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Technical Market Report

The good news is:
• Although the market is likely to retest the January lows in the near future, it is unlikely the new low indicators will confirm the retest.

Short Term

The secondaries lead both up and down.

After leading the way up from the January low the secondaries deteriorated relative to the blue chips last week.

The chart below is from FastTrack (fasttrack.net). It covers the past year showing the S&P 500 (SPX) in green, the Russell 2000 (R2K) in red and a FastTrack relative strength indicator called Accutrack (AT) as a histogram in yellow.

AT rises and holds above the 0 line when the R2K is outperforming the SPX. AT rose sharply off the January low to the highest level of the past year, but last week began falling sharply.

Intermediate Term

After a bottom has been reached downside volume diminishes quickly.

The chart below covers the past year showing the NASDAQ composite (OTC) in blue and a 5% trend (39 day EMA) of NASDAQ downside volume (OTC DV) in black. OTC DV has been plotted on an inverted Y axis so decreasing OTC DV moves the indicator upward (up is good).

There was a sharp decrease in OTC DV after the August low, but not following the January low suggesting there will be more downside movement.

The next chart is similar to the one above except it covers the period from October 2001 to October 2002 showing the 2002 bottom.

After the July low OTC DV moved sharply upward and when the final price low came in October, that low was clearly unconfirmed by OTC DV.

The persistently high levels of downside volume suggest there will be more downside price movement.

Seasonality

Next week includes the last 5 trading days in February during the 4th year of the Presidential Cycle.

The tables show the daily change of the OTC and S&P 500 (SPX) for the last 5 trading days in February during the 4th year of the Presidential Cycle. OTC data covers the period from 1964 - 2004 and SPX data from 1928 - 2004. There are summaries for both the 4th year of the Presidential Cycle and all years combined.

Historically the secondaries have had a positive seasonal bias over the coming week during the 4th year of the Presidential Cycle. By all other seasonal measures the week has been flat.

Report for the last 5 days of February.
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 4
  Day5 Day4 Day3 Day2 Day1 Totals
1964-4 0.46% 1 -0.05% 2 -0.05% 3 0.32% 4 -0.27% 5 0.41%
1968-4 0.57% 5 0.48% 1 -0.45% 2 -0.05% 3 0.02% 4 0.57%
1972-4 0.25% 3 0.32% 4 0.67% 5 0.09% 1 0.35% 2 1.68%
1976-4 0.32% 1 0.46% 2 0.39% 3 -0.69% 4 -1.30% 5 -0.83%
1980-4 -1.32% 1 0.34% 2 -0.49% 3 -0.17% 4 0.36% 5 -1.28%
1984-4 -0.83% 4 1.76% 5 1.15% 1 -0.70% 2 0.01% 3 1.39%
Avg -0.20% 0.67% 0.25% -0.30% -0.11% 0.31%
 
1988-4 0.31% 2 0.57% 3 0.13% 4 -0.06% 5 0.98% 1 1.92%
1992-4 -0.77% 1 -0.56% 2 1.77% 3 0.25% 4 -0.08% 5 0.61%
1996-4 0.06% 5 -0.42% 1 -0.62% 2 0.13% 3 -0.68% 4 -1.53%
2000-4 3.84% 3 1.48% 4 -0.59% 5 -0.27% 1 2.60% 2 7.05%
2004-4 -1.49% 1 -0.10% 2 0.87% 3 0.47% 4 -0.14% 5 -0.38%
Avg 0.39% 0.19% 0.31% 0.10% 0.54% 1.53%
 
OTC summary for Presidential Year 4 1964 - 2004
Averages 0.13% 0.39% 0.25% -0.06% 0.17% 0.87%
% Winners 64% 64% 55% 45% 55% 64%
MDD 2/27/1976 1.99% -- 2/28/1980 1.64% -- 2/24/2004 1.59%
 
