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Technical Market Report

The good news is:
 • The Standard and Poors small cap index made a new all timehigh last week.

Small caps lead both up and down so it is encouraging to see the small caps outperforming. The Russell 2000 (R2K) made a nominal new high in early April.

Since this rally began in March 2003 the real action has been in internet issues. The Merrill Lynch Internet HOLDERS trust (HHH) made up of issues like Amazon, eBay, Yahoo! and Double Click has advanced at nearly double the pace of the small cap indices. The FastTrack chart below shows the relative performance of HHH in red the S&P small cap index in green and the R2K in purple. Although HHH made a rally high last week, it is still off its all time high by 67%

We have speculation, but it is being done with very little volume. The chart below covers 2 years and shows the NASDAQ composite in red and momentum of total NASDAQ volume in red and green. The indicator was developed as a timing device by Steve Hunter. When momentum crosses certain thresholds represented by dashed horizontal lines a signal is generated. In this chart the line is drawn in green when the signal is on a buy and red when the signal is on a sell. Most rallies are accompanied by increasing volume, that has not been the case with the recent rally.

Seasonality doesn't help much. Over the past 15 years the S&P 500 (SPX) has been up slightly in early July while the R2K has been down slightly.

First 6 trading days of July.
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 Day1 Day2 Day3 Day4 Day5 Day6 Totals
1989-1 0.10% 1 0.21% 3 0.41% 4 0.91% 5 0.33% 1 0.26% 2 2.22%
1990-2 -0.07% 1 -0.03% 2 -0.55% 4 0.11% 5 -0.05% 1 -0.26% 2 -0.85%
1991-3 0.63% 1 -0.15% 2 -0.70% 3 -0.03% 5 0.28% 1 0.40% 2 0.43%
1992-4 0.54% 3 -0.66% 4 -0.30% 1 -0.65% 2 -0.40% 3 1.00% 4 -0.47%
1993-1 0.33% 4 0.04% 5 -0.13% 2 -0.31% 3 0.40% 4 0.36% 5 0.69%
1994-2 0.35% 5 -0.16% 2 -0.02% 3 0.43% 4 0.08% 5 -0.11% 1 0.57%
1995-3 0.02% 1 0.38% 3 0.55% 4 1.05% 5 0.46% 1 0.13% 2 2.59%
1996-4 0.32% 1 -0.22% 2 -0.62% 3 -1.46% 5 -0.91% 1 -0.07% 2 -2.96%
1997-1 -0.57% 2 0.15% 3 0.37% 4 0.02% 1 0.51% 2 -0.22% 3 0.26%
1998-2 0.53% 3 -0.33% 4 0.36% 1 -0.20% 2 0.20% 3 0.01% 4 0.57%
1999-3 -0.71% 4 0.46% 5 0.01% 2 -0.85% 3 0.46% 4 0.71% 5 0.08%
2000-4 1.31% 1 -1.10% 3 0.97% 4 0.94% 5 0.49% 1 -0.21% 2 2.41%
2001-1 -2.75% 1 -0.44% 2 -0.83% 4 -1.92% 5 0.56% 1 -1.61% 2 -6.99%
2002-2 -3.22% 1 -3.33% 2 -0.78% 3 2.67% 5 -1.66% 1 -1.01% 2 -7.33%
2003-3 0.18% 2 2.16% 3 -0.55% 4 2.05% 1 1.77% 2 0.64% 3 6.26%
2004-4 -1.54% 4 0.05% 5 0.00% 0 0.00% 0 0.00% 0 0.00% 0 -1.49%
Averages -0.28% -0.19% -0.12% 0.18% 0.17% 0.00% -0.25%
%Winners 63% 44% 40% 53% 73% 53%  
 
SPX Day1 Day2 Day3 Day4 Day5 Day6 Totals
1989-1 0.39% 1 0.44% 3 0.28% 4 1.04% 5 0.66% 1 0.52% 2 3.35%
1990-2 0.42% 1 0.17% 2 -1.24% 4 0.77% 5 0.31% 1 -0.84% 2 -0.41%
1991-3 1.82% 1 -0.12% 2 -1.10% 3 0.20% 5 1.03% 1 -0.48% 2 1.35%
1992-4 1.16% 3 -0.27% 4 0.50% 1 -1.13% 2 0.27% 3 0.96% 4 1.50%
1993-1 -0.34% 4 -0.71% 5 -0.99% 2 0.32% 3 1.31% 4 -0.11% 5 -0.52%
1994-2 0.43% 5 0.04% 2 -0.05% 3 0.50% 4 0.26% 5 -0.33% 1 0.85%
1995-3 0.43% 1 0.03% 3 1.23% 4 0.43% 5 0.15% 1 -0.43% 2 1.83%
1996-4 0.78% 1 -0.34% 2 -0.18% 3 -2.22% 5 -0.75% 1 0.34% 2 -2.36%
1997-1 0.67% 2 1.46% 3 1.43% 4 -0.51% 1 0.72% 2 -1.22% 3 2.53%
1998-2 1.30% 3 -0.19% 4 0.95% 1 -0.23% 2 1.02% 3 -0.67% 4 2.18%
1999-3 0.60% 4 0.74% 5 -0.22% 2 0.56% 3 -0.10% 4 0.64% 5 2.21%
2000-4 1.03% 1 -1.59% 3 0.72% 4 1.53% 5 -0.22% 1 0.36% 2 1.82%
2001-1 1.00% 1 -0.18% 2 -1.23% 4 -2.35% 5 0.69% 1 -1.44% 2 -3.51%
2002-2 -2.14% 1 -2.12% 2 0.62% 3 3.67% 5 -1.22% 1 -2.47% 2 -3.66%
2003-3 0.80% 2 1.16% 3 -0.81% 4 1.90% 1 0.34% 2 -0.56% 3 2.84%
2004-4 -1.04% 4 -0.32% 5 0.00% 0 0.00% 0 0.00% 0 0.00% 0 -1.36%
Averages 0.46% -0.11% -0.01% 0.30% 0.30% -0.38% 0.54%
% Winners 81% 44% 47% 67% 73% 33%  

There is an old adage that goes "Never short a dull market". If there is anything to it, next week should be an example.

I expect the major indices to be higher on Friday July 9 than they were on Friday July 2.

All of the major indices were down slightly (less than 1%) last week making my positive forecast for last week another loss.

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