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Technical Market Report

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.

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.

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.

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.

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