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Technical Market Report

The good news is:
 • The value of the NYSE new high indicator, a 10% trend (19day EMA) of NYSE new highs, is 195. Well above the most conservative levels ofsystems that use this indicator as a No Sell Filter (NSF).

The short term rally that began two weeks ago ended last Wednesday with 7 consecutive up days on the NASDAQ composite. This is the third time in the past year that we have seen seven consecutive up days on this index. The chart below plots the percentage of the last seven trading days that have been up in the past year. The indicator, in blue, reaches the top of the chart when there have been seven consecutive up days. Each occurrence was followed by a brief decline then a rally to higher highs.

You have to go back to April of 2000 (about 1 month prior to the all time high in the NASDAQ composite to find another period when there were seven consecutive up days. Interestingly, it was the third of three as is the current occurrence. The chart below shows the period from late October 1999 to early late March 2000.

The chart below shows the Russell 2000 (R2K) in red and the S&P 500 (SPX) in green along with a FastTrack relative strength indicator called Accutrack. Accutrack rose sharply from mid August to mid September, declined slightly into late September then rose to a higher high last week.

The chart below shows a similar pattern last year when Accutrack rose from late March to mid May, declined into late May then rose to a higher high in early June. After digesting its gains for a couple weeks the advance resumed. There are enough similarities between June 2003 and October 2004 that it is reasonable to expect a similar pattern implying a resumption of the rally later this month.

Seasonally the week prior to options expiration in October is strong with a slight advantage for the blue chips.

Report for the week prior to witching Friday during October.
Witching is futures and options expiration the 3rd Friday of the month.
The number following the year is the position in the presidential cycle.
Daily returns from the Monday before to the witching Friday.

R2K Mon Tue Wed Thur *Fri* Totals
1988-4 -0.03% 0.38% -0.07% 0.36% -0.13% 0.51%
1989-1 -1.48% -0.18% 0.58% 1.40% -0.06% 0.26%
1990-2 0.00% -0.93% 0.13% 1.24% 0.96% 1.40%
1991-3 0.85% 1.19% 1.25% -0.01% 0.32% 3.60%
1992-4 0.49% 0.48% 0.17% -0.65% 1.31% 1.80%
1993-1 0.42% 0.58% 0.54% 0.44% 0.37% 2.35%
1994-2 0.04% -0.37% 0.31% -0.47% -0.30% -0.79%
1995-3 0.04% 0.17% 0.45% -0.21% -0.20% 0.25%
1996-4 0.32% 0.00% -0.19% -0.04% -0.10% -0.01%
1997-1 0.04% -0.27% -0.27% -1.21% -1.72% -3.42%
1998-2 2.27% -1.62% 1.45% 3.02% 2.41% 7.53%
1999-3 0.58% -1.28% -1.26% 0.00% -1.10% -3.06%
2000-4 0.28% -2.26% -0.99% 3.23% 1.28% 1.55%
2001-1 0.35% 1.03% -2.31% -0.81% 1.10% -0.63%
2002-2 0.46% 4.04% -2.68% 3.34% 0.22% 5.38%
2003-3 1.64% 0.81% -0.84% 0.43% -1.75% 0.29%
Avg 0.42% 0.11% -0.23% 0.63% 0.16% 1.06%
Win% 87% 56% 50% 50% 50% 69%
 
SPX Mon Tue Wed Thur *Fri* Totals
1988-4 0.33% 1.07% -0.86% 2.13% 0.28% 2.95%
1989-1 2.76% -0.49% 0.18% 1.57% 0.01% 4.02%
1990-2 1.07% -1.42% -0.05% 2.34% 2.20% 4.13%
1991-3 1.32% 1.17% 0.46% -0.22% 0.15% 2.87%
1992-4 1.19% 0.46% 0.02% 0.06% 0.52% 2.24%
1993-1 0.12% 0.05% 0.08% 1.16% 0.57% 1.99%
1994-2 -0.03% -0.28% 0.56% -0.73% -0.42% -0.90%
1995-3 -0.25% 0.64% 0.11% 0.55% -0.54% 0.51%
1996-4 0.41% -0.14% 0.26% 0.37% 0.54% 1.44%
1997-1 0.12% 0.23% -0.47% -1.09% -1.16% -2.37%
1998-2 1.35% -0.29% 1.08% 4.17% 0.85% 7.17%
1999-3 -0.06% -1.66% -2.09% -0.17% -2.81% -6.79%
2000-4 0.03% -1.79% -0.58% 3.47% 0.59% 1.72%
2001-1 -0.15% 0.69% -1.86% -0.79% 0.46% -1.65%
2002-2 0.73% 4.73% -2.41% 2.23% 0.59% 5.88%
2003-3 0.70% 0.40% -0.26% 0.32% -1.02% 0.13%
Avg 0.60% 0.21% -0.37% 0.96% 0.05% 1.46%
Win% 75% 56% 50% 69% 69% 75%

Thursday and Friday of last week provided and appropriate sell off for the extreme rally that preceded it. With seasonal strength coming next week, last Friday is likely to mark the low for the foreseeable future.

I expect the major indices to be higher on Friday October 16 than they were on Friday October 9.

Last week did not follow the script very well. Too much of a good thing going into Wednesday followed by a sell off that took all of the major indices to losses for the week.

Gordon Harms produces a power point for our local FastTrack users group meeting. You can get it at: http://www.guaranteed-profits.com.

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