Technical Market Report
The good news is:
• When this current period of weakness ends, the market will be free to rise again.
• Friday produced the most new highs on both exchanges since March 22.
When a bottom has been reached new lows will dry up and so far there has been little evidence of that happening.
The chart below shows the NASDAQ composite (OTC) in red and a 10% trend (19 day EMA) of NASDAQ new lows in blue. The new low indicator (NL) has been plotted on an inverted Y axis so when new lows are decreasing the indicator moves upward and when new lows are increasing the indicator moves downward. The chart begins July 1, 2004 and dashed vertical lines indicate the 1st trading day of each month. You can see how the indicator moved sharply upward after the August low. As of last Friday there has been no suggestion of a bottom from this indicator.
A similar chart using NYSE data is a little more promising.
The S&P 500 is shown in red and NL calculated from NYSE data is shown in brown.
The indicator turned upward after Tuesday's low. There has been a rule of thumb that says conditions are dangerous when new lows exceed 40 for several days. Last Thursday there were 38 new lows on the NYSE, the only day that did not exceed 40.
The secondaries lead both up and down.
The chart below shows the Russell 2000 (R2K) in red, the S&P 500 (SPX) in green and a FastTrack relative strength indicator called Accutrack as a histogram in yellow.
The R2K is modestly underperforming the SPX as it has since early March.
Seasonally, as measured by the OTC since 1963, April has been up 71% of the time making it the best month of the year and that record holds when you look at just the 1st year of the presidential cycle when it has been up 80% of the time. Considering the magnitude of the average move, April is 3rd after January and December.
The chart below shows an average of all April's for the OTC since 1963 in yellow and an average of April's during the 1st year of the presidential cycle in green.
Since the end of February the market has closely followed its average pattern for the 1st year of the presidential cycle. If that pattern holds we should see a low for the month on Tuesday or Thursday.
Over all years since 1928 the SPX has been up 58% of the time placing it at 5th of 12, however, during the 1st year of the presidential cycle it has been up only 47% of the time ranking it 7th of 12.
The next chart is similar to the previous one except the purple line shows an average of all years for the SPX since 1928 while the green line shows the 1st year of the presidential cycle over the same period. According to this chart the low should be on Tuesday.
There is little evidence of a bottom, but the losses diminished last week and seasonally a low for the month is called for next week.
I expect the major indices to be higher on Friday April 8 than they were on Friday April 1.
Last week the indices were mixed with most of the indices finishing less than 1% from where they were the week before so I am calling last weeks positive forecast a tie.