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Technical Market Report

The good news is:
 • The current "Soft patch" will end soon offering good longside entry.

I have been showing a chart of the NASDAQ new low indicator for the past several weeks because it will provide the best indication of the end of the recent "Soft Patch". It is prudent to wait until their have been five consecutive days with few enough new lows to move the indicator upward. For the week NASDAQ new lows averaged slightly over 200, a level that cannot be sustained for long. For now the indicator is still heading sharply downward.

The new low indicator, in blue, is a 10% trend (19 day EMA) of NASDAQ new lows plotted on an inverted Y axis. The index, in red, in the chart below is the NASDAQ composite.

An ideal bottom is one that ends with a selling climax where everyone that has been thinking about getting out does. Capitulation would be indicated by a spike in downside volume (DV). The chart below shows the NASDAQ composite and a 4% trend (55 day EMA) of DV. DV is plotted on an inverted Y axis so increasing DV moves the indicator downward. During the recent sell off DV has remained above its March, April and May lows (highs) while prices are significantly lower. The chart could be viewed positively as a non-confirmation of the new price low by DV, but I would prefer to see a panic sell off taking the DV indicator to new lows.

Seasonally the week prior to August options expiration has a slightly positive bias shown in the tables below.

Expiration Friday is marked *Fri*.
The number following the year is the position in the presidential cycle.

R2K (Russell 2000)
Year Mon Tue Wed Thur *Fri*
1989-1 -0.49% 0.07% 0.02% -0.12% 0.17%
1990-2 -0.28% 0.48% 0.11% -1.87% -1.90%
1991-3 0.13% 0.51% 0.25% -0.09% -0.36%
1992-4 0.10% -0.13% -0.53% -0.31% -0.49%
1993-1 0.20% 0.45% 0.65% -0.09% 0.15%
1994-2 0.29% 0.15% 0.46% -0.04% 0.19%
1995-3 0.40% 0.13% 0.56% 0.43% 0.21%
1996-4 -0.02% -0.53% 0.33% 0.29% 0.38%
1997-1 -0.37% -0.30% 0.05% 0.06% -0.80%
1998-2 0.29% 1.81% -1.33% -1.01% -1.52%
1999-3 -0.05% 0.50% -0.67% -0.08% 0.37%
2000-4 0.83% -0.88% 0.55% 0.73% -0.18%
2001-1 0.44% 0.54% -0.26% 0.57% -1.25%
2002-2 0.03% -2.78% 3.08% 0.34% 1.34%
2003-3 1.17% 1.67% 0.11% 0.80% 0.15%
Avg 0.18% 0.11% 0.23% -0.03% -0.24%
Win% 67% 67% 73% 47% 53%
 
SPX (S&P 500)
Year Mon Tue Wed Thur *Fri*
1989-1 -0.49% 0.48% 0.28% -0.35% 0.46%
1990-2 0.99% 0.16% 0.20% -2.26% -1.37%
1991-3 0.23% 0.41% 0.07% -0.15% -0.96%
1992-4 0.20% 0.14% -0.75% 0.02% -0.82%
1993-1 0.50% 0.17% 0.64% 0.09% -0.06%
1994-2 -0.16% 0.82% 0.03% -0.43% 0.11%
1995-3 0.83% -0.21% 0.25% -0.17% 0.03%
1996-4 0.55% -0.84% 0.28% 0.03% 0.44%
1997-1 0.37% -1.12% -0.49% 0.30% -2.59%
1998-2 1.97% 1.62% -0.29% -0.59% -0.95%
1999-3 0.23% 1.01% -0.84% -0.69% 0.98%
2000-4 1.34% -0.48% -0.31% 1.10% -0.29%
2001-1 0.09% -0.38% -0.73% 0.31% -1.67%
2002-2 -0.53% -2.17% 4.00% 1.16% -0.16%
2003-3 0.31% 1.00% -0.64% 0.66% 0.02%
Avg 0.43% 0.04% 0.11% -0.07% -0.45%
Win% 80% 60% 53% 53% 40%

The market is oversold and the week prior to options expiration has a slightly positive bias.

I expect the major indices to be higher on Friday August 20 than they were on Friday August 13.

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