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Technical Market Report

The good news is:
 • The number of new lows remains insignificant.
 • The secondaries have held up well relative to the blue chips.

Last week new lows peaked on Monday at 25 on the NYSE and 38 on the NASDAQ on Friday there were 17 on the NYSE and 11 on the NASDAQ. The rule of thumb is 3 consecutive days of more than 40 new lows on the NYSE indicates trouble. So this indicator offers no reason for alarm.

The chart below shows the Russell 2000 (R2K) in red and the S&P 500 (SPX) in green, the indicator in yellow at the bottom of the screen is a FastTrack relative strength indicator called Accutrack. The best time to be long is when the indicator is rising. During the recent decline the indicator has fallen slowly, but remained above the neutral line indicating the R2K has held up well relative to the SPX during this recent period of decline. The indicator turned upward the middle of last week, although encouraging, day to day readings of the indicator are unreliable.

Although my longer term outlook is positive, short term there is little evidence the current period of weakness has ended.

The chart below covers the past 1.5 years and shows an average of 162 junk bond funds in the FastTrack database (BD-Junk.fam) in red and the percentage of those funds that are above their 50 day EMA in blue. The percentage of junk bond funds above their 50 day EMA has remained extremely high over the past 1.5 years with three exceptions:

  1. The low of October 2002.
  2. The period of weakness July-August 2003.
  3. The current period.

It will be comforting to see that indicator turn upward.

If you are suspicious of timing equities with junk bonds. The chart below is similar showing an average of the 41 Fidelity select funds in red and the percentage of them above their 50 day EMA's in blue.

Summation indexes (SI) are calculated by summing the values of an oscillator, when the oscillator is above 0 the SI rises, when it is below 0 the SI falls. The charts below show SI's calculated from advancing - declining issues, new highs - new lows and upside - downside volume. In the first chart they are calculated from the component issues of the SPX, in the second chart they are calculated from the component issues of the R2K. New highs and new lows for these calculations have been calculated over the trailing 30 trading days rather than 52 weeks as reported by the exchanges.

I have mentioned before, when these indicators are all going in the same direction it is imprudent to bet against them and as of Friday they are all heading downward. Although both the volume and AD oscillators are near 0 and rising.

End of month - beginning of month seasonality doesn't help much next week. Over the past 15 years both the R2K and SPX have averaged losses over period.

Last 3 days of March and first 2 days of April.
The number following the daily return represents the day of the week;
1 = Monday, 2 = Tuesday etc.
The number following the year represents its position in the presidential cycle.

R2K Day3 Day2 Day1 Day1 Day2 Totals
1989-1 0.15% 3 -0.03% 4 0.73% 5 0.25% 1 -0.20% 2 0.89%
1990-2 -0.16% 3 -0.24% 4 0.14% 5 -0.79% 1 0.65% 2 -0.41%
1991-3 1.15% 2 0.70% 3 0.70% 4 -0.41% 1 1.35% 2 3.49%
1992-4 -1.16% 5 -0.44% 1 0.37% 2 -0.65% 3 -0.93% 4 -2.81%
1993-1 0.08% 1 0.24% 2 0.67% 3 -0.24% 4 -1.71% 5 -0.96%
1994-2 -2.08% 2 -1.79% 3 -0.55% 4 -1.60% 1 2.80% 2 -3.22%
1995-3 -0.14% 3 0.15% 4 0.19% 5 0.02% 1 -0.02% 2 0.18%
1996-4 0.24% 3 0.10% 4 0.59% 5 0.50% 1 0.24% 2 1.67%
1997-1 0.46% 3 -0.95% 4 -1.83% 1 -0.49% 2 -0.91% 3 -3.72%
1998-2 -0.14% 5 -0.19% 1 0.94% 2 0.88% 3 0.31% 4 1.80%
1999-3 1.48% 1 -0.25% 2 -0.29% 3 0.28% 4 0.89% 1 2.12%
2000-4 -2.87% 3 -2.10% 4 1.41% 5 -4.28% 1 -1.92% 2 -9.76%
2001-1 -2.36% 3 -0.15% 4 2.04% 5 -2.39% 1 -2.91% 2 -5.77%
2002-2 1.06% 2 0.84% 3 0.12% 4 -0.39% 1 -0.79% 2 0.84%
2003-3 0.36% 4 -0.22% 5 -1.12% 1 1.14% 2 2.06% 3 2.22%
Averages -0.26% -0.29% 0.27% -0.54% -0.07% -0.90%
% Winners 53% 33% 73% 40% 47%  
 
SPX Day3 Day2 Day1 Day1 Day2 Totals
1989-1 0.26% 3 0.06% 4 0.80% 5 0.52% 1 -0.36% 2 1.27%
1990-2 0.15% 3 -0.35% 4 -0.25% 5 -0.36% 1 1.46% 2 0.64%
1991-3 1.75% 2 -0.25% 3 -0.03% 4 -1.04% 1 2.21% 2 2.63%
1992-4 -1.07% 5 -0.12% 1 0.17% 2 0.13% 3 -0.92% 4 -1.81%
1993-1 0.67% 1 0.27% 2 -0.07% 3 -0.30% 4 -1.98% 5 -1.41%
1994-2 -1.63% 2 -1.53% 3 0.05% 4 -1.54% 1 2.13% 2 -2.52%
1995-3 -0.15% 3 -0.18% 4 -0.30% 5 0.23% 1 0.68% 2 0.27%
1996-4 -0.62% 3 0.00% 4 -0.53% 5 1.27% 1 0.23% 2 0.36%
1997-1 0.18% 3 -2.10% 4 -2.17% 1 0.33% 2 -1.25% 3 -5.01%
1998-2 -0.49% 5 -0.17% 1 0.75% 2 0.58% 3 1.07% 4 1.74%
1999-3 2.13% 1 -0.72% 2 -1.11% 3 0.57% 4 2.12% 1 3.00%
2000-4 0.05% 3 -1.37% 4 0.72% 5 0.49% 1 -0.75% 2 -0.85%
2001-1 -2.44% 3 -0.46% 4 1.08% 5 -1.25% 1 -3.44% 2 -6.51%
2002-2 0.58% 2 0.53% 3 0.25% 4 -0.07% 1 -0.85% 2 0.44%
2003-3 -0.16% 4 -0.58% 5 -1.77% 1 1.21% 2 2.61% 3 1.31%
Averages -0.05% -0.47% -0.16% 0.05% 0.20% -0.43%
% Winners 53% 27% 47% 60% 53%  

You have to look pretty hard to find evidence that the recent decline has ended, on the bright side there is every reason to believe the current weakness is nothing more than a necessary interruption of the bull market that began in March 2003.

I expect the major indices will be lower on Friday April 2 than they were on Friday March 26.

Last week the R2K was up slightly while the SPX was down slightly so I am calling last weeks forecast a tie.

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