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Technical Market Report

The good news is:
 • Nearly all of the indicators that matter are moving upward indicatingthe August 13 low is unlikely to be retested any time soon.
 • Seasonally the week before Labor Day is strong for the small caps.

Reviewing charts is a little dull this week because with a few exceptions everything is heading sharply upward. The exceptions are charts of volume which, so far, is missing from this rally. In the chart below which covers the past 6 months, the NASDAQ composite is in red, a 4% trend (55 day EMA) of volume of advancing issues is in green and a 4% trend of volume of declining issues on an inverted Y axis is in brown. Down side volume is shown on an inverted Y axis to make the chart easier to read. When downside volume is increasing (a negative) the indicator moves downward and when downside volume decreases (a positive) the indicator moves upward. The chart shows sellers exhausted themselves at the August 13 low and the advance since then has been caused by an absence of downside volume rather than a buying surge. There was a little pop in upside volume at the low, but it faded a few days into the move.

The next chart shows momentum of total volume of the component issues of the Russell 2000 (R2K). The R2K is in red and the volume momentum indicator in black. The direction of the indicator tells if total volume is increasing or decreasing and the dashed line in the center is neutral. The chart begins the first of this year and ends last Friday, the grey vertical dashed lines are drawn the first of each month. After increasing for the first two months of the year volume has been declining, rising a little during price declines and falling during price. That pattern is unbroken.

Seasonally the week before Labor Day has been much better for the small caps than the large caps. Over the past 15 years the R2K has been up 80% of the time and averaged a 0.80% gain while the S&P 500 (SPX) has been up 60% of the time, but, because of several large losses, has averaged a 0.54% loss.

5 days before Labor Day
The number following the % change represents the day of the week 1=Monday, 5=Friday etc.
The number following the year is the year of the presidential cycle.

R2K Day5 Day4 Day3 Day2 Day1 Totals
1989-1 -0.01% 1 -0.13% 2 0.33% 3 0.43% 4 0.29% 5 0.91%
1990-2 3.31% 1 0.65% 2 0.34% 3 -0.53% 4 0.14% 5 3.92%
1991-3 0.21% 1 0.09% 2 0.83% 3 0.19% 4 0.31% 5 1.63%
1992-4 -0.02% 1 0.23% 2 0.78% 3 0.40% 4 -0.08% 5 1.32%
1993-1 0.31% 1 0.56% 2 0.37% 3 0.39% 4 0.24% 5 1.87%
1994-2 0.22% 1 0.38% 2 0.46% 3 -0.49% 4 0.05% 5 0.63%
1995-3 -0.34% 1 -0.60% 2 0.58% 3 0.68% 4 0.28% 5 0.60%
1996-4 -0.08% 1 0.67% 2 0.56% 3 -0.33% 4 -0.19% 5 0.64%
1997-1 0.57% 1 0.05% 2 0.60% 3 0.18% 4 0.44% 5 1.84%
1998-2 -5.74% 1 3.00% 2 1.31% 3 -1.80% 4 0.23% 5 -3.01%
1999-3 -1.18% 1 0.11% 2 0.74% 3 -0.83% 4 2.00% 5 0.84%
2000-4 0.26% 1 0.60% 2 0.52% 3 1.03% 4 0.75% 5 3.16%
2001-1 -0.39% 1 -0.99% 2 -0.18% 3 -1.09% 4 0.08% 5 -2.57%
2002-2 1.90% 1 -2.52% 2 -2.03% 3 1.29% 4 -0.87% 5 -2.24%
2003-3 -0.34% 1 0.55% 2 0.91% 3 0.99% 4 0.32% 5 2.44%
Averages -0.09% 0.18% 0.41% 0.03% 0.27% 0.80%
Winners 47% 73% 87% 60% 80% 80%
 
SPX Day5 Day4 Day3 Day2 Day1 Totals
1989-1 0.45% 1 -0.64% 2 0.23% 3 0.23% 4 0.65% 5 0.92%
1990-2 3.19% 1 -0.03% 2 0.89% 3 -1.69% 4 1.21% 5 3.56%
1991-3 -0.08% 1 -0.20% 2 0.91% 3 -0.04% 4 -0.26% 5 0.32%
1992-4 -0.20% 1 0.49% 2 0.46% 3 0.00% 4 -0.22% 5 0.54%
1993-1 0.30% 1 0.36% 2 -0.09% 3 -0.40% 4 0.01% 5 0.18%
1994-2 0.17% 1 0.31% 2 -0.12% 3 -0.49% 4 -0.46% 5 -0.59%
1995-3 -0.19% 1 0.17% 2 0.16% 3 0.17% 4 0.35% 5 0.67%
1996-4 -0.47% 1 0.38% 2 -0.24% 3 -1.11% 4 -0.82% 5 -2.27%
1997-1 -0.37% 1 -0.78% 2 0.07% 3 -1.10% 4 -0.46% 5 -2.63%
1998-2 -6.80% 1 3.86% 2 -0.38% 3 -0.83% 4 -0.85% 5 -5.00%
1999-3 -1.80% 1 -0.27% 2 0.81% 3 -0.90% 4 2.89% 5 0.73%
2000-4 0.51% 1 -0.28% 2 -0.48% 3 1.00% 4 0.20% 5 0.95%
2001-1 -0.48% 1 -1.50% 2 -1.11% 3 -1.70% 4 0.40% 5 -4.40%
2002-2 0.75% 1 -1.39% 2 -1.81% 3 -0.01% 4 -0.19% 5 -2.64%
2003-3 0.07% 1 0.30% 2 0.01% 3 0.61% 4 0.52% 5 1.50%
Averages -0.33% 0.05% -0.05% -0.45% 0.20% -0.54%
Winners 47% 47% 53% 29% 53% 60%

There has been no sign of sellers since the August 13 bottom and I doubt they will return before Labor Day.

I expect the major indices to be higher on Friday September 3 than they were on Friday August 27.

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