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Technical Market Report

The good news is:
 • The weakness that began two weeks ago ended abruptly lastweek. The move was strong enough to turn nearly all of the short and intermediateterm indicators upward.

The first chart says it all. Summation indices are running totals of oscillator values. When the oscillator is positive the summation index rises and when the oscillator is negative the oscillator falls. There are three summation indices shown on the chart below, they are constructed from NASDAQ advances and declines, new highs and new lows and upside and downside volume. All three had turned down a week ago. The rally last was enough to turn all three upward. I have said repeatedly it is imprudent to bet against the summation indices when they are all headed in the same direction.

A 10% trend (19 day EMA) of NASDAQ new highs is a short term direction indicator. It is most useful when prices and the indicator move in opposite directions on a daily basis. The discrepancy is usually resolved in favor of the indicator. The indicator turned upward last week after a brief fall.

There are a couple negatives that will make next week interesting.

1) The NASDAQ composite and most of the small cap indices were up four consecutive days as of Friday. Since this rally began in mid August the composite has been up four consecutive days three times including last Friday. Each time has marked the end of the sharpest part of the rise. The chart below shows the NASDAQ composite in red and an indicator showing the percentage of the preceding four trading days that have been up.

2) Seasonality. Because of limitations of my software, the tables below include the first day of October which was last Friday as well as the following 5 trading days. The first day of October skews the large cap average very positively. Excluding the first day of the month, both averages have a negative bias for the second through sixth trading day of October, but have been up a little more than half the time. That is the down years, although slightly less frequent, have been more severe than the up years have been positive.

First 6 days of October.
The number following the daily return represents the day of the week;
1 = Monday, 2 = Tuesday etc.
The number following the year represents its position in the presidential cycle.

R2K Day1 Day2 Day3 Day4 Day5 Day6 Totals
1988-4 -0.87% 1 -0.02% 2 0.21% 3 0.11% 4 0.24% 5 0.01% 1 -0.32%
1989-1 0.35% 1 0.30% 2 0.01% 3 0.30% 4 0.29% 5 0.18% 1 1.43%
1990-2 1.33% 1 0.50% 2 -0.77% 3 -0.27% 4 -0.69% 5 0.05% 1 0.14%
1991-3 -0.03% 2 -0.17% 3 -0.87% 4 -0.12% 5 -0.75% 1 0.23% 2 -1.71%
1992-4 -0.81% 4 -0.97% 5 -1.58% 1 0.71% 2 0.09% 3 0.68% 4 -1.90%
1993-1 0.02% 5 0.22% 1 -0.19% 2 0.50% 3 -0.11% 4 -0.04% 5 0.40%
1994-2 -0.52% 1 -1.35% 2 -0.79% 3 0.06% 4 0.47% 5 0.71% 1 -1.41%
1995-3 -1.09% 1 -0.97% 2 -1.05% 3 0.13% 4 0.20% 5 -1.72% 1 -4.50%
1996-4 -0.31% 2 0.83% 3 -0.27% 4 0.59% 5 -0.13% 1 -0.42% 2 0.29%
1997-1 0.19% 3 0.49% 4 0.56% 5 0.47% 1 0.45% 2 -0.03% 3 2.15%
1998-2 -3.73% 4 -0.09% 5 -3.69% 1 -1.26% 2 -3.10% 3 -3.71% 4 -15.59%
1999-3 -0.88% 5 0.73% 1 -0.14% 2 0.88% 3 -0.38% 4 -0.09% 5 0.11%
2000-4 -1.86% 1 -1.37% 2 0.56% 3 -0.95% 4 -2.32% 5 -0.30% 1 -6.24%
2001-1 -1.80% 1 1.06% 2 2.84% 3 0.92% 4 -0.50% 5 -0.67% 1 1.86%
2002-2 1.61% 2 -2.14% 3 -0.94% 4 -2.49% 5 -2.78% 1 0.60% 2 -6.14%
2003-3 2.59% 3 0.58% 4 1.80% 5 0.87% 1 0.78% 2 -0.98% 3 5.65%
2004-4 2.11% 5 0.00% 0 0.00% 0 0.00% 0 0.00% 0 0.00% 0 2.11%
Averages -0.22% -0.15% -0.27% 0.03% -0.52% -0.34% -1.39%
Winners 41% 50% 38% 69% 44% 44% 53%
 
SPX Day1 Day2 Day3 Day4 Day5 Day6 Totals
1988-4 -0.19% 1 -0.28% 2 0.46% 3 0.19% 4 2.09% 5 0.06% 1 2.32%
1989-1 0.49% 1 1.09% 2 0.63% 3 0.01% 4 0.51% 5 0.28% 1 3.02%
1990-2 2.90% 1 0.09% 2 -1.21% 3 0.41% 4 -0.38% 5 0.64% 1 2.45%
1991-3 0.35% 2 -0.24% 3 -0.98% 4 -0.84% 5 -0.46% 1 0.31% 2 -1.86%
1992-4 -0.36% 4 -1.40% 5 -0.71% 1 -0.10% 2 -0.72% 3 0.87% 4 -2.42%
1993-1 0.51% 5 0.01% 1 -0.03% 2 -0.10% 3 -0.34% 4 0.25% 5 0.30%
1994-2 -0.21% 1 -1.55% 2 -0.24% 3 -0.26% 4 0.61% 5 0.87% 1 -0.77%
1995-3 -0.46% 1 0.11% 2 -0.15% 3 0.20% 4 -0.02% 5 -0.71% 1 -1.03%
1996-4 0.26% 2 0.72% 3 -0.18% 4 1.25% 5 0.27% 1 -0.38% 2 1.93%
1997-1 0.86% 3 0.53% 4 0.48% 5 0.79% 1 1.07% 2 -0.94% 3 2.78%
1998-2 -3.01% 4 1.64% 5 -1.40% 1 -0.40% 2 -1.41% 3 -1.16% 4 -5.74%
1999-3 0.01% 5 1.70% 1 -0.25% 2 1.85% 3 -0.59% 4 1.39% 5 4.11%
2000-4 -0.02% 1 -0.68% 2 0.55% 3 0.14% 4 -1.90% 5 -0.49% 1 -2.41%
2001-1 -0.23% 1 1.23% 2 1.99% 3 -0.25% 4 0.16% 5 -0.83% 1 2.08%
2002-2 4.00% 2 -2.36% 3 -1.08% 4 -2.24% 5 -1.91% 1 1.69% 2 -1.90%
2003-3 2.23% 3 0.20% 4 0.94% 5 0.44% 1 0.47% 2 -0.53% 3 3.76%
2004-4 1.52% 5 0.00% 0 0.00% 0 0.00% 0 0.00% 0 0.00% 0 1.52%
Averages 0.51% 0.05% -0.07% 0.07% -0.16% 0.08% 0.48%
Winners 59% 63% 38% 56% 44% 56% 59%

For the short term, the best part of the rally that began last Tuesday is probably over and seasonally next week is slightly negative, but with most of the intermediate and short term indicators turning positive the downside risk should be minimal.

I expect the major indices to be higher on Friday October 9 than they were on Friday October 1.

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