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Technical Market Report

The good news is:
 • Most of the major indices closed at their highs for the year lastFriday.
 • Seasonally the next 2 ½ months is the strongest period ofthe year.
 • All of the short and intermediate indicators are heading sharplyupward.
 • The secondaries have continued to outperform the blue chips.

The blue chip indices have been the laggards this year, while most of the broad based indices closed at their highs for the year Friday the Dow Jones Industrial Average (DJIA) and the S&P100 (OEX) were 1.9% and 1.3% off their respective yearly highs.

There is every reason to expect those indices to close the year with a gain. The chart below shows year to date the OEX in red and summation indices (SI's) derived from advancing - declining issues, new highs - new lows and upside - downside volume of the component issues of the OEX. For this chart new highs and new lows have been calculated on a trailing 6 week basis rather than 52 weeks as reported by the exchanges. SI's are a running total of oscillator values, when the oscillator is positive the SI rises and when it is negative, the SI falls. The OEX chart is typical of every sector except Drugs, Gold and Energy. However, energy appears to be turning upward. In the chart below all of the SI's are moving sharply upward suggesting the recent upward move should continue.

Below are some composite charts of the performance of the S&P 500 (SPX) during the 4th presidential year (Election year). Dashed vertical lines are drawn at the beginning of each month.

The first chart covers the past 76 years including 19 samples of a 4th presidential year. On average the SPX has closed the year at its high averaging a 9.54% gain.

The next chart covers 20 years or 5 samples from 1928 to 1948. Full year performance was off by about 3%, but the high was about the same as the 76 year sample.

The next chart covers a 43 year period from 1950 to 1993 including 11 samples. I cut the period off at 1993 so it would not reflect the hyperactive late 90's. Performance was nearly identical to the 76 year average in pattern and magnitude.

The last chart shows the last 20 years or 5 samples. Performance was about 3% above the 76 year average, but the pattern has been similar, typically closing at or very near the high for the year.

Seasonally the week before options expiration in November has a modestly positive bias which has been a little weaker than average during the 4th year in the presidential cycle.

Report for the week prior to options expiration Friday during November.
The number following the year is the position in the presidential cycle.
Daily returns from the Monday before to the witching Friday.

R2K
Year Mon Tue Wed Thur *Fri* Totals
1988-4 -0.53% 0.06% -1.18% -0.42% 0.11% -1.97%
1989-1 -0.07% -0.15% 0.23% -0.04% 0.40% 0.38%
1990-2 1.59% 0.34% 0.88% -0.34% -0.04% 2.43%
1991-3 0.26% 0.66% 0.01% -0.12% -3.24% -2.44%
1992-4 -0.07% -0.56% 0.82% 0.41% 0.52% 1.13%
1993-1 -0.57% -0.41% -0.67% -0.68% -0.40% -2.72%
1994-2 0.32% 0.28% -0.14% -0.38% -0.40% -0.32%
1995-3 -0.24% -0.69% -0.02% 0.44% 0.34% -0.15%
1996-4 0.33% 0.12% -0.01% 0.33% -0.21% 0.57%
1997-1 1.69% -0.81% -0.33% 1.16% -0.15% 1.56%
1998-2 0.27% -0.25% 0.69% 0.57% -0.02% 1.26%
1999-3 0.73% 0.86% 0.04% 1.09% -0.17% 2.55%
2000-4 -0.91% 2.18% 1.00% -2.06% 0.20% 0.41%
2001-1 0.54% 1.78% 1.00% -0.76% 0.43% 3.00%
2002-2 -2.60% 1.50% 0.38% 2.69% -0.08% 1.89%
2003-3 -1.27% -0.86% 0.76% -0.48% 0.54% -1.31%
Avg -0.03% 0.25% 0.22% 0.09% -0.14% 0.39%
Win% 50% 56% 63% 44% 44% 63%
 
Presidential Year 4
Year Mon Tue Wed Thur *Fri* Totals
1988-4 -0.53% 0.06% -1.18% -0.42% 0.11% -1.97%
1992-4 -0.07% -0.56% 0.82% 0.41% 0.52% 1.13%
1996-4 0.33% 0.12% -0.01% 0.33% -0.21% 0.57%
2000-4 -0.91% 2.18% 1.00% -2.06% 0.20% 0.41%
Avg -0.29% 0.45% 0.16% -0.44% 0.15% 0.04%
Win% 25% 75% 50% 50% 75% 75%
 
SPX
Year Mon Tue Wed Thur *Fri* Totals
1988-4 -0.07% 0.23% -1.68% 0.30% 0.71% -0.53%
1989-1 0.13% -0.46% 0.75% 0.01% 0.30% 0.74%
1990-2 1.83% -0.57% 0.86% -1.05% 0.03% 1.10%
1991-3 0.06% 0.92% 0.17% -0.05% -3.67% -2.58%
1992-4 -0.41% -0.34% 0.85% 0.18% 0.72% 1.00%
1993-1 -0.35% 0.64% -0.41% -0.26% -0.22% -0.60%
1994-2 0.80% -0.22% 0.12% -0.44% -0.45% -0.19%
1995-3 -0.07% -0.51% 0.79% 0.57% 0.46% 1.24%
1996-4 0.14% -0.32% 0.22% 0.65% 0.24% 0.93%
1997-1 1.92% -0.84% 0.68% 1.52% 0.43% 3.71%
1998-2 0.90% 0.30% 0.45% 0.71% 0.95% 3.32%
1999-3 -0.12% 1.82% -0.64% 1.01% -0.21% 1.86%
2000-4 -1.08% 2.35% 0.50% -1.26% -0.34% 0.17%
2001-1 -0.18% 1.86% 0.19% 0.09% -0.31% 1.64%
2002-2 -2.07% 0.77% -0.05% 2.46% 0.61% 1.73%
2003-3 -0.64% -0.91% 0.80% -0.84% 0.16% -1.43%
Avg 0.05% 0.30% 0.22% 0.23% -0.04% 0.76%
Win% 44% 50% 75% 63% 63% 69%
 
Presidential year 4
Year Mon Tue Wed Thur *Fri* Totals
1988-4 -0.07% 0.23% -1.68% 0.30% 0.71% -0.53%
1992-4 -0.41% -0.34% 0.85% 0.18% 0.72% 1.00%
1996-4 0.14% -0.32% 0.22% 0.65% 0.24% 0.93%
2000-4 -1.08% 2.35% 0.50% -1.26% -0.34% 0.17%
Avg -0.36% 0.48% -0.03% -0.03% 0.33% 0.39%
Win% 25% 50% 75% 75% 75% 75%

By any measure we are in a very strong market and typically the market finishes the 4th year of the presidential cycle at or near its high.

I gave my errant negative forecast for last week because there had been a little too much of a good thing. Now we have had even more.

I expect the major indices to be lower on Friday November 19 than they were on Friday November 12.

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