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Technical Market Report

The good news is:
 • Nearly all of the short term indicators have turned upward.
 • New lows on the NYSE have decreased every day for the past2 weeks.

New lows are still the most important indicator to watch and the story there is not quite complete. In the late 1980's I studied NYSE new lows as a forecaster of market direction and found that whenever there had been more than 250 new lows going into a low there had always been a retest of the low. On Monday May 10 there were 845 new lows on the NYSE. Since I did that study there has been a dramatic increase in the number of fixed income related issues traded on the NYSE and a high percentage of the new lows in the past month and a half have been fixed income issues. The number of fixed income related securities became an issue when they remained out of synch for a record time between 2000 and 2003. Another discovery of the new low study was when a bottom has been reached new lows dry up indicating there is very little risk in the market new lows begin rapidly building.

The chart below shows a 10% trend (19 day EMA) of NYSE new lows in blue. The Y axis has been inverted so that an increasing number of new lows move the indicator downward (down is bad and up is good). The indicator has been moving sharply upward since its low Monday May 10. The red line shows closing prices for the S&P 500 (SPX).

The next chart is similar to the one above except new lows have been calculated only from the component issues of the SPX and over a trailing 6 week period rather than 52 weeks as reported by the exchanges. On this chart the peak occurred during the late March low and at last Monday's low the indicator was higher that it was at the previous Monday's low and the March low. This chart suggests that the major low occurred in late March and there was an unconfirmed retest last Monday.

If only it was that simple. NASDAQ data has painted a slightly different picture. NASDAQ new lows peaked on Monday March 10 at 182, but they have increased on every down day since then and increased on some of the up days including last Thursday. As of Friday's close the value of the indicator was 66 so any number of NASDAQ new lows less than 66 will move the indicator upward.

The next chart shows the Russell 2000 (R2K) in red and the new low indicator calculated from the component issues of that index. Like the SPX chart, new lows have been calculated over the previous 6 weeks. There was a lower price low last Monday while the indicator made a slightly higher low (non-confirmation) and the indicator is higher now that it was about 1.5 weeks ago when prices were higher than they were at Friday's close. The indicator is out running prices to the upside.

The last chart shows the R2K in red and the SPX in green on percentage scales. The indicator at the bottom is Accutrack, a FastTrack relative strength indicator. After bottoming last Monday the indicator has been rising. Periods when that indicator has been rising have been positive for the market.

There are three perspectives on seasonality next week:

  • It is the week following options expiration.

  • It is the week before Memorial Day.

  • It is the last five trading days of the Month.

Witching 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.
The report is calculated as trading days after the 3rd Friday.

R2K
Year Mon Tue Wed Thur Fri
1989-1 -0.07% -0.27% 0.25% 0.37% 0.52%
1990-2 0.73% 0.35% 0.35% 0.14% -0.44%
1991-3 -0.15% 0.63% 0.22% 0.36% 0.46%
1992-4 0.13% 0.01% 0.11% -0.07% 0.40%
1993-1 -0.02% 0.26% 0.72% 0.22% -0.20%
1994-2 -0.20% 0.23% -0.05% 0.28% 0.21%
1995-3 0.38% 0.50% -0.18% -0.18% -0.51%
1996-4 0.68% -0.01% 0.43% -0.06% 0.05%
1997-1 0.35% 0.44% 0.51% 0.38% 1.13%
1998-2 -1.02% 0.70% -0.49% -0.29% -0.90%
1999-3 -1.95% -1.35% 0.22% -0.57% 1.33%
2000-4 -1.67% -2.68% 0.59% -1.21% 0.26%
2001-1 1.90% 0.26% -1.91% 0.60% -0.35%
2002-2 -1.13% -1.53% -0.31% 1.48% -1.52%
2003-3 -1.54% 0.18% 0.41% 1.06% 0.80%
Avg -0.24% -0.15% 0.06% 0.17% 0.08%
Win% 40% 67% 67% 60% 60%
 
SPX
Year Mon Tue Wed Thur Fri
1989-1 0.23% -1.14% 0.26% 0.01% 0.76%
1990-2 0.95% 0.12% 0.24% -0.24% -1.07%
1991-3 -0.03% 0.82% 0.22% -0.32% 0.67%
1992-4 0.66% 0.86% -0.24% -0.67% 0.34%
1993-1 0.48% 0.19% 1.02% -0.23% -0.49%
1994-2 -0.38% 0.36% 0.34% 0.16% 0.06%
1995-3 0.86% 0.94% 0.01% 0.00% -0.93%
1996-4 0.63% -0.06% 0.84% -0.36% 0.37%
1997-1 0.42% 1.01% -0.27% -0.44% 1.36%
1998-2 -0.26% 0.33% 0.86% -0.39% -0.37%
1999-3 -1.78% -1.70% 1.59% -1.79% 1.59%
2000-4 -0.44% -1.92% 1.83% -1.25% -0.25%
2001-1 1.62% -0.26% -1.55% 0.32% -1.18%
2002-2 -1.33% -1.10% 0.57% 1.02% -1.21%
2003-3 -2.49% -0.11% 0.40% 0.92% 0.14%

