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Technical Market Report for July 24, 2010

The good news is:
• New highs began to show some life on both the NYSE and NASDAQ last week.


The negatives

There are not many negatives.

New lows dropped by half from 84 on Friday July 16 to 42 last Friday on the NASDAQ and from 29 to 15 on the NYSE. If there is a problem it is with new highs. On the NASDAQ new highs increased from 11 last Monday to 78 on Friday, a nice jump, but most of it occurred on Friday and after a 4+% gain for the week the market is a little over bought. On the NYSE there were 193 new highs on Friday, the highest number since May 3, but, nearly all of them were fixed income issues.

The chart below covers the past 6 months showing the NASDAQ composite (OTC) in blue and a 10% trend (19 day EMA) of NASDAQ new highs (OTC NH) in green. Dashed vertical lines have been drawn on the 1st trading day of each month.

OTC NH is still dragging along the bottom of the chart.

NASDAQ

In July 2006 (the last year 2 of the Presidential Cycle) the market bottomed in mid July. The chart below is similar to the one above except it covers the period from late March 2006 to late September 2006.

OTC NH was much stronger coming off the 2006 low than it has been recently.

NASDAQ NH


The positives

All of the breadth indicators were positive last week.

Summation Indices (SI) are running totals of oscillators. When the underlying oscillator is positive the SI moves upward when it is negative the SI moves downward.

The charts below cover the past 6 months showing SI's calculated from advances - declines, new highs - new lows and upside volume - down side volume on both the NASDAQ and NYSE.

The 1st chart shows the OTC and SI's calculated from NASDAQ data. All of the SI's are moving sharply upward.

NASDAQ AD

The next chart is similar to the one above except is shows the S&P 500 (SPX) in red and the SI's have been calculated from NYSE data. The pattern is similar to the NASDAQ chart.

NYSE AD


Seasonality

Next week includes the last 5 trading days of July during the 2nd year of the Presidential Cycle.

The tables below show the return on a percentage basis for the last 5 trading days of July during the 2nd year of the Presidential Cycle. OTC data covers the period from 1963 - 2009 and SPX data from 1928 - 2009. There are summaries for both the 2nd year of the Presidential Cycle and all years combined.

By all measures average OTC returns have been modestly negative while SPX returns have been modestly positive.

Last 5 days of July.
The number following the year represents its position in the presidential cycle.
The number following the daily return represents the day of the week;
1 = Monday, 2 = Tuesday etc.

OTC Presidential Year 2
  Day5 Day4 Day3 Day2 Day1 Totals
1966-2 -2.64% 1 0.49% 2 -0.92% 3 0.30% 4 -0.21% 5 -2.98%
 
1970-2 0.01% 1 0.13% 2 0.46% 3 0.38% 4 -0.22% 5 0.76%
1974-2 -1.50% 4 -0.93% 5 -1.84% 1 -0.27% 2 -1.84% 3 -6.37%
1978-2 0.16% 2 0.56% 3 0.52% 4 0.56% 5 0.39% 1 2.19%
1982-2 -0.38% 1 -0.43% 2 -1.37% 3 -0.46% 4 -0.15% 5 -2.79%
1986-2 0.29% 5 -1.33% 1 -0.73% 2 -0.32% 3 0.15% 4 -1.95%
Avg -0.28% -0.40% -0.59% -0.02% -0.33% -1.63%
 
1990-2 0.65% 3 0.00% 4 -0.64% 5 -0.73% 1 -0.26% 2 -0.97%
1994-2 0.03% 1 -0.17% 2 -0.49% 3 0.04% 4 1.37% 5 0.77%
1998-2 0.12% 1 -1.90% 2 -0.79% 3 2.02% 4 -2.46% 5 -3.01%
2002-2 -3.89% 4 1.78% 5 5.79% 1 0.67% 2 -1.19% 3 3.17%
2006-2 0.58% 2 -0.17% 3 -0.77% 4 1.93% 5 -0.13% 1 1.45%
Avg -0.50% -0.09% 0.62% 0.79% -0.53% 0.28%
 
OTC summary for Presidential Year 2 1966 - 2006
Averages -0.60% -0.18% -0.07% 0.38% -0.41% -0.89%
% Winners 64% 36% 27% 64% 27% 45%
MDD 7/31/1974 6.22% -- 7/25/2002 3.89% -- 7/31/1998 3.15%
 
