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Technical Market Report

The good news is:
 •  The weakness of the past week appears to be nothing more than an overdue rest for the market.
 •  On Friday, a down day for the NASDAQ composite, new highs increased and new lows decreased. A very positive condition.

On the other hand, the recent soft patch does not appear to be over. The chart below shows the Russell 2000 (R2K) in red and an indicator showing momentum of new lows subtracted from momentum of new highs. New highs and new lows have been calculated from the component issues of the R2K over the past 6 weeks rather than the past 52 weeks as reported by the exchanges.

The indicator which usually heads upward a little ahead of price lows is still heading sharply downward.

Another indicator that has been doing a pretty good job of forecasting turning points this year is momentum of the McClellan oscillator. In the chart below the McClellan oscillator is calculated from component issues of the S&P 500 (SPX). This indicator is also headed sharply downward.

Since the low in late March each successive (and lower) price high has generated more new highs in the component issues of the SPX. The chart below shows the SPX in red and a 10% trend of new highs of the component issues of the SPX. New highs have been calculated over the trailing 6 weeks rather than 52 weeks as reported by the exchanges. I have drawn a crude line across the tops of this indicator to show the uptrend. Building new highs suggests the downtrend should be broken soon.

The seasonal bias for next week is slightly positive and favors the blue chips over the small caps.

Last 4 days of September and first day of October.
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 Day4 Day3 Day2 Day1 Day1 Totals
1988-4 -0.24% 2 0.14% 3 0.69% 4 0.74% 5 -0.87% 1 0.46%
1989-1 0.26% 2 -0.12% 3 0.65% 4 0.47% 5 0.35% 1 1.61%
1990-2 0.11% 2 -1.43% 3 -1.92% 4 0.44% 5 1.33% 1 -1.48%
1991-3 -0.04% 3 0.09% 4 -0.25% 5 0.82% 1 -0.03% 2 0.59%
1992-4 -1.05% 5 -0.21% 1 0.12% 2 1.15% 3 -0.81% 4 -0.81%
1993-1 0.50% 1 0.28% 2 0.33% 3 0.57% 4 0.02% 5 1.70%
1994-2 -0.06% 2 0.52% 3 -0.09% 4 0.76% 5 -0.52% 1 0.62%
1995-3 -0.39% 2 -1.01% 3 0.85% 4 0.62% 5 -1.09% 1 -1.01%
1996-4 0.31% 3 0.37% 4 0.15% 5 0.25% 1 -0.31% 2 0.78%
1997-1 -0.15% 4 0.21% 5 0.54% 1 0.56% 2 0.19% 3 1.36%
1998-2 -0.33% 5 -0.27% 1 -0.60% 2 -0.60% 3 -3.73% 4 -5.54%
1999-3 1.14% 1 -0.80% 2 0.72% 3 1.37% 4 -0.88% 5 1.56%
2000-4 -1.07% 2 -0.35% 3 3.09% 4 -0.47% 5 -1.86% 1 -0.65%
2001-1 0.61% 2 -1.61% 3 0.81% 4 3.03% 5 -1.80% 1 1.04%
2002-2 2.40% 3 1.52% 4 -2.40% 5 0.14% 1 1.61% 2 3.26%
2003-3 -2.52% 4 -1.97% 5 1.53% 1 -1.02% 2 2.59% 3 -1.39%
Averages -0.03% -0.29% 0.26% 0.55% -0.36% 0.13%
Winners 44% 44% 69% 81% 38% 63%
 
SPX Day4 Day3 Day2 Day1 Day1 Totals
1988-4 -0.23% 2 0.31% 3 1.30% 4 -0.25% 5 -0.19% 1 0.94%
1989-1 0.03% 2 0.22% 3 1.01% 4 0.16% 5 0.49% 1 1.92%
1990-2 1.20% 2 -1.04% 3 -1.34% 4 1.69% 5 2.90% 1 3.42%
1991-3 -0.21% 3 -0.10% 4 -0.15% 5 0.51% 1 0.35% 2 0.39%
1992-4 -0.98% 5 0.55% 1 0.04% 2 0.24% 3 -0.36% 4 -0.51%
1993-1 0.91% 1 -0.06% 2 -0.31% 3 -0.26% 4 0.51% 5 0.80%
1994-2 0.27% 2 0.60% 3 -0.56% 4 0.10% 5 -0.21% 1 0.20%
1995-3 -0.07% 2 -0.06% 3 0.83% 4 -0.25% 5 -0.46% 1 -0.01%
1996-4 0.03% 3 0.00% 4 0.05% 5 0.16% 1 0.26% 2 0.51%
1997-1 -0.70% 4 0.78% 5 0.86% 1 -0.64% 2 0.86% 3 1.17%
1998-2 0.19% 5 0.38% 1 0.03% 2 -3.05% 3 -3.01% 4 -5.46%
1999-3 0.47% 1 -0.09% 2 -1.08% 3 1.13% 4 0.01% 5 0.44%
2000-4 -0.82% 2 -0.04% 3 2.22% 4 -1.49% 5 -0.02% 1 -0.16%
2001-1 0.88% 2 -0.52% 3 1.15% 4 2.19% 5 -0.23% 1 3.47%
2002-2 2.49% 3 1.82% 4 -3.23% 5 -1.46% 1 4.00% 2 3.62%
2003-3 -0.61% 4 -0.64% 5 0.98% 1 -1.05% 2 2.23% 3 0.91%
Averages 0.18% 0.13% 0.11% -0.14% 0.45% 0.73%
Winners 56% 50% 63% 50% 56% 75%

The pullback that began last week does not appear to be complete.

I expect the major indices to be lower on Friday October 1 than they were on Friday September 24.

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