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Technical Market Report

The good news is:
• When this decline is over the market will be setup for an extend rally.

Short Term

After a bottom has been reached downside volume diminishes quickly.

The chart below is an update of one from last week that 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 chart below is similar to the one above except it shows the 2002 bottom. OTC DV had diminished considerably from its July high (low on the chart) when the price low was reached in early October.

OTC DV suggests we are nowhere near a final bottom.

Intermediate Term

New lows offer the best bottom indicator.

Like downside volume, new lows diminish rapidly when a bottom has been reached.

Until last week new lows were falling off suggesting we may be nearing a bottom. On Friday there were 387 new lows on the NASDAQ which now makes another retest likely after we rally from this current decline.

The chart below covers the past year showing the OTC in blue and a 10% trend (19 day EMA) of NASDAQ new lows (OTC NL) in red. Like OTC DV in the chart above OTC NL has been plotted on an inverted Y axis so decreasing new lows move the indicator upward (up is good).

OTC NL turned sharply downward last week.

Optimists will note the indicator was much higher than it was at the January lows. But the direction is wrong.

Seasonality

Next week includes the 5 trading days prior to the 2nd Friday of March during the 4th year of the Presidential Cycle.

The tables show the daily change of the OTC and S&P 500 (SPX) for the 5 trading days prior to the 2nd Friday in March during the 4th year of the Presidential Cycle. OTC data covers the period from 1964 - 2004 and SPX data from 1956 - 2004. There are summaries for both the 4th year of the Presidential Cycle and all years combined. Prior to 1953 the market traded 6 days a week so that data has been ignored.

Historically returns have been modestly negative over the coming week during the 4th year of the Presidential Cycle. By all other seasonal measures the week has been modestly positive.

Report for the week before the 2nd Friday of March
The number following the year is the position in the presidential cycle.
Daily returns from Monday to 2nd Friday.

OTC Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1964-4 0.61% -0.05% 0.32% -0.24% 0.24% 0.88%
 
1968-4 -0.63% 0.59% -3.92% 1.27% -0.15% -2.84%
1972-4 0.54% -0.04% 0.45% 0.35% -0.23% 1.07%
1976-4 0.56% 0.01% 0.24% 1.12% -0.24% 1.69%
1980-4 -1.67% 0.56% 0.05% 0.24% -0.37% -1.19%
1984-4 -0.66% -0.64% -1.22% 0.20% -0.26% -2.58%
Avg -0.37% 0.10% -0.88% 0.64% -0.25% -0.77%
 
1988-4 0.32% 0.64% 0.89% -0.93% -0.34% 0.58%
1992-4 -0.02% 1.24% -1.01% -0.20% 0.44% 0.45%
1996-4 -0.11% 1.10% -0.46% 0.12% -2.69% -2.04%
2000-4 -0.20% -1.16% 1.02% 3.06% 0.03% 2.74%
2004-4 -1.90% -0.68% -1.55% -1.03% 2.10% -3.06%
Avg -0.38% 0.23% -0.22% 0.20% -0.09% -0.27%
 
OTC summary for Presidential Year 4 1964 - 2004
Avg -0.29% 0.14% -0.47% 0.36% -0.13% -0.39%
Win% 36% 55% 55% 64% 36% 55%
 
OTC summary for all years 1963 - 2007
Avg 0.06% 0.19% -0.01% 0.27% -0.07% 0.44%
Win% 49% 57% 62% 64% 51% 69%
 
SPX Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1956-4 0.55% -0.04% -0.07% 0.24% 1.26% 1.93%
1960-4 -1.01% -1.02% 1.07% -0.39% 0.76% -0.59%
1964-4 0.03% 0.33% 0.46% 0.16% 0.08% 1.06%
 
1968-4 -1.34% -0.23% 1.76% -0.18% -0.08% -0.07%
1972-4 0.77% 0.09% 0.08% -0.02% -0.52% 0.40%
1976-4 1.09% 0.39% 0.36% 0.94% -1.01% 1.77%
1980-4 -0.36% 1.19% -0.84% -1.17% -0.18% -1.37%
1984-4 -0.85% -1.04% -1.08% 0.40% -0.54% -3.10%
Avg -0.14% 0.08% 0.06% 0.00% -0.47% -0.47%
 
1988-4 0.03% 0.77% -0.14% -1.94% 0.42% -0.86%
1992-4 0.19% 0.41% -0.70% -0.03% 0.48% 0.35%
1996-4 1.00% 0.77% -0.58% 0.25% -3.08% -1.64%
2000-4 -1.27% -2.57% 0.82% 2.56% -0.47% -0.93%
2004-4 -0.84% -0.58% -1.46% -1.52% 1.25% -3.15%
Avg -0.18% -0.24% -0.41% -0.14% -0.28% -1.25%
 
SPX summary for Presidential Year 4 1956 - 2004
Avg -0.15% -0.12% -0.03% -0.05% -0.13% -0.48%
Win% 54% 54% 46% 46% 46% 38%
 
SPX summary for all years 1953 - 2007
Avg 0.01% 0.09% 0.06% 0.12% -0.05% 0.23%
Win% 56% 55% 55% 59% 44% 60%

Conclusion

The market is over sold so we are due for a rally, but, there are no signs of a bottom and seasonally the strongest part of March is over.

I expect the major indices to be lower on Friday March 14 than they were on Friday March 7.

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

Gordon Harms produces a power point for our local monthly timing group meetings. You can get a copy of that at: http://www.stockmarket-ta.com/.

 

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