Avg -0.06% -0.11% 0.41% -0.22% -0.01%
Win% 53% 53% 80% 33% 53%

5 days before Memorial Day.
The number following the year is the year of the presidential cycle.

R2K Day5 Day4 Day3 Day2 Day1 Totals
1989-1 -0.07% 1 -0.27% 2 0.25% 3 0.37% 4 0.52% 5 0.81%
1990-2 0.73% 1 0.35% 2 0.35% 3 0.14% 4 -0.44% 5 1.12%
1991-3 -0.15% 1 0.63% 2 0.22% 3 0.36% 4 0.46% 5 1.52%
1992-4 0.13% 1 0.01% 2 0.11% 3 -0.07% 4 0.40% 5 0.58%
1993-1 -0.02% 1 0.26% 2 0.72% 3 0.22% 4 -0.20% 5 0.98%
1994-2 -0.20% 1 0.23% 2 -0.05% 3 0.28% 4 0.21% 5 0.48%
1995-3 0.38% 1 0.50% 2 -0.18% 3 -0.18% 4 -0.51% 5 0.01%
1996-4 0.68% 1 -0.01% 2 0.43% 3 -0.06% 4 0.05% 5 1.10%
1997-1 0.35% 1 0.44% 2 0.51% 3 0.38% 4 1.13% 5 2.81%
1998-2 -1.02% 1 0.70% 2 -0.49% 3 -0.29% 4 -0.90% 5 -2.01%
1999-3 -1.95% 1 -1.35% 2 0.22% 3 -0.57% 4 1.33% 5 -2.32%
2000-4 -1.67% 1 -2.68% 2 0.59% 3 -1.21% 4 0.26% 5 -4.71%
2001-1 1.90% 1 0.26% 2 -1.91% 3 0.60% 4 -0.35% 5 0.50%
2002-2 -1.13% 1 -1.53% 2 -0.31% 3 1.48% 4 -1.52% 5 -3.01%
2003-3 -1.54% 1 0.18% 2 0.41% 3 1.06% 4 0.80% 5 0.91%
Averages -0.24% -0.15% 0.06% 0.17% 0.08% -0.08%
Winners 40% 67% 67% 60% 60%  
 
SPX Day5 Day4 Day3 Day2 Day1 Totals
1989-1 0.23% 1 -1.14% 2 0.26% 3 0.01% 4 0.76% 5 0.12%
1990-2 0.95% 1 0.12% 2 0.24% 3 -0.24% 4 -1.07% 5 -0.01%
1991-3 -0.03% 1 0.82% 2 0.22% 3 -0.32% 4 0.67% 5 1.37%
1992-4 0.66% 1 0.86% 2 -0.24% 3 -0.67% 4 0.34% 5 0.96%
1993-1 0.48% 1 0.19% 2 1.02% 3 -0.23% 4 -0.49% 5 0.98%
1994-2 -0.38% 1 0.36% 2 0.34% 3 0.16% 4 0.06% 5 0.53%
1995-3 0.86% 1 0.94% 2 0.01% 3 0.00% 4 -0.93% 5 0.87%
1996-4 0.63% 1 -0.06% 2 0.84% 3 -0.36% 4 0.37% 5 1.43%
1997-1 0.42% 1 1.01% 2 -0.27% 3 -0.44% 4 1.36% 5 2.08%
1998-2 -0.26% 1 0.33% 2 0.86% 3 -0.39% 4 -0.37% 5 0.16%
1999-3 -1.78% 1 -1.70% 2 1.59% 3 -1.79% 4 1.59% 5 -2.09%
2000-4 -0.44% 1 -1.92% 2 1.83% 3 -1.25% 4 -0.25% 5 -2.03%
2001-1 1.62% 1 -0.26% 2 -1.55% 3 0.32% 4 -1.18% 5 -1.06%
2002-2 -1.33% 1 -1.10% 2 0.57% 3 1.02% 4 -1.21% 5 -2.05%
2003-3 -2.49% 1 -0.11% 2 0.40% 3 0.92% 4 0.14% 5 -1.14%
Averages -0.06% -0.11% 0.41% -0.22% -0.01% 0.01%
Winners 53% 53% 80% 33% 53%  

Last 5 days of May.
The number following the daily return represents the day of the week;
1 = Monday, 2 = Tuesday etc.

