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Technical Market Report

The good news is:
The Wilshire 5000 (WILSH) and Russell 2000 (R2K) both hit an all time highs last week. While the NASDAQ composite (OTC) and S&P 500 (SPX) hit multi year highs.

Short Term

Volume offers the best short term indicators, but volume falls off sharply around holidays making those indicators difficult to read.

Historically the major indices have been up about 80% of the time on the Friday after Thanksgiving, this year they were all down. The weeks following a down Thanksgiving Fridays have been just about evenly mixed.

Intermediate term

The NASDAQ advance - decline line (OTC ADL) is a running total of daily NASDAQ declining issues subtracted from advancing issues. The OTC ADL has a negative bias so it usually weakens near tops.

The chart below covers the past year showing the OTC in magenta and an indicator showing the percentage of the last 4 trading days the OTC ADL has been up. The indicator hits the top of the chart when the OTC ADL has been up for 4 consecutive days and the bottom of the chart when the OTC ADL has been down for 4 consecutive days.

As the market was approaching its high last April and May the indicator touched the bottom of the chart several times and hit the top of the chart for the last time about one month before the index high. The indicator touched the top of the chart twice in November and has not hit the bottom of the chart since early August.

This indicator suggests we are, at least, several weeks away from a top.

The NASDAQ new low indicator (OTC NL) is a 10% trend (19 day EMA) of NASDAQ new lows plotted on an inverted Y axis to make the chart easier to read (increasing new lows move the indicator downward, up is good).

In the chart below the OTC is plotted in magenta and OTC NL is plotted in blue.

New lows usually begin to increase prior to a cyclical high pushing the indicator downward as the index hits new highs.

The indicator hit a cyclical high last Friday suggesting there is still room to the upside.

Seasonality

In the tables below next week is defined as the last 4 trading days of November and the 1st trading day of December during the 2nd year of the Presidential Cycle.

OTC data covers the period from 1966 - 2002 and SPX data 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 beginning with 1963 for the OTC and 1928 for the SPX.

Historically the OTC has been up 90% of the time during the coming week during the 2nd year of the Presidential Cycle and the SPX 53% of the time. However, SPX performance has been much better since the mid 1950's. Performance during all years has been a little weaker than it has been during the 2nd year of the Presidential Cycle.

Last 4 days of November and first 1 day of December.
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
  Day4 Day3 Day2 Day1 Day1 Totals
1966-2 0.18% 5 0.26% 1 0.86% 2 -0.24% 3 -0.07% 4 0.99%
1970-2 0.28% 2 0.31% 3 0.25% 5 1.34% 1 1.54% 2 3.73%
1974-2 -0.63% 1 1.57% 2 0.24% 3 0.24% 5 -2.05% 1 -0.63%
1978-2 -0.17% 1 -0.32% 2 -1.31% 3 0.53% 4 1.31% 5 0.04%
1982-2 0.76% 3 0.78% 5 -0.11% 1 1.72% 2 1.41% 3 4.55%
Avg 0.08% 0.52% -0.01% 0.72% 0.43% 1.74%
 
1986-2 0.41% 1 0.24% 2 0.34% 3 0.40% 5 -0.47% 1 0.91%
1990-2 1.49% 2 0.29% 3 0.19% 4 0.93% 5 0.63% 1 3.53%
1994-2 0.79% 5 0.43% 1 0.77% 2 -0.15% 3 -1.35% 4 0.49%
1998-2 -0.58% 2 0.88% 3 1.65% 5 -3.31% 1 2.78% 2 1.42%
2002-2 0.90% 1 -2.53% 2 3.01% 3 -0.62% 5 0.41% 1 1.17%
Avg 0.60% -0.14% 1.19% -0.55% 0.40% 1.50%
 
OTC summary for Presidential Year 2 1966 - 2002
Averages 0.34% 0.19% 0.59% 0.08% 0.41% 1.62%
% Winners 70% 80% 80% 60% 60% 90%
MDD 11/30/1998 3.31% -- 11/26/2002 2.53% -- 12/2/1974 2.05%
 
