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Technical Market Report

The good news is:
 •There have been relatively few new lows.

Seasonally, January is one of the strongest months of the year. Measured by the NASDAQ composite (OTC) since 1965, in the first year of the presidential cycle, February has been up only 30% of the time and on average February has lost 4.1% making it the weakest month of the year. Measured by the S&P 500 (SPX) since 1929 in the first year of the presidential cycle, February has been up only 37% of the time and on average has lost 1.8%.

The charts below show February as an average of all years and an average of February in the first year of the presidential cycle. A dashed vertical line is drawn after the 1st trading day and then every 5 trading days. For these charts the methodology is noteworthy. A month is usually 21 trading days. February usually has 19 trading days. The routine that produces this chart calculates an average month by using the first 10 trading days (up to the solid vertical line) and the last 11 trading days. On average, two extra days have been inserted into the middle of the month.

The first chart shows an average of the OTC for all years since 1963 in blue and an average of just the first year of the presidential cycle in green. On average February is up slightly, however in the 1st year of the presidential cycle it has been down sharply.

The next chart is similar to the one above showing the 1st year of the presidential cycle as a solid line and the percentage of days that have been up as a dashed line. Looking at market data over long periods there is very little unanimity, however, since 1963 in the 1st year of the presidential cycle, the 7th trading day of February has always been down.

The next chart shows the SPX in February since 1929. An average of all years is in black while the 1st year of the presidential cycle is in green. Like the OTC, the average February has been flat while the average 1st year of the presidential cycle has been down.

Data for the Russell 2000 (R2K) begins in 1987. The chart below shows an average of all Februarys for the R2K in light green and the 1st year of the presidential cycle in dark green. The pattern is similar to those above except the R2K has, on average, been up for the first 5 days of the month.

In 1990 the OTC was down 9.5% in January making it the worst January on record. The second worst January was in 2000 with a decline of 4.6%. Both years finished with a loss greater than the January loss. With one trading day left in the month the OTC is down 6.42% putting it on schedule to be the 2nd worst January since 1963. In both 1990 and 2000 February was up.

At cycle bottoms new lows and downside volume (DV) diminish quickly. There have been very few new lows so far, but DV is at its highest level in over two years. The chart below shows the OTC in red and a 4% trend (55 day EMA) of NASDAQ DV in brown. DV is shown on an inverted Y axis so increasing DV moves the indicator downward. The chart begins just before the bottom in mid-August. After the mid-August low DV moved sharply upward stalling on some of the down days but the trend was clearly up. Currently the opposite is true.

Summation indices (SI) are running totals of oscillator values. When the oscillator is positive the SI moves upward and when the oscillator is negative the SI moves downward. The chart below shows SI's calculated from OTC advancing issues - declining issues, new highs - new lows and upside - downside volume. In spite of a relatively strong rally last week the OTC SI's are all heading downward.

Seasonally the last trading day of January and the first four trading days of February have been a mixed bag. On average the OTC has been up 60% of the time since 1963 while the SPX has been up 47% of the time since 1929. The losses in the down years have been great enough to make the overall averages negative.

Last trading day of January and first 4 trading days of February.
The number after the year represents its position in the presidential cycle.
The number after the daily return represents its position in the week, 1 = Monday, 2 = Tuesday etc.
MDD = Maximum Draw Down (3 highest are shown with dates)
AVG = Average for the previous 5 periods
Averages = Average for the entire database.
% Winners = The percentage of the days that were up (years for totals)

OTC Presidential Year 1
  Day1 Day1 Day2 Day3 Day4 Totals
1965-1 0.36% 5 0.23% 1 0.15% 2 0.50% 3 -0.08% 4 1.16%
1969-1 0.39% 5 0.67% 1 0.01% 2 0.41% 3 -0.24% 4 1.24%
1973-1 -0.19% 3 0.14% 4 -1.14% 5 -0.36% 1 -0.38% 2 -1.93%
1977-1 -0.19% 1 0.80% 2 0.17% 3 -0.13% 4 0.43% 5 1.06%
1981-1 -0.04% 5 -2.39% 1 0.24% 2 0.52% 3 0.88% 4 -0.77%
 
