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Technical Market Report

The good news is:
 • New lows remained minimal during the past week suggestingthe recent weakness is not the beginning of a turning point, but a normal correctionin a strong market.

The chart below is an update of the one I used the past three weeks showing the NASDAQ composite in red and an indicator constructed by subtracting momentum of NASDAQ new lows from momentum of new highs in purple. Vertical dashed lines are drawn at the first trading day of each month and the period representing September has been labeled.

The indicator is short term and nearly binary in its representation of market strength moving sharply upward or downward at turning points.

After a 4-5 week run up from mid August the indicator fell in mid September for about a week as the market corrected. The fall was arrested as the market entered the seasonally strong end of month period. A similar pattern developed in mid November after a 4 week run up, again the indicators weakness was arrested as the market entered the seasonally strong Thanksgiving and end of month period.

The pattern is continuing to follow the October example suggesting there are a few days left on the downside.

The chart below is another update from last week. It shows the NASDAQ composite and the NASDAQ new high indicator (a 10% trend of NASDAQ new highs). The indicator does a nice job of smoothing out the wiggles in prices and is declining sharply suggesting the modest strength in prices of the past three days will give way to further declines next week.

Summation indices (SI) are a running total of oscillator values. When the oscillator is above 0 the SI rises when it is below 0 the SI falls. The chart below shows the NASDAQ composite and SI's derived from NASDAQ advancing - declining issues, new highs - new lows and upside - downside volume. The SI's lag a little, but when they are all heading the same direction, it is imprudent to bet against them and they are all heading downward.

Typically, December starts and finishes strong with weakness in the middle. Next week, defined as the week before options expiration, has been better for the blue chips than the small caps. It usually begins weak and ends strong. In the table of presidential years, 2000 was weak enough to distort the averages.

Report for the week prior to witching Friday during Dec.
Witching is futures and options expiration the 3rd Friday of the month.
The witching Friday is marked *Fri*.
The number following the year is the position in the presidential cycle.

R2K
Year Mon Tue Wed Thur *Fri* Totals
1988-4 -0.21% -0.20% 0.01% -0.01% 0.82% 0.41%
1989-1 -0.44% 0.01% 0.18% -0.65% -0.44% -1.34%
1990-2 -0.81% 0.65% 0.47% 0.12% 0.09% 0.53%
1991-3 0.59% -0.50% -0.16% -0.66% -0.07% -0.81%
1992-4 -0.15% -0.57% -0.46% 0.70% 0.63% 0.15%
1993-1 -0.23% -0.93% -0.02% 0.30% 0.67% -0.21%
1994-2 0.14% 0.15% 0.86% 1.40% -0.08% 2.47%
1995-3 0.17% -0.16% 0.33% -0.02% -0.68% -0.36%
1996-4 -1.04% -0.10% 0.84% 0.86% 0.17% 0.72%
1997-1 -0.44% 1.09% 0.26% -1.43% -0.08% -0.60%
1998-2 -1.88% 0.42% 0.07% 1.01% 0.92% 0.55%
1999-3 0.79% -1.62% -0.31% 0.85% 0.20% -0.09%
2000-4 1.70% -1.94% -1.64% -1.72% -0.82% -4.43%
2001-1 1.84% 1.16% -0.70% -1.66% 2.10% 2.73%
2002-2 1.78% -0.92% -1.87% -0.14% 0.90% -0.24%
2003-3 -2.25% 0.47% 0.16% 1.54% 0.00% -0.09%
Avg -0.03% -0.19% -0.12% 0.03% 0.27% -0.04%
Win% 44% 44% 56% 50% 56% 44%
 
Presidential year 4
Year Mon Tue Wed Thur *Fri* Totals
1988-4 -0.21% -0.20% 0.01% -0.01% 0.82% 0.41%
1992-4 -0.15% -0.57% -0.46% 0.70% 0.63% 0.15%
1996-4 -1.04% -0.10% 0.84% 0.86% 0.17% 0.72%
2000-4 1.70% -1.94% -1.64% -1.72% -0.82% -4.43%
Avg 0.08% -0.70% -0.31% -0.04% 0.20% -0.79%
Win% 25% 00% 50% 50% 75% 75%
 
SPX
Year Mon Tue Wed Thur *Fri* Totals
1988-4 -0.18% -0.08% -0.36% -0.37% 0.73% -0.26%
1989-1 -0.04% 0.91% 0.29% -0.52% -0.23% 0.42%
1990-2 -0.24% 1.24% 0.05% -0.02% 0.49% 1.51%
1991-3 0.00% -0.45% 0.19% -0.25% 1.18% 0.67%
1992-4 -0.21% -0.06% -0.24% 0.91% 1.34% 1.74%
1993-1 0.38% -0.57% -0.26% 0.32% 0.66% 0.53%
1994-2 0.56% 0.15% 1.07% 0.08% 0.76% 2.62%
1995-3 0.33% -0.12% 0.47% -0.77% -0.09% -0.18%
1996-4 -1.05% 0.70% 0.76% 1.94% 0.42% 2.77%
1997-1 1.05% 0.48% -0.26% -1.06% -0.89% -0.68%
1998-2 -2.17% 1.90% -0.08% 1.55% 0.68% 1.89%
1999-3 -0.13% -0.85% 0.72% 0.39% 0.16% 0.29%
2000-4 0.75% -0.65% -0.82% -1.40% -2.15% -4.26%
2001-1 1.00% 0.75% 0.58% -0.84% 0.44% 1.94%
2002-2 2.35% -0.81% -1.31% -0.77% 1.30% 0.75%
2003-3 -0.57% 0.66% 0.13% 1.18% -0.05% 1.35%
Avg 0.12% 0.20% 0.06% 0.02% 0.30% 0.69%
Win% 44% 50% 56% 44% 69% 75%
 
Presidential year 4
Year Mon Tue Wed Thur *Fri* Totals
1988-4 -0.18% -0.08% -0.36% -0.37% 0.73% -0.26%
1992-4 -0.21% -0.06% -0.24% 0.91% 1.34% 1.74%
1996-4 -1.05% 0.70% 0.76% 1.94% 0.42% 2.77%
2000-4 0.75% -0.65% -0.82% -1.40% -2.15% -4.26%
Avg -0.17% -0.02% -0.17% 0.27% 0.09% 0.00%
Win% 25% 25% 25% 50% 75% 50%

The chart below covers 15 years showing the NASDAQ composite and an indicator that plots the average percentage change over the previous 10 trading days. For this indicator up and down days are counted the same, that is, the absolute value of the change is used. By this measure of volatility there were extreme distortions in 2000 with the average daily percentage change reaching 4.8% in late April of 2000. Around the first of the year in 2001 the average daily percentage change reached 4.4% which explains the distortions in the tables above. The current value of the indicator is 0.6%.

The market is going through a normal short term correction that should last most of next week.

I expect the major indices to be lower on Friday December 17 than they were on Friday December 10.

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