.07% 4 0.29% 5 1.64%
1996-4 -0.26% 1 0.55% 2 0.64% 4 0.13% 5 -0.39% 1 -1.74% 2 -1.07%
1997-1 -1.53% 2 -0.68% 3 0.40% 5 1.80% 1 1.83% 2 -0.04% 3 1.79%
1998-2 2.07% 3 -0.18% 4 -0.06% 1 1.33% 2 -0.80% 3 -0.22% 4 2.14%
1999-3 1.55% 4 -0.09% 1 0.04% 2 0.40% 3 0.07% 4 0.33% 5 2.29%
2000-4 0.80% 4 2.44% 5 0.71% 2 1.04% 3 0.40% 4 -1.04% 5 4.34%
2001-1 0.44% 5 -0.02% 1 0.41% 3 0.68% 4 0.34% 5 -1.11% 1 0.72%
2002-2 0.18% 1 -0.55% 2 -0.31% 4 -1.60% 5 0.46% 1 0.05% 2 -1.78%
Averages 0.48% 0.25% 0.26% 0.23% 0.36% -0.26% 1.30%
% Winners 73% 60% 67% 67% 73% 40%  

Typically, seasonality is a small cap phenomenon. Performance of the R2K has averaged more than twice that of the SPX.

Except for 2002 the R2K has been up every year during the last 6 days of the year, So the question is:
How similar is this year to 2002?
The charts below suggest the similarities are non existent.
About a dozen years ago, a reviewer described my charts as looking "like an explosion in a spegatti factory" and, I am afraid the charts below fit that description. However, you need not examine these charts closely. The indicators are mostly trend followers so direction is all that matters.

At this time in 2002 all of these indicators were heading downward.

Currently three of the four are heading upward and the fourth appears to be turning upward.

The indicators are summations of oscillators of advancing issues - declining issues, new highs - new lows, upside volume -downside volume and Net Field Trend (NFT), a pattern identification indicator.

Using past performance as a guide, the odds are 14 to 1 that the 6 trading days beginning next Tuesday will be up for the small caps and 11 to 4 for the large caps. Currently the blue chips are overbought and the secondaries a little over sold so the secondaries are likely to outperform the blue chips.

I expect the major indices will be higher at the close Friday December 26 than they were at the close Friday December 19.

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