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Technical Market Report

The good news is:
 • The NASDAQ composite (OTC) and S&P 500 (SPX) closed at multi yearhighs on Friday. By itself, that defines a bull market.

Short term

The NASDAQ new low indicator (OTC NL) is a 10% trend (19 day EMA) of NASDAQ new lows. OTC NL is plotted on an inverted Y axis so that when new lows are increasing the indicator moves downward and when new lows are decreasing the indicator moves upward (up is good). OTC NL is the best indicator I know of for identifying market bottoms.

In the chart below the OTC is shown in red and OTC NL in blue vertical dashed lines are drawn at the 1st trading day of each month.

This indicator dipped on Wednesday then recovered to its Tuesday high on Friday while the OTC moved to its high for the year. There is cause for concern in that the OTC is at a new high while OTC NL is well below its level during the previous index high in early August.

The next chart shows the OTC in red and the NASDAQ new high indicator (OTC NH) in green. OTC NH is a 10% trend of NASDAQ new highs.

OTC NH fell on both Tuesday and Wednesday then recovered to its previous cycle high on Friday.

Like OTC NL, OTC NH is well below its early August high.

These are examples of non-confirmations.

Intermediate term

Summation indices (SI) are running totals of oscillator values.

The chart below shows the OTC in red, OTC AD SI calculated from NASDAQ advancing issues - declining issues, OTC HL SI calculated from NASDAQ new highs - new lows and OTC UD SI calculated from NASDAQ upside - downside volume. The direction of SI's make good intermediate term indicators as of Friday they were all moving upward, but the strong upward pattern on two of them was broken last week.

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

The secondaries lead both up and down so AT usually rises and stays above the 0 line during rallies. That has not been the case during this rally which indicates the secondaries have been underperforming and suggests we are looking at a topping formation.

Seasonality

Thanksgiving week has an interesting pattern. The first two days of the week are weak and the last two days are strong with opposite extremes on Monday and Friday.

The tables below show daily performance during the 1st year of the Presidential Cycle. There are summaries for both the 1st year of the Presidential Cycle and all years combined. Data for the OTC covers the period from 1963 - 2004 while S&P 500 (SPX) data runs from 1952 - 2004.

3 days before Thanksgiving and 1 day after. Day1 = the day after.
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
  Day4 Day3 Day2 Day1 Totals
1965-1 -0.09% 1 0.04% 2 -0.02% 3 0.47% 5 0.40%
1969-1 -0.55% 1 -1.24% 2 0.05% 3 -0.11% 5 -1.86%
1973-1 -2.35% 1 0.00% 2 -2.44% 3 0.77% 5 -4.03%
1977-1 0.13% 1 0.57% 2 0.79% 3 0.57% 5 2.05%
1981-1 -0.30% 1 0.52% 2 0.49% 3 0.50% 5 1.22%
Avg -0.63% -0.02% -0.23% 0.44% -0.44%
 
1985-1 -0.33% 1 0.24% 2 0.81% 3 0.30% 5 1.01%
1989-1 -0.22% 1 -0.34% 2 0.22% 3 0.33% 5 -0.02%
1993-1 -1.79% 1 1.18% 2 0.85% 3 0.22% 5 0.47%
1997-1 -2.09% 1 0.13% 2 0.35% 3 0.38% 5 -1.23%
2001-1 1.89% 1 -2.79% 2 -0.29% 3 1.50% 5 0.31%
Avg -0.51% -0.32% 0.39% 0.55% 0.11%
 
OTC summary for Presidential year 1 1965 - 2001
Averages -0.57% -0.17% 0.08% 0.49% -0.17%
%Winners 20% 60% 70% 90% 60%
MDD 11/21/1973 4.73% -- 11/21/2001 3.07% -- 11/24/1997 2.09%
 
OTC summary for all years 1963 - 2004
Averages -0.26% -0.21% 0.31% 0.56% 0.41%
% Winners 43% 51% 76% 86% 64%
 
SPX Presidential Year 1
  Day4 Day3 Day2 Day1 Totals
1953-1 -0.33% 1 0.57% 2 0.08% 3 0.57% 5 0.90%
1957-1 0.76% 1 -2.65% 2 2.89% 3 1.14% 5 2.14%
1961-1 0.14% 1 0.08% 2 -0.11% 3 0.20% 5 0.31%
 
1965-1 -0.65% 1 0.15% 2 0.17% 3 0.10% 5 -0.23%
1969-1 -1.15% 1 -0.32% 2 0.36% 3 0.58% 5 -0.53%
1973-1 -3.05% 1 -2.04% 2 1.11% 3 -0.32% 5 -4.29%
1977-1 -0.08% 1 0.88% 2 0.42% 3 0.21% 5 1.42%
1981-1 -0.09% 1 1.57% 2 0.44% 3 0.84% 5 2.76%
Avg -1.00% 0.05% 0.50% 0.28% -0.17%
 
1985-1 -0.58% 1 0.16% 2 0.93% 3 -0.18% 5 0.33%
1989-1 -0.66% 1 0.07% 2 0.68% 3 0.60% 5 0.69%
1993-1 -0.75% 1 0.41% 2 0.29% 3 0.15% 5 0.10%
1997-1 -1.70% 1 0.44% 2 0.09% 3 0.40% 5 -0.78%
2001-1 1.09% 1 -0.73% 2 -0.49% 3 1.17% 5 1.04%
Avg -0.52% 0.07% 0.30% 0.43% 0.28%
 
SPX summary for Presidential year 1 1953 - 2001
Averages -0.54% -0.11% 0.53% 0.42% 0.30%
%Winners 23% 69% 85% 85% 69%
MDD 11/20/1973 5.03% -- 11/26/1957 2.65% -- 11/24/1997 1.70%
 
SPX summary for all years 1952 -2004
Averages -0.25% 0.10% 0.36% 0.42% 0.63%
% Winners 43% 58% 79% 79% 70%

Conclusion

Friday's highs were not confirmed by most of the indicators and the secondaries have been underperforming the blue chips. The market appears to be developing a long term topping pattern. Both the OTC and SPX have been up for 3 consecutive days so they are overbought going into Monday which is seasonally very weak. The seasonal pattern indicates after Tuesday, the sellers take the rest of the week off. Because the market has been very strong, I think the end of the week strength should overcome the beginning of the week weakness.

I expect the major indices to be higher on Friday November 25 than they were on Friday November 18.

Last weeks negative forecast looked pretty good until Thursday when some of the indices rallied to the first of their multi year highs.

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