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Technical Market Report

The good news is:
• A Santa Clause rally is due to begin Wednesday.

Short Term

Seasonal considerations overwhelm everything else.

The second and third days prior to Christmas are often a little weak, but the day prior to Christmas is usually strong. This year, Friday, the day after Christmas, is likely to be a very low volume day that drifts upward, similar to the day after Thanksgiving.

Intermediate term

There is nothing technically to put the Santa Clause Rally in doubt.

There have been no new highs to speak of, but not many new lows either and with a low only a month ago the lack of new highs is not surprising.

The chart below covers the past 6 months showing the NASDAQ composite (OTC) in blue and a 10% trend (19 day EMA) of NASDAQ new lows (OTC NL) in black. OTC NL has been plotted on an inverted Y axis so declining new low move the indicator upward (up is good).

Seasonality

Next week is the week includes 3 days prior to Christmas and one day after during the 4th year of the Presidential Cycle.

The tables show the daily return on a percentage basis for the 3 days prior to Christmas during the 4th year of the Presidential Cycle. OTC data covers the period from 1963 - 2007 and SPX data from 1952 - 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. I did not include Friday in the tables, but, since the late 1940's, when Christmas has been on Thursday, the Friday following has never been down.

The average gains for all periods have been positive, but, have mostly been made on the day before Christmas.

Report for 3 days before Christmas.
The number following the year represents its position in the presidential cycle.
The number following the daily return represents the day of the week;
1 = Monday, 2 = Tuesday etc.

OTC Presidential Year 4
  Day3 Day2 Day1 Totals
1964-4 0.09% 2 0.39% 3 0.59% 4 1.07%
 
1968-4 -0.08% 5 0.09% 1 -0.31% 2 -0.29%
1972-4 -0.35% 3 -0.64% 4 0.15% 5 -0.84%
1976-4 0.22% 2 0.53% 3 0.04% 4 0.79%
1980-4 0.95% 1 0.04% 2 0.14% 3 1.13%
1984-4 -0.16% 4 -0.09% 5 0.63% 1 0.39%
Avg 0.12% -0.01% 0.13% 0.23%
 
1988-4 -0.12% 3 0.24% 4 0.22% 5 0.34%
1992-4 -0.24% 2 0.32% 3 0.44% 4 0.52%
1996-4 -0.56% 5 -0.71% 1 0.63% 2 -0.64%
2000-4 -7.12% 3 0.31% 4 7.56% 5 0.75%
2004-4 1.08% 2 0.28% 3 0.17% 4 1.53%
Avg -1.39% 0.09% 1.80% 0.50%
 
OTC summary for Presidential Year 4 1964 - 2004
Averages -0.57% 0.07% 0.93% 0.43%
%Winners 36% 73% 91% 73%
MDD 12/20/2000 7.12% -- 12/23/1996 1.27% -- 12/21/1972 .99%
 
OTC summary for all years 1963 - 2007
Averages -0.06% 0.28% 0.32% 0.54%
% Winners 56% 67% 64% 64%
 
SPX Presidential Year 4
  Day3 Day2 Day1 Totals
1952-4 0.57% 1 -0.42% 2 0.08% 3 0.23%
1956-4 -0.24% 3 -0.78% 4 0.65% 5 -0.36%
1960-4 0.81% 3 -0.28% 4 0.09% 5 0.61%
1964-4 -0.06% 2 -0.21% 3 0.00% 4 -0.27%
 
1968-4 -0.59% 5 -1.06% 1 -0.16% 2 -1.81%
1972-4 -0.34% 3 -0.72% 4 0.63% 5 -0.43%
1976-4 0.55% 2 0.47% 3 0.12% 4 1.14%
1980-4 1.56% 1 -0.35% 2 0.43% 3 1.63%
1984-4 -0.47% 4 -0.52% 5 0.76% 1 -0.23%
Avg 0.14% -0.44% 0.35% 0.06%
 
1988-4 -0.03% 3 -0.18% 4 0.36% 5 0.14%
1992-4 -0.09% 2 -0.29% 3 0.17% 4 -0.21%
1996-4 0.42% 5 -0.26% 1 0.55% 2 0.71%
2000-4 -3.13% 3 0.80% 4 2.44% 5 0.11%
2004-4 0.90% 2 0.34% 3 0.05% 4 1.29%
Avg -0.39% 0.08% 0.71% 0.41%
 
SPX summary for Presidential Year 4 1952 - 2004
Averages -0.01% -0.25% 0.44% 0.18%
%Winners 43% 21% 86% 57%
MDD 12/20/2000 3.13% -- 12/24/1968 1.80% -- 12/21/1972 1.06%
 
SPX summary for all years 1952 - 2007
Averages 0.09% -0.01% 0.27% 0.34%
% Winners 55% 47% 69% 59%

Money supply (M2)

The chart below was provided by Gordon Harms. Money supply has growth has been accelerating modestly.

Conclusion

New lows have remained at benign levels and the secondaries have been stronger than the blue chips.

I expect the major indices to be higher on Friday December 26 than they were on Friday December 19.

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.

All of the major indices were up last week except the Dow Jones Industrial Average which was down 0.59%. So I am calling last weeks negative forecast a tie.

Thank you,

 

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