Avg 0.07% -0.11% -0.11% 0.19% 0.12% 0.15%
 
1985-1 0.04% 4 -0.10% 5 0.84% 1 0.69% 2 0.62% 3 2.10%
1989-1 0.52% 2 0.48% 3 0.48% 4 0.29% 5 -0.09% 1 1.69%
1993-1 0.24% 5 0.78% 1 0.48% 2 0.50% 3 0.03% 4 2.03%
1997-1 0.65% 5 -0.28% 1 -0.17% 2 -1.85% 3 -0.15% 4 -1.79%
2001-1 -2.31% 3 0.36% 4 -4.39% 5 -0.65% 1 0.81% 2 -6.19%
 
Avg -0.17% 0.25% -0.55% -0.20% 0.24% -0.43%
 
Averages -0.05% 0.07% -0.33% -0.01% 0.18% -0.14%
% Winners 60% 70% 70% 60% 50% 60%
MDD 2/5/2001 6.88% -- 2/6/1997 2.43% -- 2/2/1981 2.42%
 
SPX Presidential Year 1
  Day1 Day1 Day2 Day3 Day4 Totals
1929-1 1.14% 4 0.39% 5 -0.15% 6 -0.62% 1 0.23% 2 0.99%
1933-1 -0.57% 2 -3.89% 3 -1.80% 4 -0.31% 5 -1.23% 6 -7.79%
1937-1 0.34% 6 0.28% 1 0.67% 2 0.72% 3 0.11% 4 2.12%
1941-1 0.30% 5 -0.70% 6 -0.40% 1 0.10% 2 1.81% 3 1.11%
 
1945-1 0.07% 3 0.22% 4 0.74% 5 0.37% 6 0.37% 1 1.77%
1949-1 -0.07% 1 0.79% 2 0.07% 3 -0.20% 4 -1.50% 5 -0.91%
1953-1 0.69% 5 0.49% 1 0.11% 2 -0.45% 3 -1.02% 4 -0.18%
1957-1 -0.42% 4 -0.22% 5 -0.20% 1 -1.44% 2 -0.16% 3 -2.45%
1961-1 -0.31% 2 0.19% 3 0.65% 4 -0.13% 5 -0.74% 1 -0.33%
 
Avg -0.01% 0.29% 0.27% -0.37% -0.61% -0.42%
 
1965-1 0.09% 5 0.02% 1 -0.03% 2 0.09% 3 -0.07% 4 0.10%
1969-1 0.45% 5 -0.12% 1 0.03% 2 0.27% 3 0.33% 4 0.96%
1973-1 0.17% 3 -1.09% 4 -0.36% 5 -0.10% 1 0.19% 2 -1.19%
1977-1 0.10% 1 0.50% 2 -0.18% 3 -0.50% 4 0.03% 5 -0.05%
1981-1 -0.53% 5 -2.04% 1 1.22% 2 0.10% 3 0.81% 4 -0.44%
 
Avg 0.06% -0.55% 0.14% -0.03% 0.26% -0.12%
 
1985-1 0.13% 4 -0.56% 5 0.96% 1 0.14% 2 -0.10% 3 0.58%
1989-1 0.84% 2 -0.13% 3 -0.08% 4 0.04% 5 -0.31% 1 0.36%
1993-1 0.03% 5 0.85% 1 0.01% 2 1.05% 3 0.53% 4 2.46%
1997-1 0.25% 5 0.07% 1 0.32% 2 -1.39% 3 0.24% 4 -0.50%
2001-1 -0.56% 3 0.55% 4 -1.75% 5 0.36% 1 -0.15% 2 -1.56%
 
Avg 0.14% 0.16% -0.11% 0.04% 0.04% 0.27%
 
Averages 0.11% -0.23% -0.01% -0.10% -0.03% -0.26%
% Winners 68% 58% 53% 53% 53% 47%

Last weeks rally offered little encouragement. There was no notable increase in new highs and downside volume picked up on Friday which, measured by price, was modestly down.

The period of modest seasonal strength ends next Thursday.

I expect the major indices to be lower on Friday February 4 than they were on Friday January 28.

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