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Technical Market Report

The good news is:
• The weakness that began late last month should end soon, although, there is likely to be one more leg down.

Short Term

New lows dry up quickly after a bottom has been reached.

The first chart is an update of one I showed last week, it covers the past 6 months showing the S&P 500 (SPX) in red and a 10% trend of NYSE new lows (NY NL) in brown. Dashed vertical lines have been drawn on the first trading day of each month and NY NL has been plotted on an inverted Y axis to make the chart easier to read (up is good).

The indicator moved sharply downward on Tuesday and Wednesday last week. It is prudent to wait until the indicator has been moving upward for 5 consecutive days before getting optimistic.

The next chart is similar to the previous one except it shows the NASDAQ composite (OTC) and OTC NL calculated from NASDAQ new lows.

OTC NL has been weaker than NY NL

There were 127 NASDAQ new lows on Tuesday and 149 on Wednesday and 78 and 89 on the NYSE. These numbers are large enough to suggest caution.

Intermediate term

A summation index (SI) is a running total of oscillator values. When the oscillator is positive the SI moves upward and when it is negative the SI moves downward.

The chart below shows the OTC in red and SI's calculated from oscillators of NASDAQ advancing issues - declining issues, new highs - new lows and upside volume - downside volume.

SI's are a measure of the market's internal strength and they are all moving sharply downward.

The next chart covers the past year showing the OTC in red and a NASDAQ downside volume indicator (OTC DV) in blue. OTC DV is a 4% trend (39 day EMA) of NASDAQ downside volume plotted on an inverted Y axis. OTC DV rises quickly after a bottom has been reached and that has not happened yet.

Seasonality

Next week includes the week prior to the 4th Friday of March.

The tables below show OTC data from 1963 - 2003 during the 3rd year of the Presidential Cycle and SPX data beginning with 1955.

Data prior to 1953 has been ignored because the market traded 6 days a week.

The program chokes when Good Friday falls on the 4th Friday of March. That is why there are zeros for every day in 1959 and 1975.

There are summaries for both the 3rd year of the Presidential Cycle and all years combined.

The SPX as had a negative bias over all periods for the week while the OTC has had a slightly positive bias during the 3rd year of the Presidential cycle.

Report for the week before the 4th Friday of March
The number following the year is the position in the presidential cycle.
Daily returns from Monday through the 4th Friday.

OTC Presidential Year 3
Year Mon Tue Wed Thur Fri Totals
1963-3 0.39% -0.29% -0.13% 0.35% 0.06% 0.39%
 
1967-3 0.66% 0.16% 0.69% 0.20% 0.32% 2.04%
1971-3 -0.38% -0.25% -0.39% -0.10% 0.45% -0.66%
1975-3 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
1979-3 0.46% -0.27% 0.50% 0.49% 0.38% 1.57%
1983-3 0.50% 0.45% 0.65% 0.41% 0.19% 2.20%
Avg 0.31% 0.02% 0.36% 0.25% 0.34% 1.29%
 
1987-3 -0.36% 0.02% -0.15% 0.28% -0.42% -0.63%
1991-3 0.00% -0.74% 0.71% -0.32% -0.10% -0.45%
1995-3 0.27% -0.09% -0.08% 0.28% 0.90% 1.27%
1999-3 -1.06% -3.05% 1.83% 2.94% -0.64% 0.02%
2003-3 -3.66% 1.55% -0.26% -0.23% -1.06% -3.66%
Avg -0.96% -0.46% 0.41% 0.59% -0.27% -0.69%
 
OTC summary for Presidential year 3 1963 - 2003
Avg -0.32% -0.25% 0.34% 0.43% 0.01% 0.21%
Win% 50% 40% 50% 70% 60% 60%
 
OTC summary for all years 1963 - 2006
Avg -0.24% -0.19% 0.10% 0.13% 0.08% -0.12%
Win% 47% 42% 50% 61% 53% 55%
 
SPX Presidential Year 3
Year Mon Tue Wed Thur Fri Totals
1955-3 -0.64% 0.61% 1.30% 0.79% 0.08% 2.15%
1959-3 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
1963-3 -0.49% -0.21% 0.73% -0.15% 0.52% 0.40%
 
1967-3 -0.08% 0.04% -0.20% -0.03% -0.55% -0.82%
1971-3 -0.39% -0.34% -0.66% -0.01% 0.34% -1.05%
1975-3 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
1979-3 0.37% -0.55% 0.75% 0.41% -0.07% 0.91%
1983-3 0.86% -0.35% 1.43% 0.37% -0.46% 1.85%
Avg 0.19% -0.30% 0.33% 0.18% -0.18% 0.22%
 
1987-3 1.00% 0.16% -0.42% 0.18% -1.60% -0.67%
1991-3 -0.40% -1.48% 0.36% -0.36% 0.25% -1.64%
1995-3 0.13% -0.22% 0.12% 0.06% 1.01% 1.10%
1999-3 -0.18% -2.69% 0.52% 1.69% -0.56% -1.22%
2003-3 -3.52% 1.22% -0.55% -0.16% -0.58% -3.60%
Avg -0.59% -0.60% 0.01% 0.28% -0.29% -1.20%
 
SPX summary for Presidential Year 3 1955 - 2003
Avg -0.30% -0.35% 0.31% 0.25% -0.15% -0.24%
Win% 36% 36% 64% 55% 45% 45%
 
SPX summary for all years 1953 - 2006
Avg -0.12% -0.02% -0.03% -0.05% -0.08% -0.31%
Win% 38% 47% 43% 43% 49% 36%

The Alpha Fund (APHAX)
The Alpha Fund, which I manage, opened last October.

Last week YTD
APHAX -0.8% +1.9%

For information about the fund go to: http://www.thealphafunds.com/index.htm. The fund now has service class shares available.

Conclusion

Last week new lows came close to their highest levels of this decline which were reached on March 5. Seasonally next week has been weak and there is no evidence the decline is over.

I expect the major indices to be lower on Friday March 23 than they were on Friday March 16.

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's positive forecast based on modest seasonal strength was a miss.

 

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