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Technical Market Report

The good news is:
• The S&P mid cap index (MID) hit an all time high Friday.
• Next week is seasonally one of the strongest weeks of the year.

Short Term

Last Wednesday the MID ended its 2nd consecutive string of 8 consecutive up days for the year. You have to go back to April - June 2004 to find a similar performance. Following the late June 2004 string of 8 consecutive up days the index made an intermediate term high about a month later.

What has been defining this market is a lack of sellers.

The chart below covers the past year showing the NASDAQ composite (OTC) in red and a 5% trend (39 day EMA) of volume of NASDAQ advancing issues (OTC UV) in green. There are dashed vertical lines drawn on the 1st trading day of each month and the vertical line is red on the 1st trading day of the year.

OTC UV rose from the lows last summer and peaked with the mid November high. You can ignore the dip in late December as that is a typical seasonal phenomenon. There was a slightly lower high near the late February high in the index, but, since then the OTC UV has been subdued and is near its March lows.

The next chart covers the same period as the one above, but the indicator is a 5% trend of the volume of NASDAQ declining issues (OTC DV). OTC DV is plotted on an inverted Y axis so increasing volume moves the indicator downward (up is good).

Since the early March lows OTC DV has moved sharply upward indicating diminishing OTC DV.

The rally off the March lows has not been from aggressive buying, but a lack of sellers.

Intermediate term

A summation index (SI) is a running total of oscillator values.

The chart below covers the past year showing the OTC in red and SI’s calculated from oscillators of NASDAQ advancing - declining issues (OTC AD SI), new highs - new lows (OTC HL SI) and volume of advancing issues - volume of declining issues (OTC UD SI).

OTC AD SI and OTC UD SI are moving upward while OTC HL SI has turned downward.

Seasonality

Next week is the week prior to options expiration Friday in April during the 3rd year of the Presidential Cycle.

The tables show the NASDAQ composite (OTC) from 1963 - 2003 during the 3rd year of the Presidential Cycle and SPX data beginning with 1955. SPX data prior to 1953 has been omitted because the market traded 6 days a week.

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

On average, next week has been remarkably strong. Since 1963 the OTC has been up 82% of the time while the SPX has only been down once, in 1987, giving it a 92% winning record. Both indices have had an average return in excess of 1% for the week.

Report for the week before the 3rd Friday of April
The number following the year is the position in the presidential cycle.
Daily returns from Monday through 3rd Friday.

OTC Presidential Year 3
Year Mon Tue Wed Thur Fri Totals
1963-3 0.56% 0.31% 0.34% 0.30% 0.30% 1.81%
 
1967-3 0.40% 0.57% 1.23% 0.31% 0.49% 3.01%
1971-3 0.18% -0.57% -0.01% 0.43% 0.64% 0.67%
1975-3 1.34% 0.23% 0.63% 0.33% -0.23% 2.30%
1979-3 0.15% 0.31% 0.36% -0.10% -0.20% 0.52%
1983-3 0.44% -0.34% 1.05% 0.71% 0.60% 2.45%
Avg 0.50% 0.04% 0.65% 0.34% 0.26% 1.79%
 
1987-3 -0.41% 0.20% -0.10% -0.17% -1.15% -1.64%
1991-3 -0.16% 1.18% 0.90% -0.92% -1.07% -0.06%
1995-3 0.66% 0.29% 0.68% 0.48% 0.36% 2.47%
1999-3 -2.00% 2.00% 2.00% 2.00% 1.16% 5.16%
Avg -0.11% 0.10% 0.16% 0.22% 0.03% 0.40%
Win% 51% 53% 68% 64% 59% 68%
 
SPX Presidential Year 3
Year Mon Tue Wed Thur Fri Totals
1955-3 0.82% -0.13% 0.16% 0.10% -0.81% 0.14%
1959-3 0.37% 0.50% 0.44% 0.83% 0.85% 2.99%
1963-3 0.10% 0.33% 0.27% 0.06% -0.09% 0.68%
 
1967-3 0.71% 0.87% 0.09% 0.18% 0.21% 2.05%
1971-3 0.50% -0.38% -0.24% 0.19% 0.47% 0.54%
1975-3 1.69% 0.82% 0.35% 0.75% -1.09% 2.51%
1979-3 0.34% 0.62% 0.29% -0.48% -0.21% 0.57%
1983-3 0.62% -0.64% 1.26% -0.41% 0.23% 1.06%
Avg 0.77% 0.26% 0.35% 0.05% -0.08% 1.35%
 
1987-3 -0.29% 2.00% -2.00% -0.13% -1.85% -2.26%
1991-3 0.21% 1.69% 0.73% -0.51% -1.10% 1.02%
1995-3 0.87% -0.14% 0.10% 0.17% 0.23% 1.22%
1999-3 -2.00% 1.30% 2.00% 1.70% -0.14% 2.85%
2003-3 -0.18% 2.00% 0.84% -0.83% -1.38% 0.45%
Avg -0.28% 1.37% 0.33% 0.08% -0.85% 0.66%
 
SPX summary for Presidential Year 3 1955 - 2003
Avg 0.29% 0.68% 0.33% 0.13% -0.36% 1.06%
Win% 77% 69% 85% 62% 38% 92%
 
SPX summary for all years 1953 - 2006
Avg -0.04% 0.19% 0.03% 0.11% -0.13% 0.15%
Win% 50% 52% 58% 61% 46% 67%

Mutual Fund

Compliance issues demand that I not mention the mutual fund that I manage by name or symbol in this letter.

To see a current chart of the fund go to:
http://finance.yahoo.com/q/bc?s=APHAX&t=3m

For information about the fund go to: http://www.thealphafunds.com/index.htm

The fund now has service class shares available.

Conclusion

Seasonally, next week as been too strong to ignore.

I expect the major indices to be higher on Friday April 20 than they were on Friday April 13.

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 weeks negative forecast was a miss.

 

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