The good news is:
• New lows dried up last week.
New lows are the single best indicator for assessing market risk. After a price low, new lows diminish quickly. The new low indicator is a 10% trend (19 day EMA) of new lows plotted on an inverted Y axis so that an increasing number of new lows moves the indicator downward. A rule of thumb that works pretty well is: Market risk is minimal after the new low indicator has been heading upward for 5 consecutive days.
The chart below shows that we are not there yet, but we have a good start. The indicator has been heading upward for 2 consecutive days and last week NASDAQ new lows dropped from 223 on Monday to 56 on Friday, NYSE new lows dropped from 91 to 24 over the same period.
![](http://static.safehaven.com/authors/burk/1818_a.gif)
The secondaries usually lead the blue chips both up and down. The chart below shows the Russell 2000 (R2K) and the S&P 500 (SPX) along with a FastTrack relative strength indicator called Accutrack. The R2K led the decline downward and is now leading the recovery upward.
![](http://static.safehaven.com/authors/burk/1818_b.gif)
A summation index (SI) is a running total of oscillator values. When the oscillator is positive its SI rises, when the oscillator is negative its SI falls. SI's do not lead, but do a good job of smoothing the often violent action of oscillators.
The chart below is typical of many broad based price indexes this week. It shows 3 SI's, the underlying oscillators are calculated from advancing - declining issues, new highs - new lows and upside - downside volume. The data is limited to the component issues of the R2K and new highs and new lows have been calculated over the past 6 weeks rather than the past 52 weeks as reported by the exchanges. The downward movement of the Volume and Advance - Decline SI's has been arrested by last weeks rally, but the High - Low SI is still heading downward.
![](http://static.safehaven.com/authors/burk/1818_c.gif)
Seasonally the first few trading days of the month are usually positive, August is an exception.
First 5 trading days of August.
The number following the daily return represents the day of the week;
1 = Monday, 2 = Tuesday etc.
The number following the year is its position in the presidential cycle
R2K | Day1 | Day2 | Day3 | Day4 | Day5 | Totals |
1989-1 | -0.17% 2 | 0.10% 3 | 0.56% 4 | 0.01% 5 | 0.70% 1 | 1.19% |
1990-2 | -0.46% 3 | -1.36% 4 | -2.67% 5 | -3.46% 1 | 0.13% 2 | -7.81% |
1991-3 | -0.02% 4 | 0.17% 5 | -0.32% 1 | 0.24% 2 | 0.09% 3 | 0.16% |
1992-4 | 0.31% 1 | 0.03% 2 | -0.48% 3 | -0.54% 4 | 0.01% 5 | -0.67% |
1993-1 | 0.30% 1 | 0.27% 2 | 0.30% 3 | -0.13% 4 | 0.21% 5 | 0.95% |
1994-2 | 0.41% 1 | 0.24% 2 | 0.04% 3 | -0.39% 4 | -0.25% 5 | 0.06% |
1995-3 | -0.46% 2 | -0.17% 3 | -0.19% 4 | 0.34% 5 | 0.29% 1 | -0.19% |
1996-4 | 1.08% 4 | 1.56% 5 | 0.10% 1 | 0.17% 2 | 0.69% 3 | 3.61% |
1997-1 | -0.07% 5 | 0.34% 1 | 0.65% 2 | 0.58% 3 | -0.14% 4 | 1.36% |
1998-2 | -1.52% 1 | -2.84% 2 | -0.73% 3 | 1.99% 4 | 2.26% 5 | -0.85% |
1999-3 | -0.48% 1 | -1.43% 2 | -1.51% 3 | 0.01% 4 | -0.40% 5 | -3.81% |
2000-4 | -0.57% 2 | 0.49% 3 | -0.15% 4 | 0.84% 5 | 1.24% 1 | 1.84% |
2001-1 | 0.92% 3 | -0.05% 4 | -0.38% 5 | -1.27% 1 | -0.13% 2 | -0.91% |
2002-2 | -0.82% 4 | -3.28% 5 | -2.48% 1 | 3.72% 2 | 0.70% 3 | -2.15% |
2003-3 | -1.67% 5 | -0.71% 1 | -1.57% 2 | -0.77% 3 | -0.03% 4 | -4.75% |
Averages | -0.21% | -0.44% | -0.59% | 0.09% | 0.36% | -0.80% |
Winners | 33% | 53% | 33% | 60% | 67% | 47% |
SPX | Day1 | Day2 | Day3 | Day4 | Day5 | Totals |
1989-1 | -0.67% 2 | 0.17% 3 | 0.12% 4 | -0.24% 5 | 1.60% 1 | 0.97% |
1990-2 | -0.18% 3 | -1.14% 4 | -1.88% 5 | -3.02% 1 | 0.12% 2 | -6.10% |
1991-3 | -0.18% 4 | 0.02% 5 | -0.55% 1 | 1.44% 2 | -0.02% 3 | 0.72% |
1992-4 | 0.21% 1 | -0.17% 2 | -0.51% 3 | -0.38% 4 | -0.41% 5 | -1.26% |
1993-1 | 0.45% 1 | -0.20% 2 | -0.16% 3 | -0.09% 4 | 0.12% 5 | 0.12% |
1994-2 | 0.60% 1 | -0.10% 2 | 0.20% 3 | -0.66% 4 | -0.29% 5 | -0.25% |
1995-3 | -0.43% 2 | -0.15% 3 | -0.01% 4 | 0.03% 5 | 0.20% 1 | -0.36% |
1996-4 | 1.57% 4 | 1.92% 5 | -0.34% 1 | 0.33% 2 | 0.27% 3 | 3.75% |
1997-1 | -0.75% 5 | 0.33% 1 | 0.22% 2 | 0.83% 3 | -0.95% 4 | -0.31% |
1998-2 | -0.73% 1 | -3.62% 2 | 0.87% 3 | 0.76% 4 | -0.02% 5 | -2.75% |
1999-3 | -0.05% 1 | -0.44% 2 | -1.27% 3 | 0.64% 4 | -1.02% 5 | -2.15% |
2000-4 | 0.51% 2 | 0.04% 3 | 0.96% 4 | 0.71% 5 | 1.12% 1 | 3.35% |
2001-1 | 0.39% 3 | 0.40% 4 | -0.52% 5 | -1.14% 1 | 0.33% 2 | -0.56% |
2002-2 | -2.96% 4 | -2.31% 5 | -3.43% 1 | 2.99% 2 | 2.00% 3 | -3.70% |
2003-3 | -1.03% 5 | 0.27% 1 | -1.77% 2 | 0.17% 3 | 0.73% 4 | -1.62% |
Averages | -0.22% | -0.33% | -0.54% | 0.16% | 0.25% | -0.68% |
Winners | 40% | 47% | 33% | 60% | 60% | 33% |
Last weeks rally corrected the extremely oversold condition we had at the beginning of the week. Next week begins with most of the indicators neutral and a modestly negative seasonal bias.
I expect the major indices to be lower on Friday August 6 than they were on Friday July 30.