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Technical Market Report

The good news is:
• New lows have been declining for the past two weeks.

Short term

The first chart covers the past 6 months and shows the NASDAQ composite in pink and a 5% trend (39 day EMA) of the volume of NASDAQ issues advancing (OTC UV) in price in green. Vertical dashed lines have been drawn on the 1st trading day of each month. OTC UV peaked in late March and has been ratcheting downward ever since.

The next chart is similar to the first one except the indicator is momentum of OTC UV. The momentum indicator smoothes out most of the wiggles in OTC UV and makes it easier to read. For the past several months the indicator has peaked near the beginning of the month along with prices.

Intermediate term

New lows give us the best bottom indicator because they diminish quickly following a significant low.

The chart below shows the OTC in red and a 10% trend (19 day EMA) of NASDAQ new lows in blue (OTC NL). OTC NL is plotted on an inverted Y axis so increasing new lows move the indicator downward. The indicator hit its low on July 21 and has been moving sharply upward for the past 10 trading days, the most encouraging performance since last November.

Seasonality

Next week includes the five trading days prior to the 2nd Friday in August 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 1954 - 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 beginning with 1963 for the OTC and 1953 for the SPX. I have shortened the SPX reporting period because prior to 1953 the market traded 6 days a week possibly skewing the data because Friday was not the last trading day of the week.

During the 2nd year of the Presidential Cycle the coming week the OTC has been up 50% of the time with an average modest loss while the SPX has been up 62% of the time with a modest gain. Over all years both indexes have been modestly positive.

Report for the week before the 2nd Friday in August
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 0.70% -0.14% 0.44% 0.09% -0.14% 0.95%
 
1970-2 -0.87% -1.71% -0.44% -0.98% -1.28% -5.29%
1974-2 0.39% 1.23% 1.63% -1.42% 0.04% 1.87%
1978-2 0.39% 0.22% 0.88% -0.05% 0.32% 1.76%
1982-2 -1.35% -0.04% -0.34% -0.58% -0.44% -2.75%
1986-2 -1.08% 0.02% -0.55% 0.09% 0.22% -1.29%
Avg -0.51% -0.06% 0.24% -0.59% -0.23% -1.14%
 
1990-2 -4.17% 0.51% 1.41% 1.29% -1.20% -2.17%
1994-2 0.25% 0.30% 0.77% 0.00% 0.47% 1.79%
1998-2 -0.41% -2.53% 1.83% -1.26% -0.68% -3.05%
2002-2 -3.36% 4.44% 1.70% 2.78% -0.79% 4.77%
Avg -1.92% 0.68% 1.43% 0.94% -0.55% 0.33%
 
OTC summary for Presidential Year 2 1966 - 2002
Avg -0.95% 0.23% 0.73% -0.01% -0.35% -0.34%
Win% 40% 60% 70% 44% 40% 50%
 
OTC summary for all years 1963 - 2005
Avg -0.27% 0.08% 0.22% 0.04% 0.02% 0.08%
Win% 42% 56% 64% 64% 49% 60%
 
SPX Presidential Year 2
Year Mon Tue Wed Thur Fri Totals
1954-2 -0.86% 0.83% 1.15% -0.42% 0.42% 1.13%
1958-2 0.95% -0.40% -0.61% 0.65% 0.59% 1.18%
1962-2 -0.64% -0.68% 0.26% -0.07% 0.14% -0.98%
1966-2 -0.30% -0.31% -0.46% -0.11% 0.18% -0.99%
 
1970-2 -1.40% -0.50% -0.53% -0.88% 0.56% -2.74%
1974-2 0.89% 1.55% 2.65% -1.31% -0.87% 2.91%
1978-2 -0.36% 0.44% 0.47% -0.80% 0.29% 0.04%
1982-2 -0.61% -0.23% -0.23% -0.18% 1.40% 0.15%
1986-2 0.46% 0.44% -0.08% 0.08% -0.07% 0.84%
Avg -0.20% 0.34% 0.46% -0.62% 0.26% 0.24%
 
1990-2 -3.02% 0.12% 1.05% 0.47% -1.30% -2.68%
1994-2 0.18% 0.01% 0.52% -0.31% 0.67% 1.06%
1998-2 -0.58% -1.30% 1.42% -0.86% -1.13% -2.45%
2002-2 -3.43% 2.99% 2.00% 3.27% 0.35% 5.19%
Avg -1.71% 0.45% 1.25% 0.64% -0.35% 0.28%
 
SPX summary for Presidential Year 2 1954 - 2002
Avg -0.67% 0.23% 0.59% -0.03% 0.09% 0.20%
Win% 31% 54% 62% 31% 69% 62%
 
SPX summary for all years 1953 - 2005
Avg -0.28% 0.14% 0.18% 0.08% 0.03% 0.14%
Win% 40% 62% 54% 49% 53% 58%

Conclusion

Diminishing new lows make a good case that a cycle low occurred on July 21, but many of the short term momentum indicators are at or near their highs of the past 3 months suggesting a pull back next week. I expect the major indices to be lower on Friday August 11 than they were on Friday August 4.

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.

Most of the major indices were up last week making my seasonally based negative forecast a loss.

 

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