OTC summary for all years 1963 - 2007
Averages -0.05% 0.10% 0.12% -0.11% -0.02% 0.05%
% Winners 53% 56% 53% 60% 51% 56%
MDD 2/28/2001 6.79% -- 2/27/2007 4.64% -- 2/28/1969 3.77%
 
SPX Presidential Year 4
  Day5 Day4 Day3 Day2 Day1 Totals
1928-4 0.29% 5 0.06% 6 -0.47% 1 0.29% 2 0.58% 3 0.76%
1932-4 2.55% 3 -0.95% 4 -0.12% 5 0.12% 6 -0.72% 1 0.89%
1936-4 -1.84% 2 -0.49% 3 2.37% 4 -0.61% 5 -0.34% 6 -0.91%
1940-4 -0.57% 6 0.00% 1 -0.16% 2 0.08% 3 -0.16% 4 -0.82%
1944-4 0.17% 4 0.00% 5 0.00% 6 0.08% 1 -0.59% 2 -0.34%
Avg 0.12% -0.28% 0.32% -0.01% -0.25% -0.08%
 
1948-4 0.21% 2 0.50% 3 -0.64% 4 -0.36% 5 0.50% 6 0.22%
1952-4 -0.56% 1 -0.34% 2 0.13% 3 0.47% 4 -0.13% 5 -0.43%
1956-4 0.88% 4 0.82% 5 -0.11% 1 0.35% 2 -0.20% 3 1.74%
1960-4 -0.53% 2 -0.36% 3 0.34% 4 0.41% 5 -0.07% 1 -0.21%
1964-4 0.08% 1 0.00% 2 0.24% 3 -0.32% 4 0.23% 5 0.23%
Avg 0.02% 0.12% -0.01% 0.11% 0.07% 0.31%
 
1968-4 -0.38% 5 -0.78% 1 0.39% 2 -0.50% 3 -0.80% 4 -2.07%
1972-4 0.09% 3 0.07% 4 0.69% 5 0.01% 1 0.36% 2 1.21%
1976-4 -0.48% 1 0.41% 2 -0.33% 3 -1.55% 4 -0.40% 5 -2.35%
1980-4 -1.49% 1 0.57% 2 -1.40% 3 -0.03% 4 1.17% 5 -1.18%
1984-4 -0.01% 4 2.09% 5 1.14% 1 -1.56% 2 0.15% 3 1.81%
Avg -0.46% 0.47% 0.10% -0.72% 0.10% -0.52%
 
1988-4 -0.23% 2 -0.22% 3 -1.08% 4 0.34% 5 2.04% 1 0.84%
1992-4 0.20% 1 -0.44% 2 1.19% 3 -0.36% 4 -0.28% 5 0.31%
1996-4 0.03% 5 -1.31% 1 -0.50% 2 -0.39% 3 -0.67% 4 -2.83%
2000-4 0.63% 3 -0.54% 4 -1.48% 5 1.10% 1 1.36% 2 1.07%
2004-4 -0.27% 1 -0.17% 2 0.40% 3 0.11% 4 0.00% 5 0.07%
Avg 0.07% -0.53% -0.29% 0.16% 0.49% -0.10%
 
SPX summary for Presidential Year 4 1928 - 2004
Averages -0.06% -0.05% 0.03% -0.11% 0.10% -0.10%
% Winners 50% 35% 45% 55% 45% 55%
MDD 2/29/1996 2.83% -- 2/27/1976 2.34% -- 2/28/1980 2.34%
 
SPX summary for all years 1928 - 2007
Averages -0.17% -0.10% 0.06% -0.02% 0.11% -0.11%
% Winners 47% 42% 54% 56% 58% 49%
MDD 2/27/1933 7.21% -- 2/26/1934 6.47% -- 2/26/1946 5.14%

Conclusion

The rally stalled last week, the secondaries underperformed the blue chips and new lows increased enough to stall the upward movement of the new low indicators.

I expect the major indices to be lower on Friday February 29 than they were on Friday February 22.

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 blue chip indices were up a little while the secondaries were down a little so I am calling last weeks positive forecast a tie.

 

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