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Technical Market Report

The good news is:
 • Most of the indicators held up well last week in spite of themodest "soft patch" in prices.

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.

Accutrack is above the 0 line and climbing, indicating the R2K is continuing to outperform the SPX.

The NASDAQ new high indicator (NH) is a 10% trend (19 day EMA) of NASDAQ new highs. NH indicates the short term trend. In the chart below, the NASDAQ composite (OTC) is shown in red and NH is shown in green. This past week the upward movement of NH stalled.

The NASDAQ new low indicator (NL) is a 10% trend (19 day EMA) of NASDAQ new lows plotted on an inverted Y axis so the indicator moves upward when new lows are diminishing. NL is best at indicating bottoms, however nothing really bad happens while NL is heading upward which it is doing now.

Index futures and options as well as stock options expire the 3rd Friday of June. This condition occurs quarterly and is often called triple witching.

In the mid 1980's index arbitrage (program trading) became popular as a means of exploiting the differences between the futures and cash markets. Futures expire quarterly and the value of the futures must be equal to that of the cash market at expiration so these positions would be unwound in the last few minutes on Friday. The unwinding was blamed for high volatility on futures expiration Friday and rules were put in place requiring the positions to be unwound earlier and more gradually to minimize volatility.

The tables below show the week prior to the 3rd Friday of June during the 1st year of the presidential cycle with summaries for both the 1st year of the presidential cycle and all years.

The tables cover 1963 - 2004 for the OTC and 1928 - 2004 for the SPX.

The behavior of the indices over all periods is remarkably similar. During the 1st year of the presidential cycle both indices have had gains about 40% of the time. Over all years both indices have gains about 50% of the time. Over all periods the average return has been a loss for both indices.

Report for the week before witching Friday during Jun
The number following the year is the position in the presidential cycle.
Daily returns from Monday to Witching Friday.

OTC Presidential Year 1
Year Mon Tue Wed Thur Fri Totals
1965-1 0.38% -1.96% 1.05% 0.72% 0.65% 0.85%
1969-1 -0.11% -0.65% -0.86% -0.70% -0.60% -2.91%
1973-1 -0.66% 1.70% -0.44% -0.74% -1.26% -1.39%
1977-1 0.22% 0.43% -0.03% 0.56% 0.40% 1.58%
1981-1 0.09% -1.07% 0.01% -0.86% 0.39% -1.44%
1985-1 -0.20% 0.19% 0.08% -0.27% 0.47% 0.27%
1989-1 -0.06% -0.59% -0.02% -0.79% 0.02% -1.42%
1993-1 0.46% 0.13% -0.16% -0.04% -0.91% -0.52%
1997-1 0.63% 0.78% -0.74% 1.03% 0.00% 1.69%
2001-1 -2.00% -0.04% -2.23% -3.66% -0.77% -8.69%
Avg -0.12% -0.11% -0.33% -0.47% -0.18% -1.20%
Win% 50% 50% 30% 30% 56% 40%
 
OTC Averages for all years 1963 - 2004
Avg -0.12% 0.08% 0.05% -0.17% 0.01% -0.14%
Win% 43% 60% 63% 41% 59% 52%
 
SPX Presidential Year 1
Year Mon Tue Wed Thur Fri Totals
1929-1 1.38% 0.04% -0.38% 0.57% 0.57% 2.18%
1933-1 3.81% -2.94% -0.95% -2.00% 0.72% -1.35%
1937-1 -2.50% 0.92% -1.04% 1.38% 0.78% -0.46%
1941-1 -0.20% 0.82% 0.10% -0.20% -1.21% -0.70%
1945-1 -0.33% 0.20% 0.47% 0.40% 0.33% 1.07%
Avg 0.43% -0.19% -0.36% 0.03% 0.24% 0.15%
 
1949-1 -1.88% 0.66% 1.91% -0.36% 0.14% 0.47%
1953-1 -0.84% -0.30% 1.27% -0.04% 0.00% 0.10%
1957-1 0.19% -0.41% -0.67% -0.61% -0.59% -2.09%
1961-1 -0.77% -0.53% 0.27% -0.44% -0.78% -2.24%
1965-1 -1.30% 0.57% 0.84% 0.63% -0.47% 0.27%
Avg -0.92% 0.00% 0.73% -0.16% -0.42% -0.70%
 
1969-1 -0.33% -0.38% -0.14% -0.58% -0.59% -2.02%
1973-1 -0.31% 1.49% -0.64% -1.12% -1.22% -1.79%
1977-1 0.28% 1.13% -0.25% 0.24% 0.12% 1.53%
1981-1 0.09% -1.09% 0.89% -1.26% 0.48% -0.90%
1985-1 -0.30% 0.43% -0.38% 0.05% 1.54% 1.35%
Avg -0.11% 0.32% -0.10% -0.53% 0.07% -0.37%
 
1989-1 -0.14% -0.71% -0.02% -1.16% 0.40% -1.64%
1993-1 0.10% -0.32% 0.26% 0.25% -1.08% -0.80%
1997-1 0.07% 0.06% -0.59% 1.00% 0.08% 0.61%
2001-1 -0.84% 0.12% -1.13% -1.75% -0.45% -4.06%
Avg -0.20% -0.21% -0.37% -0.42% -0.26% -1.47%
 
SPX average for all Presidential Year 1 1929 - 2001
Avg -0.20% -0.01% -0.01% -0.26% -0.07% -0.55%
Win% 37% 58% 42% 42% 56% 42%
 
SPX averages for all years 1928 - 2004
Avg -0.12% 0.14% 0.04% -0.18% -0.02% -0.14%
Win% 52% 61% 50% 42% 57% 52%

After a strong move from the end of April to the 1st of June the market is consolidating. This consolidation coincides with seasonal weakness that continues through next week.

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

Last week the OTC was down slightly and the other major indices were up slightly so I am calling last weeks negative forecast a tie.

This report is free to anyone who wants it, so please tell your friends. If it is not for you, reply with REMOVE in the subject line.

If you are lucky enough to be in Minnesota this summer and would like to attend our FastTrack user group meeting on the 1st Wednesday of the month, let me know and I will put you on the meeting notification list.

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