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Technical Market Report

The good news is the market, by nearly every intermediate term technical measure, is in good shape.

  • Both the NYSE and NASDAQ AD lines made new cycle highs last week.
  • There have been virtually no new lows on either the NYSE or NASDAQ.
  • The 10% trend (19 day EMA) of NYSE new highs is at an all time high.
  • The NASDAQ new high indicator continued to rise.
  • The secondaries are again stronger than the blue chips.

All of this implies new highs in the blue chip indices in the next 2 to 6 weeks.

Not much has changed since last week when I pointed out that the S&P 500 (SPX) had been rising at an annualized rate of 87% since the November low. For last week the annualized rate of change was 83% on the SPX and 257% on the Russell 2000 (R2K).

Ronald Regan signed a bill making the 3rd Monday of January the national Martin Luther King holiday. The holiday was first celebrated in 1986, market began closing for the holiday in 1998. As a holiday there are seasonal implications for the market. As you can see in the tables below the two trading days preceding the holiday have an upward bias.

5 trading days before Martin Luther King day.
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 Day5 Day4 Day3 Day2 Day1 Totals
1989-1 -0.16% 1 -0.25% 2 0.03% 3 0.36% 4 0.07% 5 0.05%
1990-2 -0.06% 1 -0.14% 2 -0.80% 3 0.04% 4 -2.17% 5 -3.13%
1991-3 -1.75% 1 -0.11% 2 1.24% 3 2.72% 4 -0.31% 5 1.79%
1992-4 0.28% 1 1.25% 2 1.01% 3 0.00% 4 0.33% 5 2.86%
1993-1 0.47% 1 -0.33% 2 0.49% 3 1.04% 4 0.64% 5 2.31%
1994-2 0.22% 1 -0.05% 2 0.23% 3 0.16% 4 0.24% 5 0.80%
1995-3 0.12% 1 0.25% 2 -0.33% 3 0.04% 4 0.68% 5 0.75%
1996-4 0.06% 1 -1.60% 2 -1.46% 3 0.93% 4 -0.19% 5 -2.26%
1997-1 -0.07% 1 0.46% 2 -0.09% 3 -0.07% 4 0.26% 5 0.49%
1998-2 -0.50% 1 1.84% 2 0.83% 3 -0.04% 4 1.07% 5 3.20%
1999-3 0.44% 1 -1.33% 2 -0.58% 3 -1.12% 4 1.65% 5 -0.94%
2000-4 2.78% 1 -1.85% 2 -0.52% 3 2.28% 4 1.27% 5 3.96%
2001-1 -0.32% 1 0.50% 2 2.48% 3 1.76% 4 0.39% 5 4.81%
2002-2 -1.41% 1 0.41% 2 -1.77% 3 1.25% 4 -1.66% 5 -3.18%
2003-3 -0.07% 1 0.57% 2 -0.73% 3 -0.16% 4 -1.72% 5 -2.11%
Averages 0.00% -0.03% 0.00% 0.66% 0.04% 0.63%
Winners 47% 47% 47% 71% 67%  
 
SPX Day5 Day4 Day3 Day2 Day1 Totals
1989-1 0.11% 1 -0.21% 2 0.58% 3 0.41% 4 0.25% 5 1.14%
1990-2 0.45% 1 -1.18% 2 -0.66% 3 0.35% 4 -2.47% 5 -3.50%
1991-3 -0.87% 1 0.40% 2 0.78% 3 3.73% 4 1.30% 5 5.34%
1992-4 -0.18% 1 1.47% 2 0.08% 3 -0.61% 4 0.16% 5 0.91%
1993-1 0.44% 1 0.02% 2 0.46% 3 0.67% 4 0.28% 5 1.87%
1994-2 1.14% 1 -0.24% 2 0.01% 3 -0.36% 4 0.52% 5 1.07%
1995-3 0.03% 1 0.18% 2 0.00% 3 0.00% 4 0.94% 5 1.15%
1996-4 0.28% 1 -1.46% 2 -1.80% 3 0.70% 4 -0.15% 5 -2.42%
1997-1 0.00% 1 1.23% 2 -0.22% 3 0.33% 4 0.83% 5 2.18%
1998-2 1.24% 1 1.37% 2 0.61% 3 -0.75% 4 1.13% 5 3.61%
1999-3 -0.88% 1 -1.93% 2 -0.41% 3 -1.80% 4 2.56% 5 -2.46%
2000-4 1.12% 1 -1.31% 2 -0.44% 3 1.22% 4 1.07% 5 1.66%
2001-1 -0.19% 1 0.38% 2 0.96% 3 1.03% 4 -0.64% 5 1.54%
2002-2 -0.63% 1 0.68% 2 -1.62% 3 1.00% 4 -0.99% 5 -1.56%
2003-3 -0.14% 1 0.58% 2 -1.44% 3 -0.39% 4 -1.40% 5 -2.80%
Averages 0.13% 0.00% -0.21% 0.37% 0.23% 0.52%
Winners 60% 60% 47% 60% 67%  

Seasonally, because of the holiday on the following Monday, next week has a mildly upward bias. But the market continues to be overbought by any short term definition. The chart below shows momentum of the NASDAQ advance-decline ratio. It is a momentum indicator applied to the result of (advancing issues / (advancing issues + declining issues)). The indicator peaked at around what has been its normal high range just before the 1st of the year, but the strong rally last week turned it back upward. It turned down again as of Friday.

Because of the extremely over bought condition of the market, I expect the major indices will be lower at the close Friday January 16 than they were at the close Friday January 9.

If I miss a few more forecasts like I did last week, I might be valuable as a contrary indicator. I am going to keep score at the end of the report of the success or failure of my weekly forecasts. The format will be Win/Loss/Tie. The forecast will be considered a tie if some of the major indices are up and some down for the week.

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