OTC summary for all years 1963 - 2005
Averages 0.13% -0.01% 0.34% -0.10% 0.40% 0.76%
% Winners 58% 65% 70% 67% 67% 74%
MDD 11/30/2000 10.55% -- 12/3/1973 5.48% -- 11/30/1987 3.97%
 
SPX Presidential Year 2
  Day4 Day3 Day2 Day1 Day1 Totals
1930-2 -1.17% 2 -1.42% 3 -1.38% 5 1.16% 6 1.39% 1 -1.43%
1934-2 1.38% 1 -0.95% 2 1.17% 3 0.00% 5 -0.10% 6 1.50%
1938-2 -1.40% 6 -2.14% 1 0.49% 2 2.41% 3 -0.94% 4 -1.58%
1942-2 -0.43% 3 0.32% 5 0.00% 6 -0.54% 1 -0.11% 2 -0.75%
 
1946-2 0.98% 2 0.69% 3 0.89% 5 -0.07% 6 -1.57% 1 0.93%
1950-2 -0.49% 1 -3.07% 2 -0.97% 3 0.72% 4 0.77% 5 -3.05%
1954-2 0.56% 3 0.96% 5 -0.03% 1 -0.87% 2 -0.73% 3 -0.10%
1958-2 -2.60% 1 -0.60% 2 1.72% 3 1.12% 5 0.40% 1 0.04%
1962-2 0.60% 2 0.63% 3 0.47% 4 -0.24% 5 -0.51% 1 0.95%
Avg -0.19% -0.28% 0.42% 0.13% -0.33% -0.25%
 
1966-2 0.80% 5 -0.17% 1 -0.36% 2 0.04% 3 -0.46% 4 -0.16%
1970-2 0.64% 2 0.37% 3 0.99% 5 1.48% 1 0.31% 2 3.78%
1974-2 -0.10% 1 0.93% 2 0.68% 3 0.04% 5 -2.66% 1 -1.11%
1978-2 0.21% 1 -0.88% 2 -1.47% 3 1.01% 4 1.67% 5 0.54%
1982-2 0.71% 3 0.75% 5 -0.50% 1 3.23% 2 0.13% 3 4.32%
Avg 0.45% 0.20% -0.13% 1.16% -0.20% 1.48%
 
1986-2 0.65% 1 0.29% 2 0.24% 3 0.18% 5 -0.07% 1 1.29%
1990-2 0.50% 2 -0.05% 3 -0.48% 4 1.83% 5 0.58% 1 2.39%
1994-2 0.52% 5 0.41% 1 0.22% 2 -0.33% 3 -1.05% 4 -0.22%
1998-2 -0.44% 2 0.33% 3 0.45% 5 -2.41% 1 1.01% 2 -1.05%
2002-2 0.25% 1 -2.10% 2 2.80% 3 -0.27% 5 -0.19% 1 0.49%
Avg 0.30% -0.22% 0.65% -0.20% 0.06% 0.58%
 
SPX summary for Presidential Year 2 1930 - 2002
Averages 0.06% -0.30% 0.26% 0.45% -0.11% 0.36%
% Winners 63% 53% 58% 58% 42% 53%
MDD 11/29/1950 4.49% -- 11/28/1930 3.93% -- 11/28/1938 3.51%
 
SPX summary for all years 1928 - 2005
Averages 0.06% -0.06% 0.00% 0.14% 0.07% 0.21%
% Winners 64% 49% 53% 55% 53% 51%
MDD 11/28/1931 7.09% -- 11/30/1987 6.53% -- 11/29/1950 4.49%

Conclusion

The market is still overbought, but pretty strong technically. For the past 50 years next week has had a positive seasonal bias, but weeks following a down Friday after Thanksgiving have been mixed.

I expect the major indices to be higher on Friday December 1 than they were on Friday November 24.

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.

Last week the major indices were split, the large cap indices were down slightly and the small cap indices were up slightly so I am calling last weeks positive forecast a tie.

 

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