OTC summary for all years 1963 - 2009
Averages 0.02% 0.00% -0.09% 0.00% 0.00% -0.08%
% Winners 55% 47% 47% 62% 51% 60%
MDD 7/28/2000 9.10% -- 7/31/1974 6.22% -- 7/31/1969 4.97%
 
SPX Presidential Year 2
  Day5 Day4 Day3 Day2 Day1 Totals
1930-2 0.98% 6 0.51% 1 -0.78% 2 -2.63% 3 0.62% 4 -1.31%
1934-2 -7.83% 4 2.87% 5 1.51% 6 -0.69% 1 0.12% 2 -4.02%
1938-2 -1.41% 2 -2.93% 3 1.88% 4 -1.20% 5 0.57% 6 -3.09%
1942-2 0.00% 1 -0.12% 2 -1.62% 3 0.24% 4 0.71% 5 -0.80%
1946-2 0.52% 4 0.57% 5 0.34% 1 0.57% 2 1.13% 3 3.12%
Avg -1.55% 0.18% 0.27% -0.74% 0.63% -1.22%
 
1950-2 -1.43% 2 0.23% 3 1.33% 4 1.09% 5 0.85% 1 2.07%
1954-2 0.10% 1 0.59% 2 0.20% 3 0.36% 4 0.62% 5 1.87%
1958-2 0.69% 5 0.38% 1 -0.40% 2 0.28% 3 0.21% 4 1.16%
1962-2 0.18% 3 0.55% 4 0.76% 5 1.10% 1 0.69% 2 3.28%
1966-2 -1.85% 1 -0.16% 2 0.48% 3 -0.39% 4 -0.20% 5 -2.12%
Avg -0.46% 0.32% 0.47% 0.49% 0.43% 1.25%
 
1970-2 -0.22% 1 0.15% 2 0.35% 3 0.04% 4 -0.03% 5 0.30%
1974-2 -1.19% 4 -1.88% 5 -1.77% 1 -0.54% 2 -1.48% 3 -6.86%
1978-2 0.74% 2 0.65% 3 0.46% 4 0.46% 5 0.68% 1 2.99%
1982-2 -0.73% 1 -0.84% 2 -1.55% 3 -0.01% 4 -0.58% 5 -3.72%
1986-2 0.95% 5 -1.75% 1 -0.62% 2 0.87% 3 -0.20% 4 -0.75%
Avg -0.09% -0.73% -0.63% 0.16% -0.32% -1.61%
 
1990-2 0.37% 3 -0.33% 4 -0.69% 5 0.60% 1 0.17% 2 0.11%
1994-2 0.25% 1 -0.20% 2 -0.17% 3 0.37% 4 0.88% 5 1.14%
1998-2 0.57% 1 -1.49% 2 -0.44% 3 1.57% 4 -1.94% 5 -1.73%
2002-2 -0.56% 4 1.69% 5 5.41% 1 0.42% 2 0.98% 3 7.94%
2006-2 0.63% 2 -0.04% 3 -0.41% 4 1.22% 5 -0.15% 1 1.25%
Avg 0.25% -0.07% 0.74% 0.84% -0.01% 1.74%
 
SPX summary for Presidential Year 2 1930 - 2006
Averages -0.46% -0.08% 0.21% 0.19% 0.18% 0.04%
% Winners 55% 50% 50% 70% 65% 55%
MDD 7/26/1934 7.83% -- 7/31/1974 6.68% -- 7/27/1938 4.30%
 
SPX summary for all years 1928 - 2009
Averages -0.05% 0.01% 0.11% 0.17% 0.09% 0.32%
% Winners 56% 57% 54% 63% 63% 59%
MDD 7/26/1934 7.83% -- 7/31/1933 6.84% -- 7/31/1974 6.68%


Money Supply (M2)

The money supply chart was provided by Gordon Harms. Money supply growth has continued to deteriorate, but is following the trend.

M2 Money Supply


Conclusion

New highs are the only thing missing from the rally off the early July lows. The strong finish last week left the market a little over bought.

I expect the major averages to be lower on Friday July 30 than they were on Friday July 23.

Last weeks negative forecast was a miss.

This report is free to anyone who wants it, so please tell your friends. They can sign up at: http://alphaim.net/signup.html.

In his latest newsletter, Jerry Minton examines ways in which conservative investors can use the robust and reliable behavior of small cap stocks in November and December to enhance returns with very low risk. To read about this strategy go to www.alphaim.net and sign up for a free subscription

Thank you,

 

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