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Technical Market Report

The good news is:
• Downside volume and new lows have declined dramatically in the past two weeks.

Short term

New lows build as prices decline going into market bottoms. When a bottom has been reached the number of new lows decline dramatically indicating risk has diminished sharply.

The chart below covers the past year showing the NASDAQ composite (OTC) in red and a 10% trend (19 day EMA) of NASDAQ new lows on an inverted Y axis in blue (the Y axis is inverted to make the chart easier to read, up is good).

The indicator has been moving sharply upward for the past 6 trading days. NASDAQ new lows peaked at 136 on May 24 and have fallen to an encouraging low of 29 on Friday.

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 0 the SI falls.

The chart below shows the OTC in red and SI's calculated from NASDAQ advancing issues - declining issues (AD), new highs - new lows (HL) and upside volume - downside volume (UD).

Last week all of the SI's turned upward.

Seasonality

Next week is the week prior to the 2nd Friday in June during the 2nd year of the Presidential cycle.

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

Measured by the OTC the week has only been up once in 1978 during the 2nd year of the Presidential Cycle and 1978 was a seasonal anomaly in many ways.

Records get broken, last week I pointed out the OTC had never been down on the 2nd trading day of June during the 2nd year of the Presidential Cycle. Friday the OTC fell 0.02% breaking that perfect record.

You can get more information about the Presidential Cycle at: http://alphaim.net/newsletter.html select Alpha Research Reports

Report for the week before the 2nd Friday during June
The number following the year is the position in the presidential cycle.
Daily returns from Monday to 2nd Friday.

OTC Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1966-2 0.25% -0.52% -0.63% 0.00% 0.51% -0.39%
1970-2 -2.19% -0.49% 1.17% 0.13% -1.12% -2.50%
1974-2 0.25% -0.69% -0.29% 0.17% -0.58% -1.14%
1978-2 0.88% 0.61% 0.20% 0.72% 0.34% 2.76%
1982-2 -0.56% -0.32% -1.35% 0.25% 1.27% -0.71%
Avg -0.27% -0.28% -0.18% 0.32% 0.09% -0.39%
 
1986-2 -1.38% -0.48% 0.66% 0.28% 0.77% -0.15%
1990-2 0.75% -0.21% 0.08% -0.19% -0.69% -0.27%
1994-2 0.14% -0.56% -1.29% -0.12% 0.74% -1.09%
1998-2 0.27% 0.73% -1.53% -1.33% -0.27% -2.12%
2002-2 -0.31% -2.19% 1.47% -1.47% 0.53% -1.97%
Avg -0.10% -0.54% -0.12% -0.57% 0.21% -1.12%
 
OTC summary for Presidential Year 2 1966 - 2002
Avg -0.19% -0.41% -0.15% -0.17% 0.15% -0.76%
Win% 60% 20% 50% 56% 60% 10%
 
OTC summary for all years 1963 - 2005
Avg -0.13% -0.21% 0.11% 0.03% 0.06% -0.15%
Win% 51% 30% 60% 67% 63% 40%
 
SPX Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1930-2 -2.82% 2.82% -3.52% -0.32% 0.59% -3.26%
1934-2 1.50% 2.42% 0.21% -0.31% 4.74% 8.56%
1938-2 0.93% -0.41% 0.31% 2.16% -1.41% 1.58%
1942-2 0.83% -0.94% -0.60% 0.36% -0.60% -0.94%
 
1946-2 0.16% -1.06% 0.21% 0.59% -0.05% -0.15%
1950-2 -1.01% 1.51% 0.26% 1.11% 0.63% 2.50%
1954-2 -0.38% -2.24% -0.67% 0.67% 0.85% -1.77%
1958-2 -0.16% -0.20% 0.02% 0.58% 0.60% 0.85%
1962-2 -3.55% 0.52% 1.42% 0.02% 0.09% -1.50%
Avg -0.99% -0.30% 0.25% 0.59% 0.42% -0.02%
 
1966-2 -0.74% -0.69% 0.12% 0.67% 1.10% 0.45%
1970-2 0.16% -0.05% -1.01% -1.36% -0.32% -2.59%
1974-2 0.59% -0.88% -0.24% 0.30% -1.13% -1.35%
1978-2 1.84% 0.37% -0.20% 0.09% -0.28% 1.83%
1982-2 0.03% -0.44% -0.58% 0.57% 1.49% 1.05%
Avg 0.38% -0.34% -0.38% 0.05% 0.17% -0.12%
 
1986-2 -2.32% -0.16% 0.65% 0.15% 1.76% 0.07%
1990-2 1.17% -0.21% -0.46% -0.50% -1.22% -1.22%
1994-2 -0.27% -0.15% -0.25% 0.18% 0.18% -0.32%
1998-2 0.16% 0.24% -0.55% -1.59% 0.38% -1.35%
2002-2 0.31% -1.66% 0.66% -1.05% -0.23% -1.97%
Avg -0.19% -0.39% 0.01% -0.56% 0.17% -0.96%
 
SPX summary for Presidential year 2 1930 - 2002
Avg -0.19% -0.06% -0.22% 0.12% 0.38% 0.02%
Win% 58% 32% 47% 68% 58% 42%
 
SPX summary for all years 1928 - 2005
Avg -0.21% 0.10% 0.10% 0.10% 0.28% 0.35%
Win% 44% 50% 57% 59% 59% 51%

Conclusion

The rally of the past 2 weeks has been encouraging, but very closely aligned with the typical seasonal pattern which turns downward next week.

I expect the major indices to be lower on Friday June 9 than they were on Friday June 2.

This report is free to anyone who wants it, so please tell your friends. They can sign up at: http://alphaim.net/signup.html. If it is not for you, reply with REMOVE in the subject line.

 

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