R2K Day5 Day4 Day3 Day2 Day1 Totals
1989-1 0.25% 3 0.37% 4 0.52% 5 -0.25% 2 0.56% 3 1.45%
1990-2 0.14% 4 -0.44% 5 0.54% 2 0.28% 3 0.14% 4 0.66%
1991-3 0.46% 5 0.62% 2 0.50% 3 0.94% 4 0.86% 5 3.39%
1992-4 0.40% 5 -0.71% 2 0.14% 3 0.24% 4 0.55% 5 0.63%
1993-1 -0.02% 1 0.26% 2 0.72% 3 0.22% 4 -0.20% 5 0.98%
1994-2 0.23% 2 -0.05% 3 0.28% 4 0.21% 5 -0.07% 2 0.60%
1995-3 -0.18% 3 -0.18% 4 -0.51% 5 -0.52% 2 0.40% 3 -0.98%
1996-4 0.05% 5 -0.83% 2 -0.68% 3 0.34% 4 0.42% 5 -0.69%
1997-1 1.13% 5 0.28% 2 0.28% 3 0.17% 4 0.62% 5 2.48%
1998-2 -0.90% 5 -1.71% 2 -1.06% 3 1.23% 4 0.18% 5 -2.26%
1999-3 -1.95% 1 -1.35% 2 0.22% 3 -0.57% 4 1.33% 5 -2.32%
2000-4 0.59% 3 -1.21% 4 0.26% 5 4.23% 2 -0.11% 3 3.77%
2001-1 0.60% 4 -0.35% 5 -1.23% 2 -1.67% 3 0.51% 4 -2.14%
2002-2 -1.52% 5 -0.25% 2 -0.98% 3 0.05% 4 -0.07% 5 -2.77%
2003-3 0.80% 5 2.23% 2 0.65% 3 0.50% 4 1.93% 5 6.10%
Averages 0.01% -0.22% -0.02% 0.36% 0.47% 0.59%
Winners 67% 33% 67% 73% 73%  
 
SPX Day5 Day4 Day3 Day2 Day1 Totals
1989-1 0.26% 3 0.01% 4 0.76% 5 -0.79% 2 0.46% 3 0.70%
1990-2 -0.24% 4 -1.07% 5 1.71% 2 0.06% 3 0.10% 4 0.56%
1991-3 0.67% 5 1.18% 2 0.22% 3 1.09% 4 0.74% 5 3.90%
1992-4 0.34% 5 -0.63% 2 0.18% 3 1.11% 4 -0.33% 5 0.67%
1993-1 0.48% 1 0.19% 2 1.02% 3 -0.23% 4 -0.49% 5 0.98%
1994-2 0.36% 2 0.34% 3 0.16% 4 0.06% 5 -0.18% 2 0.73%
1995-3 0.01% 3 0.00% 4 -0.93% 5 -0.01% 2 1.88% 3 0.93%
1996-4 0.37% 5 -0.93% 2 -0.64% 3 0.56% 4 -0.38% 5 -1.01%
1997-1 1.36% 5 0.32% 2 -0.29% 3 -0.37% 4 0.50% 5 1.51%
1998-2 -0.37% 5 -1.48% 2 -0.16% 3 0.49% 4 -0.62% 5 -2.15%
1999-3 -1.78% 1 -1.70% 2 1.59% 3 -1.79% 4 1.59% 5 -2.09%
2000-4 1.83% 3 -1.25% 4 -0.25% 5 3.22% 2 -0.13% 3 3.42%
2001-1 0.32% 4 -1.18% 5 -0.78% 2 -1.57% 3 0.62% 4 -2.59%
2002-2 -1.21% 5 -0.86% 2 -0.64% 3 -0.28% 4 0.23% 5 -2.75%
2003-3 0.14% 5 1.96% 2 0.18% 3 -0.38% 4 1.47% 5 3.38%
Averages 0.17% -0.34% 0.14% 0.08% 0.36% 0.41%
Winners 73% 40% 53% 47% 60%  

The seasonal bias is slightly positive and it does not clearly favor the small caps which is unusual.

The lingering weakness in the small caps suggests the next leg up should favor the large caps, but the current extremely oversold position of the small caps suggests they should have a nice bounce in the next week or so.

I expect the major indices will be higher on Friday May 28 than they were on Friday May 21.

Last week the small caps were up slightly while the large caps were down slightly. For the week all of the major indices moved less than 1% so I am calling last weeks positive forecast a draw.

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