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Is The Bull Market On Its Last Legs?

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Technical Market Report

The good news is:
 • We are entering a seasonally strong period.

A classical top is one where the market makes a high confirmed by most of the indicators, i.e. volume, new highs and new lows and advancing and declining issues, with the secondaries leading. This high is followed by a pull back then a rally to new highs for the large cap indices, but not small cap or secondary indices. Most of the issues traded are in the secondary indices so indicators derived from new highs and new lows and advancing and declining issues deteriorate as the large cap indices go to new highs. After the large cap index high all of the indices collapse and new lows build quickly. The pattern is aborted if the small cap indices make a nominal new high.

The chart below covers the period from early December including the late December highs through last Friday. The Dow Jones Industrial Average (DJIA) is in red, the S&P500 (SPX) is in green, the Russell 2000 (R2K) is in magenta and the NASDAQ composite (OTC) is in cyan. From the late December highs, the blue chips have been leading.

The next chart shows the SPX in red, a 10% trend (19 day EMA) of NYSE new highs in green and a 10% trend of NYSE new lows on an inverted Y axis in blue. The SPX is 0.7% off its nominal high set in late December. If the SPX goes to a new high soon, it will be unconfirmed by both the new high and new low indicators. The new high indicator confirmed the early December high, but not the late December high and, if a new high is reached soon, it will not be confirmed by the new high indicator.

A chart similar to the one above, but drawn with indicators calculated from NASDAQ data is even uglier. Both NH and NL are moving downward.

Summation indices (SI) are a running total of oscillator values. When the oscillator is above 0 the SI moves upward, when the oscillator is negative the SI moves downward.

When all of the SI's are moving in the same direction, you have a pretty clear indication of the trend. The chart below shows the OTC and SI's derived from oscillators of advancing and declining issues, new highs and new and upside and down side volume of the NASDAQ. Only one of the SI's is heading modestly upward.

Seasonally the week before Presidents day is interesting. The tables below include data from 1989. The first table includes all years for the R2K while the next three show only the first year of the presidential cycle for the R2K, OTC, and SPX. The interesting part is in the 1st year of the presidential cycle Monday and Tuesday have been very weak, Wednesday and Thursday very strong and Friday very weak.

The number following the % change represents the day of the week 1=Monday, 5=Friday etc.
The number following the year is the year of the presidential cycle.

R2K Day5 Day4 Day3 Day2 Day1 Totals
1989-1 -0.24% 1 0.18% 2 0.37% 3 0.47% 4 0.50% 5 1.28%
1990-2 -0.40% 1 -0.20% 2 0.01% 3 0.63% 4 0.06% 5 0.11%
1991-3 1.61% 1 0.03% 2 1.08% 3 -0.36% 4 0.97% 5 3.33%
1992-4 0.21% 1 0.09% 2 0.90% 3 -0.50% 4 0.01% 5 0.71%
1993-1 -0.03% 1 -0.78% 2 0.02% 3 0.46% 4 -0.45% 5 -0.77%
1994-2 0.11% 1 0.51% 2 0.54% 3 -0.41% 4 -0.31% 5 0.44%
1995-3 0.04% 1 -0.11% 2 0.87% 3 -0.60% 4 -0.48% 5 -0.27%
1996-4 0.09% 1 -0.49% 2 0.39% 3 -0.10% 4 0.26% 5 0.15%
1997-1 -0.71% 1 -0.38% 2 0.73% 3 0.76% 4 0.26% 5 0.66%
1998-2 0.40% 1 0.87% 2 0.18% 3 0.08% 4 0.42% 5 1.96%
1999-3 -0.34% 1 -1.99% 2 -1.28% 3 2.06% 4 -1.90% 5 -3.45%
2000-4 0.53% 1 0.06% 2 1.39% 3 1.95% 4 -2.28% 5 1.64%
2001-1 1.67% 1 -0.55% 2 0.18% 3 1.06% 4 -1.88% 5 0.49%
2002-2 1.00% 1 0.15% 2 0.92% 3 -1.17% 4 -0.32% 5 0.57%
2003-3 0.93% 1 -0.59% 2 -1.27% 3 -0.17% 4 1.05% 5 -0.06%
2004-4 0.24% 1 1.25% 2 0.72% 3 -0.72% 4 -1.28% 5 0.20%
 
Averages 0.32% -0.12% 0.36% 0.22% -0.34% 0.44%
% Winners 69% 50% 88% 50% 50% 75%
 
Pres yr 1
R2K Day5 Day4 Day3 Day2 Day1 Totals
1989-1 -0.24% 1 0.18% 2 0.37% 3 0.47% 4 0.50% 5 1.28%
1993-1 -0.03% 1 -0.78% 2 0.02% 3 0.46% 4 -0.45% 5 -0.77%
1997-1 -0.71% 1 -0.38% 2 0.73% 3 0.76% 4 0.26% 5 0.66%
2001-1 1.67% 1 -0.55% 2 0.18% 3 1.06% 4 -1.88% 5 0.49%
 
% Winners 25% 25% 100% 100% 50% 75%
 
OTC Day5 Day4 Day3 Day2 Day1 Totals
1989-1 -0.27% 1 0.17% 2 0.55% 3 0.37% 4 0.37% 5 1.19%
1993-1 -0.36% 1 -0.89% 2 0.41% 3 0.12% 4 -0.77% 5 -1.49%
1997-1 -1.65% 1 -0.29% 2 2.06% 3 0.87% 4 -0.26% 5 0.74%
2001-1 0.76% 1 -2.49% 2 2.62% 3 2.47% 4 -5.00% 5 -1.64%
 
% Winners 25% 25% 100% 100% 25% 50%
 
SPX Day5 Day4 Day3 Day2 Day1 Totals
1989-1 0.18% 1 -0.25% 2 0.83% 3 0.19% 4 0.66% 5 1.62%
1993-1 -0.24% 1 -0.56% 2 0.20% 3 0.32% 4 -0.69% 5 -0.97%
1997-1 -0.52% 1 0.53% 2 1.67% 3 1.13% 4 -0.41% 5 2.39%
2001-1 1.18% 1 -0.87% 2 -0.22% 3 0.81% 4 -1.89% 5 -0.98%
 
% Winners 50% 25% 75% 100% 25% 50%

The indicators are mixed as is the seasonal pattern. If my interpretation of a developing top is correct, next week should have a positive bias favoring the blue chips.

I expect the major indices to be higher on Friday February 18 than they were on Friday February 11

The indices were mixed last week with the blue chip indices modestly up and the small cap indices modestly down so I am calling last weeks positive forecast a tie.

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