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Market Sentiment At Its Lowest In 10 Months

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Stocks sold off last week…

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Technical Market Report

The good news is:
• With the exceptions of energy, gold, drugs and utilities, all of the indicatorsin all of the sectors as well as the broad market are moving sharply upward.

Last week the market took off removing any doubt that the late April lows represent a significant bottom.

Summation indices (SI) are running totals of oscillator values. When the oscillator is positive the SI rises when the oscillator is negative, the SI falls. The chart below shows the NASDAQ composite (OTC) and NASDAQ SI's calculated from advancing issues - declining issues, new highs - new lows and upside volume - downside volume. The SI's offer a good indicator of the trend and all of the NASDAQ SI's are heading sharply upward. The NYSE chart as well as most of the sector charts look the same.

The new low indicator (NL) is a 10% trend (19 day EMA) of new lows plotted on an inverted Y axis. NL moves downward when new lows are increasing and upward when new lows are decreasing. After a bottom new lows diminish quickly moving the indicator sharply upward. The chart below covers the period from early August last year through last Friday so you can see how the indicator behaved after both the low of last August and the recent low. Currently the indicator is moving sharply upward indicating the April low was significant.

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. Although not yet positive, Accutrack has been rising sharply since the late April lows indicating the R2K has been outperforming the SPX since the April lows.

Seasonally the days prior to holidays are often strong. Defining next week as the week before Memorial Day in the 1st year of the presidential cycle, the upcoming week looks pretty good.

Memorial Day was first observed May 30, 1868 and continued to be observed on May 30 until the National Holiday Act of 1971 moved the official observance to the last Monday of May to provide a consistent 3 day weekend.

The tables below show the performance of the OTC and SPX during week before Memorial Day in the 1st year of the presidential cycle since 1971, with summary data for all years since 1971.

5 days before Memorial Day
The number following the year represents its position in the presidential cycle.
The number following the daily return represents the day of the week;
1 = Monday, 2 = Tuesday etc.

OTC Presidential Year 1
  Day5 Day4 Day3 Day2 Day1 Totals
1973-1 -2.07% 1 0.82% 2 0.49% 3 2.14% 4 0.86% 5 2.24%
1977-1 -0.87% 1 -0.50% 2 -0.50% 3 -0.01% 4 -0.28% 5 -2.16%
1981-1 0.20% 1 -0.38% 2 0.70% 3 0.33% 4 0.40% 5 1.25%
 
1985-1 0.95% 1 -0.18% 2 -0.31% 3 -0.30% 4 0.00% 5 0.16%
1989-1 -0.06% 1 -0.37% 2 0.30% 3 0.32% 4 0.52% 5 0.72%
1993-1 0.06% 1 0.05% 2 1.30% 3 0.07% 4 -0.58% 5 0.90%
1997-1 0.04% 1 1.69% 2 0.73% 3 -0.09% 4 1.25% 5 3.61%
2001-1 4.85% 1 0.36% 2 -3.04% 3 1.72% 4 -1.36% 5 2.53%
Avg 1.17% 0.31% -0.20% 0.34% -0.03% 1.58%
 
Averages 0.39% 0.19% -0.04% 0.52% 0.10% 1.16%
%Winners 63% 50% 63% 63% 50% 88%
MDD 5/23/2001 3.04% -- 5/27/1977 2.14% -- 5/21/1973 2.07%
 
Summary for OTC all years 1971 - 2004
Averages -0.28% -0.07% 0.12% 0.20% 0.14% 0.13%
% Winners 42% 47% 62% 59% 62% 62%
 
 
SPX Presidential Year 1
  Day5 Day4 Day3 Day2 Day1 Totals
1973-1 -1.09% 1 0.83% 2 0.47% 3 2.95% 4 0.75% 5 3.91%
1977-1 -1.31% 1 -0.49% 2 -0.92% 3 0.25% 4 -0.76% 5 -3.23%
1981-1 0.28% 1 -0.34% 2 -0.07% 3 -0.19% 4 -0.32% 5 -0.64%
 
1985-1 1.23% 1 -0.04% 2 -0.57% 3 -0.51% 4 0.37% 5 0.47%
1989-1 0.23% 1 -1.14% 2 0.26% 3 0.01% 4 0.76% 5 0.12%
1993-1 0.48% 1 0.19% 2 1.02% 3 -0.23% 4 -0.49% 5 0.98%
1997-1 0.42% 1 1.01% 2 -0.27% 3 -0.44% 4 1.36% 5 2.08%
2001-1 1.62% 1 -0.26% 2 -1.55% 3 0.32% 4 -1.18% 5 -1.06%
Avg 0.80% -0.05% -0.22% -0.17% 0.16% 0.52%
 
Averages 0.23% -0.03% -0.20% 0.27% 0.06% 0.33%
%Winners 75% 38% 38% 50% 50% 63%
MDD 5/27/1977 3.20% -- 5/25/2001 2.66% -- 5/27/1957 1.16%
 
Summrary for SPX all years 1971 - 2004
Averages -0.10% -0.04% 0.01% 0.07% 0.15% 0.08%
% Winners 53% 50% 56% 50% 59% 59%

The times when I am most confident are also the times that I am usually wrong.

That said, next week appears to have everything going for it.

I expect the major indices to be higher on Friday May 27 than they were on Friday May 20.

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