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Technical Market Report

The good news is:
 • Next week we enter what is seasonally the strongest periodof the year.

The first three charts plot the composite change of the Russell 2000 (R2K), S&P 500 (SPX) and the Dow Jones Industrial Average (DJIA) over fourth year of the past four election cycles. Typically the October low has been well above the yearly low, and the end of year high is the high for the year. Relatively the blue chips have done better than the secondaries during the last two months of the year.

The market related headlines Monday will point out the DJIA is at a new low for the year which will serve to scare people away as the market enters its strongest period.

The NASDAQ new high indicator, a 10% trend (19 day EMA) of NASDAQ new highs, continued moving upward Friday. Although this indicator had little discernable direction over the past week, the downward direction of the prior week was arrested.

The chart below shows the NASDAQ composite in red and the NASDAQ new low indicator in blue. The NASDAQ new low indicator is a 10% trend of NASDAQ new lows plotted on an inverted Y axis (increasing new lows move the indicator downward). The indicator remained flat in spite of the 2% sell off on Friday.

There were fewer new lows on Friday at the weekly price low than there were any other day of the week except Thursday which was a strong up day. Price declines accompanied by diminishing new lows is a positive.

The last chart plots momentum of NASDAQ new lows subtracted from momentum of new highs. This indicator removes the subtlety of the previous two charts, it is heading sharply upward.

The tables below show seasonally next week begins weak and ends strong.

Last 5 trading 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 Day5 Day4 Day3 Day2 Day1 Totals
1988-4 -0.14% 2 -0.21% 3 -0.99% 4 0.34% 5 0.05% 1 -0.95%
1989-1 0.28% 3 -0.83% 4 -1.08% 5 -0.39% 1 0.69% 2 -1.35%
1990-2 0.11% 4 -1.24% 5 -0.98% 1 -0.73% 2 0.00% 3 -2.83%
1991-3 -0.51% 5 0.44% 1 0.64% 2 0.80% 3 0.88% 4 2.25%
1992-4 0.39% 1 -0.06% 2 0.64% 3 0.23% 4 0.32% 5 1.53%
1993-1 -0.11% 1 -0.27% 2 0.45% 3 0.36% 4 0.90% 5 1.32%
1994-2 -0.41% 2 0.10% 3 0.57% 4 1.09% 5 0.01% 1 1.36%
1995-3 -1.00% 3 -1.08% 4 -0.03% 5 0.57% 1 0.00% 2 -1.53%
1996-4 -0.03% 5 -0.84% 1 -0.60% 2 0.04% 3 0.71% 4 -0.73%
1997-1 -6.15% 1 2.32% 2 1.16% 3 -1.43% 4 1.07% 5 -3.02%
1998-2 1.37% 1 -0.15% 2 -0.01% 3 0.81% 4 0.98% 5 3.00%
1999-3 -0.22% 1 -0.47% 2 0.24% 3 1.45% 4 1.38% 5 2.37%
2000-4 -2.59% 3 0.95% 4 0.02% 5 0.60% 1 3.10% 2 2.08%
2001-1 1.94% 4 0.62% 5 -2.11% 1 -1.53% 2 1.26% 3 0.18%
2002-2 1.81% 5 -0.97% 1 -0.10% 2 1.50% 3 -0.18% 4 2.06%
2003-3 1.76% 1 2.04% 2 1.13% 3 -0.27% 4 -0.41% 5 4.26%
Averages -0.22% 0.02% -0.07% 0.22% 0.72% 0.63%
Winners 44% 38% 50% 69% 87% 63%
 
SPX Day5 Day4 Day3 Day2 Day1 Totals
1988-4 0.04% 2 -0.35% 3 -1.46% 4 0.45% 5 0.16% 1 -1.17%
1989-1 -0.35% 3 -1.33% 4 -0.85% 5 0.00% 1 1.58% 2 -0.95%
1990-2 -0.78% 4 -1.76% 5 -0.93% 1 0.72% 2 -0.02% 3 -2.76%
1991-3 -0.23% 5 1.38% 1 0.50% 2 0.38% 3 -0.13% 4 1.91%
1992-4 0.98% 1 0.08% 2 0.39% 3 0.17% 4 -0.52% 5 1.11%
1993-1 0.20% 1 0.02% 2 0.07% 3 0.67% 4 0.02% 5 0.98%
1994-2 0.15% 2 0.24% 3 0.70% 4 1.70% 5 -0.30% 1 2.49%
1995-3 -0.70% 3 -0.99% 4 0.52% 5 0.61% 1 -0.30% 2 -0.86%
1996-4 -0.20% 5 -0.52% 1 0.61% 2 -0.09% 3 0.62% 4 0.43%
1997-1 -6.87% 1 5.12% 2 -0.29% 3 -1.68% 4 1.21% 5 -2.52%
1998-2 0.15% 1 -0.65% 2 0.26% 3 1.67% 4 1.17% 5 2.60%
1999-3 -0.62% 1 -0.91% 2 1.15% 3 3.53% 4 1.53% 5 4.69%
2000-4 -2.38% 3 -0.03% 4 1.11% 5 1.38% 1 2.20% 2 2.28%
2001-1 1.37% 4 0.41% 5 -2.38% 1 -1.72% 2 0.00% 3 -2.32%
2002-2 1.72% 5 -0.83% 1 -0.91% 2 0.97% 3 -0.56% 4 0.40%
2003-3 0.22% 1 1.52% 2 0.13% 3 -0.11% 4 0.36% 5 2.11%
Averages -0.45% 0.09% -0.09% 0.54% 0.44% 0.53%
Winners 50% 44% 63% 75% 56% 63%

The weakness of the past week did very little damage to the indicators providing a nice setup for a long trade as we enter a seasonally strong period.

I expect the major indices to be higher on Friday October 29 than they were on Friday October 22.

Most of the major indices were down last week, but the NASDAQ composite was up slightly so I am declaring last weeks negative forecast a tie.

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