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Technical Market Report

The good news is:
 • The market is having a washout which will set it up for a tradablerally.

Last weeks hint of a bottom ended on Monday when new lows increased to threatening levels (> 40 on NYSE, > 70 on NASDAQ). Tuesday looked promising but the promise only lasted a half day. On Friday there were 233 new lows on the NASDAQ and 183 on the NYSE and no suggestion of a bottom. There have been 3 consecutive, severe, down days on all of the major indices so a short term rally is due, but there is no sign of a bottom.

At this point the most important indicators are derived from new lows.

The chart below shows the NASDAQ composite (OTC) in red and a 10% trend (19 day EMA) of NASDAQ new lows in blue. The new low indicator (NL) has been plotted on an inverted Y axis so when new lows are decreasing the indicator moves upward and when new lows are increasing the indicator moves downward. The chart begins July 16, 2004 and dashed vertical lines indicate the 1st trading day of each month. When a bottom has been reached new lows diminish rapidly causing the indicator to move sharply upward like it did last August. Very short term the indicator can give false signals so it is prudent to wait for 5 consecutive trading days of upward movement before assuming a bottom is in.

A similar chart using NYSE data also turned sharply downward last week.

The S&P 500 (SPX) is shown in red and NL calculated from NYSE data is shown in brown.

The secondaries lead both up and down.

The chart below shows the Russell 2000 (R2K) in red, the S&P 500 (SPX) in green and a FastTrack relative strength indicator called Accutrack as a histogram in yellow.

The underperformance of the R2K relative to the SPX increased again last week.

At the suggestion of Donald Bell I changed the AT parameters from 9/27 to Fibonacci numbers 8/32.

Defining next week as the week following options expiration, the tables below show the daily performance of the R2K and SPX during the first year of the presidential cycle, with a summary of all years since 1988. The bias is slightly positive.

Witching Summary
Report for the week after witching Friday during April.
Witching is futures and options expiration the 3rd Friday of the month.
The number following the year is the position in the presidential cycle.
If a holiday falls in that period the day of the week will not be properly identified.
Daily returns from Monday to Friday after witching.

R2K presidential Year 1
Year Mon Tue Wed Thur *Fri* Totals
1989-1 -0.01% -0.01% 0.20% 0.42% 0.24% 0.84%
1993-1 -1.44% 0.02% 0.41% 0.41% 0.61% 0.01%
1997-1 -1.02% -0.05% 0.09% 0.04% -0.79% -1.73%
2001-1 0.28% 1.06% 0.24% -1.22% 1.49% 1.85%
 
Avg -0.55% 0.26% 0.23% -0.09% 0.39% 0.24%
Win% 25% 50% 100% 75% 75% 75%
 
R2K summary for all years 1989 - 2004
Avg -0.13% -0.01% 0.03% 0.06% 0.29% 0.24%
Win% 44% 63% 75% 63% 63% 63%
 
SPX presidential Year 1
Year Mon Tue Wed Thur *Fri* Totals
1989-1 -0.30% -0.63% 0.06% 0.86% 0.02% 0.02%
1993-1 -0.80% 1.03% 0.00% 0.20% 0.30% 0.73%
1997-1 -0.78% 1.87% -0.13% -0.32% -0.75% -0.10%
2001-1 -0.29% 1.36% 0.08% -1.49% 1.44% 1.11%
 
Avg -0.54% 0.91% 0.00% -0.19% 0.25% 0.44%
Win% 00% 75% 75% 50% 75% 75%
 
SPX summary for all years 1989 - 2004
Avg -0.14% 0.18% -0.13% -0.15% 0.17% -0.07%
Win% 38% 69% 56% 44% 50% 56%

Last week the market violated the seasonal pattern that it had been following closely since late February. The rapid buildup in new lows suggests that we should see a tradable low soon.

I expect the major indices to be lower on Friday April 22 than they were on Friday April 15.

Last weeks positive forecast based on the market continuing to follow the seasonal patterns of the 1st year of the presidential cycle was a spectacular miss.

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