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Technical Market Report

The good news is:
 • The current period of weakness is close to over or possibly endingright now.

Not much has changed in the past week, but there are some encouraging signs. The number of new lows on the NYSE decreased each of the last four days of last week (even on the days the indices were down). Unfortunately the same cannot be said for the NASDAQ.

The new low indicator, a 10% trend (19 day EMA) of new lows is plotted on an inverted Y axis so increasing new lows push the indicator downward while decreasing new lows move the indicator upward (up is good down is bad). The charts are scaled so that minimum and maximum values of the indicator or index go to the top and bottom of the chart for the period showing.

The first chart shows the NYSE new low indicator and the S&P 500 (SPX) for the past six months. Since Tuesday the indicator has been rising rapidly, positive.

The next chart shows the same indicator calculated from the component issues of the S&P 500 (SPX). New lows were calculated over the past 6 weeks rather than the past 52 weeks as reported by the exchanges. This one is prettier because it shows the indicator making a higher low last Monday than it did during the low in March even though the index made a lower low (non-confirmation).

The following charts raise doubts about an immediate recovery. The first shows the new low indicator calculated on NASDAQ data along with the NASDAQ composite. The recovery shown here was not as vigorous as the NYSE and the indicator turned back downward on Friday.

The next chart shows the same indicator calculated from only the component issues of the Russell 2000 (R2K).. Like the SPX chart above, new lows were calculated over the past 6 weeks rather than the past 52 weeks as reported by the exchanges. This one is similar to the NASDAQ chart in that the indicator made a cycle low last Monday and turned downward on Friday.

Some analysts use an average of the Fidelity Select funds as a surrogate for the market. The chart below shows an average of the Fidelity Select funds in red and a 33% trend of the percentage of those 41 funds that are above their 50 day EMA's in blue. The chart covers the past 1.5 years. The indicator is at its lowest point since the March 2003 lows, shows fewer of the funds are above their 50 day EMA's at any time in the past year, an extremely oversold condition.

It is possible the cycle lows were hit last Monday. As of Friday the value of the NYSE new low indicator was 225 and the value of the NASDAQ new low indicator was 58 so any number of new lows less than 225 and 58 respectively will move the indicators upward indicating the bottom has been seen while new lows greater than 225 and 58 would indicate further price movement to the downside.

The relative strength of the new low indicators of the NYSE and SPX over those of the NASDAQ and R2K suggest the next leg up will favor the blue chips over the small caps.

Options expire next Friday. The tables below show the week prior to the May options expiration for the past 15 years. Except for Friday the week has been strong.

Witching Summary report for May
Witching is futures and options expiration the 3rd Friday of the month.
The number following the year is the position in the presidential cycle.

R2K
Year Mon Tue Wed Thur *Fri*
1989-1 0.12% -0.04% 0.60% 0.43% 0.38%
1990-2 0.44% -0.11% 0.12% 0.65% 0.32%
1991-3 0.05% -1.02% -1.80% 0.73% -0.06%
1992-4 0.38% -0.23% -0.07% -0.75% -0.33%
1993-1 -0.03% 0.22% 0.61% 0.43% -0.16%
1994-2 -0.59% -0.09% 1.16% 0.75% -0.15%
1995-3 0.40% 0.46% 0.23% -0.67% -0.15%
1996-4 0.96% 0.83% 0.18% 0.18% 0.52%
1997-1 0.65% -0.05% 0.25% 0.39% -0.17%
1998-2 -0.54% -0.16% 0.28% -0.40% -0.65%
1999-3 -0.40% 0.25% 0.83% 0.42% 0.25%
2000-4 1.40% 1.64% -1.25% -1.74% -2.29%
2001-1 -0.15% 0.61% 1.55% 1.52% 0.30%
2002-2 1.42% 2.40% 0.36% -1.20% 0.30%
2003-3 1.13% 0.25% 0.05% 0.62% -1.74%
Avg 0.35% 0.33% 0.21% 0.09% -0.24%
Win% 67% 53% 80% 67% 40%
 
SPX
Year Mon Tue Wed Thur *Fri*
1989-1 0.74% -0.28% 0.70% 0.15% 1.03%
1990-2 0.78% -0.13% -0.08% 0.13% 0.05%
1991-3 0.27% -1.36% -0.82% 0.98% 0.05%
1992-4 0.59% -0.53% 0.04% -0.79% -0.74%
1993-1 0.18% -0.01% 1.64% 0.69% -1.05%
1994-2 0.08% 1.10% 0.96% 0.62% -0.34%
1995-3 0.42% 0.09% -0.22% -1.42% -0.08%
1996-4 1.44% 0.62% -0.03% -0.09% 0.61%
1997-1 1.56% -0.54% 0.35% 0.70% -1.44%
1998-2 -0.14% 0.83% 0.28% -0.13% -0.77%
1999-3 0.13% -0.46% 0.82% -0.40% -0.64%
2000-4 2.21% 0.94% -1.24% -0.73% -2.11%
2001-1 0.26% 0.04% 2.85% 0.27% 0.27%
2002-2 1.85% 2.11% -0.57% 0.66% 0.76%
2003-3 1.25% -0.30% -0.32% 0.79% -0.25%
Avg 0.78% 0.14% 0.29% 0.09% -0.31%
Win% 93% 47% 53% 60% 40%

I expect the major indices will be higher on Friday May 21 than they were on Friday May 14.

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