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Technical Market Report

The good news is:
  • Several indices including the Russell 2000 (R2K), Dow Jones Transportsand S&P Mid cap hit all time highs last week.

Short term

The first chart covers the period from late last September with dashed vertical lines on the 1st trading day of each month.

The NASDAQ new high indicator (OTC NH) is shown in green, it is a 10% trend (19 day EMA) of NASDAQ new highs, the NASDAQ composite (OTC) is shown in red.

The indicator is uncharacteristically flat.

Last week I misreported the value of the indicator as 183 when it was 133. The value is unchanged this week.

Intermediate term

Summation indices (SI) are running totals of oscillator values. When the oscillator is above 0 the SI rises and when it is below 0the SI falls. Direction, not level is where these indicators are most valuable.

The chart below covers the period from late August through last Friday showing the OTC in red and SI's calculated from NASDAQ advancing - declining issues, new highs - new lows and upside - downside volume. Two of the indicators are moving slightly upward while the 3rd is moving slightly downward.

The value of different indicators waxes and wanes, for the past year this one has been a champ.

The next chart shows the OTC in red and momentum of downside volume on an inverted Y axis in blue, it covers the period from late September through last Friday.

This indicator is moving sharply upward.

Seasonality

In the 1970's, Norman Fosback researched end of month, beginning of month seasonality. He found the last day of the previous month and first four days of the new month had unusually high returns. He would add the second to the last day of the ending month and the fifth day of the new month if they were not Mondays. Monday is the second to the last day of the month so it is does not qualify as part of the trade, but the rest of the week does.

The tables below show the daily returns for the period during the 2nd year of the Presidential Cycle. OTC data runs from 1966 - 2002 while S&P 500 (SPX) data runs from 1930 - 2002. There are additional summaries for all years combined 1963 - 2005 for the OTC and 1928 - 2002 for the SPX.

Last 2 days of February and first 3 days of March.
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 2
Day2 Day1 Day1 Day2 Day3 Totals
1966-2 -0.40% 5 0.35% 1 0.22% 2 -0.54% 3 -0.50% 4 -0.88%
1970-2 0.82% 4 -0.16% 5 0.48% 1 0.13% 2 0.47% 3 1.73%
1974-2 1.02% 3 0.31% 4 -0.32% 5 -0.27% 1 0.97% 2 1.71%
1978-2 -0.47% 1 -0.73% 2 0.00% 3 0.24% 4 0.24% 5 -0.73%
1982-2 0.48% 4 -0.01% 5 0.39% 1 0.01% 2 -1.18% 3 -0.31%
Avg 0.29% -0.05% 0.15% -0.09% 0.00% 0.31%
 
1986-2 0.94% 4 0.26% 5 0.07% 1 0.34% 2 -0.32% 3 1.28%
1990-2 0.39% 2 0.76% 3 0.32% 4 0.89% 5 -0.20% 1 2.17%
1994-2 0.56% 5 1.11% 1 -0.49% 2 -0.66% 3 0.14% 4 0.67%
1998-2 0.60% 4 -0.37% 5 -0.67% 1 -0.09% 2 0.15% 3 -0.38%
2002-2 -0.85% 3 -1.16% 4 2.00% 5 2.00% 1 0.37% 2 2.36%
Avg 0.33% 0.12% 0.25% 0.50% 0.03% 1.22%
 
OTC Summary for Presidential Year 2 1966 - 2002
Averages 0.31% 0.04% 0.20% 0.20% 0.01% 0.76%
% Winners 70% 50% 60% 60% 60% 60%
MDD 2/28/2002 2.00% -- 2/28/1978 1.20% -- 3/3/1982 1.18%
 
OTC summary for all years 1963 - 2005
Averages 0.02% 0.00% 0.24% 0.02% 0.29% 0.56%
% Winners 60% 51% 67% 51% 72% 60%
MDD 3/2/2001 4.50% -- 3/2/1999 3.44% -- 3/5/1980 3.22%
 
SPX Presidential Year 2
Day2 Day1 Day1 Day2 Day3 Totals
1930-2 -0.13% 4 0.87% 5 0.73% 6 -0.38% 1 0.77% 2 1.85%
1934-2 1.12% 2 -0.46% 3 -0.37% 4 2.00% 5 0.00% 6 2.29%
1938-2 -0.26% 6 -1.73% 1 1.06% 2 -0.96% 3 -0.97% 4 -2.86%
1942-2 0.82% 5 0.00% 6 -1.40% 1 1.53% 2 -1.05% 3 -0.09%
 
1946-2 2.00% 3 0.76% 4 -0.41% 5 -0.64% 6 -0.06% 1 1.66%
1950-2 0.12% 1 -0.35% 2 0.12% 3 -0.06% 4 0.35% 5 0.18%
1954-2 0.31% 4 0.93% 5 0.38% 1 0.27% 2 0.00% 3 1.89%
1958-2 -0.59% 4 0.39% 5 0.71% 1 0.53% 2 0.29% 3 1.34%
1962-2 0.19% 2 0.10% 3 0.34% 4 -0.06% 5 -0.21% 1 0.36%
Avg 0.41% 0.37% 0.23% 0.01% 0.07% 1.08%
 
1966-2 0.28% 5 0.09% 1 -1.27% 2 -1.01% 3 0.36% 4 -1.56%
1970-2 -0.50% 4 0.67% 5 0.23% 1 0.58% 2 -0.21% 3 0.77%
1974-2 0.42% 3 -0.19% 4 -0.72% 5 0.00% 1 1.87% 2 1.39%
1978-2 -0.87% 1 -0.78% 2 0.17% 3 0.15% 4 0.15% 5 -1.18%
1982-2 -0.23% 4 -0.09% 5 0.18% 1 -0.56% 2 -1.56% 3 -2.26%
Avg -0.18% -0.06% -0.28% -0.17% 0.12% -0.57%
 
1986-2 1.22% 4 0.07% 5 -0.66% 1 -0.46% 2 -0.02% 3 0.14%
1990-2 0.48% 2 0.49% 3 0.26% 4 0.84% 5 -0.54% 1 1.54%
1994-2 0.39% 5 0.23% 1 -0.58% 2 0.08% 3 -0.39% 4 -0.27%
1998-2 0.56% 4 0.06% 5 -0.15% 1 0.41% 2 -0.45% 3 0.42%
2002-2 0.05% 3 -0.28% 4 2.00% 5 1.95% 1 -0.67% 2 3.04%
Avg 0.54% 0.11% 0.17% 0.56% -0.41% 0.98%
 
SPX summary for Presidential Year 2 1930 - 2002
Averages 0.28% 0.04% 0.03% 0.22% -0.12% 0.46%
% Winners 68% 58% 58% 53% 32% 68%
MDD 3/3/1938 2.85% -- 3/2/1966 2.27% -- 3/3/1982 2.25%
 
SPX summary for all years 1928 - 2005
Averages 0.02% 0.12% 0.23% 0.15% 0.18% 0.67%
% Winners 56% 58% 64% 57% 63% 72%
MDD 3/4/1931 4.29% -- 3/5/1968 3.10% -- 3/3/1938 2.85%

Conclusion

Many of the indicators are directionless, but a few with good recent records are pointing upward. There is also a modestly positive seasonal bias to next week.

I expect the major indices to be higher on Friday March 3 than they were on Friday February 24.

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