Technical Watch Cumulative Charts

Cumulative Data
Week Ending 10/8/04

"The constructive behavior of the internals over the last seven weeks continues to support that the eventual price breakout of the trading range traced out over the last nine months will be to the upside once the final pieces of this foundational process are concluded. Besides what has been noted here with this weeks comments, these final pieces will be more with respect to the sentiment that will be needed to fully complete this bullish resolution, and this will probably happen with the nesting of the two year harmonic bottom of the four year cycle from the October 2002 price lows which, in itself, should be able to produce these same bearish sentiment extremes in areas such as put/call ratios, the Trading Index, Rydex ratios, and polling data such as the Fearless Forecasters."

An important week coming up where a long awaited pullback is still to be expected, but where the marketplace could also produce a very dramatic breakout price rally as well.

The cumulative NYSE advance/decline volume line has now moved above the late June high water mark, and has taken a near term pause. Any further near term pullbacks should be contained by the 40 day EMA (5% trend) from where a test of the highs of the March/April period should be the next technical objective if successful.

The cumulative NYSE advance/decline breadth data continues to move in all time high territory with very little pullback being seen over the last two weeks. If the A/D volume can make any additional positive headway over the near term, this should allow the New York Composite Index to move to new recovery highs in the process.

The current strength of the A/D breadth line can be seen with the current pattern of the NYSE McClellan Summation Index which has been moving sideways in what would normally be an over extended marketplace. With the MCSUM at such "overbought" levels, and still being able to maintain this kind of consistent money flow in the process at these same lofty levels, this would suggest that downside price risk is minimal, and any near term pullbacks should be quickly recovered. And as long as the MCSUM remains at these same levels, any whipsaw movements below and then above the zero line on the McClellan Oscillator would more than likely lead to surprisingly explosive price moves in this direction of least resistance as we saw on October 1st. Furthermore, any breakout above the MCSUM resistance zone shown on the chart would be a highly bullish event for the intermediate term of market.

While the MCSUM continues to maintain these lofty levels, the NYSE Composite Index price chart appears to be technically pulling back to or towards the breakout area shown on the chart. If price is able to maintain above the 6600 level, and then turns up with the MCSUM, it will then become highly likely that the price highs of this past spring will not only be challenged - but more than likely exceeded...with the first hurdle the measuring objective of 6975 generated last week, and then the all time highs of 7208 made back in September of 2000.

This now leads us to the McClellan Oscillator itself which is now moving into the apex of the triangle shown below. When in the course of technically analyzing the markets, one will see these triangular formations of indecisiveness as usually leading to robust moves once the pattern breaks out of this confined zone of trading. With bottoms above bottoms controlling the pattern on an intermediate term basis, one would expect the breakout to be to the upside. If this were to happen, this would then set off the series of events described previously in this section as it applies to both the MCSUM and price. However, we also know that the MCO has been above the zero line for most of the last two months which, on a historical basis, is an extended period of time and begs for relief by moving back below the zero line for several weeks to provide internal balance. Taken all together then, we shouldn't be surprised if we do get a more extended pause to the NYSE A/D line near term, but we must also be aware of the continued unabated strength of money flow that the market currently enjoys as well.

Both the cumulative TICK and the NYSE cumulative new highs/new lows continue to move higher and maintain their bullish constructive behavior.

Bottom Line: The NYSE continues to be a highly liquid exchange, with any price pullbacks continuing to be looked upon as buying opportunities.

After finding triple support at the junction of its 20 day, 40 day, and 200 day EMA's, the NASDAQ cumulative A/D volume line continued to move higher. These same "trendlines" are also in a bullish configuration for the first time since the late June topping period. This is a good first step but not only will it be important that this data challenge this same June high, but it will also be important that A/D breadth continue its positive base building as well for prices of the NASDAQ Composite Index to continue to move to new recovery highs of the price correction of the first 8 months of 2004.

Steady as she goes is probably the best way to describe the NASDAQ cumulative A/D breadth line where a bullish crossover of the shorter term 20 day EMA (10% trend) above the intermediate term 40 day EMA (5% trend) took place on October 1st. This crossover provided the best rally in the NASDAQ Composite Index in 3 months. Currently, snapback action is underway to test this "on your mark" EMA configuration where if this exchange is going to join the NYSE and AMEX in their internal buoyancy will need to be successful. And if successful, A/D breadth of this exchange should then move quite quickly to challenge its 1% trend (200 day EMA).

After finding support at the zero line two weeks ago, the NASDAQ MCSUM has moved lethargically to the +172 level. Some caution is now warranted because:

1) The NASDAQ MCSUM has now moved over 1100 data points since the August lows which is big move in such a small period of time and

2) The snapback test to the zero line traced out an inverted ledge pattern which suggests that this recent move from the zero line could be a final one for this intermediate time period.

In other words, it's "show me" time for this exchange - and with the NYSE MCSUM over extended - it is in this area of analysis where the odds are high that an overall rest of the work done over the last two months should be expected. But also keep in mind that both Summation Index' are now positive, so any short positions should be played as shorter term and not longer term positions.

Like the New York Composite Index, the NASDAQ Composite Index has also broken above its declining tops line and is now in the process of snapping back to or towards this same breakout line. And like the NASDAQ cumulative A/D volume, finding support at this same line will then allow the price pattern to then work its way back up to challenge the highs of late June.

The NASDAQ McClellan Oscillator continues to move above the divergent lows support line drawn on the chart below.A break below this same line would then suggest price softness on this exchange for at least the rest of October. However, finding support at this line again would be highly constructive and could generate a robust rally during this same time period.

The cumulative TICKQ continues to support a bullish pattern configuration and generated new all time highs last week. The NASDAQ cumulative new highs/new lows is now in a bullish pattern configuration as of Friday's close. Combining this information with what the cumulative A/D volume has been able to do over the last two weeks, this exchange continues to be the weakest, but it's now gaining enough strength where possible sector rotation out of the value stocks that trade on the NYSE and into the growth stocks that trade on this exchange could very well be the direct result near term as money searches out perceived areas of undervaluation.

Bottom Line: Though continuing to look lethargic, the NASDAQ exchange continues to slowly but surely make good constructive process from the early August lows. But unlike the NYSE, this exchange still needs to prove itself to the investing public. However, with 3 of 4 of the money flow charts now in bullish configurations, the trading environment is now liquid enough to begin looking for opening long positions based on individual chart merit.

The American Stock Exchange price index made new all time highs last week which was confirmed by new all time highs in the cumulative AMEX A/D volume. The AMEX cumulative A/D breadth remains constructive, while the AMEX cumulative new highs/new lows are now in this same bullish configuration. With all three data charts in these current positions, a "Go" buy signal has now been generated where any price pullbacks should be used as entry points dependent on the individual chart merit of those equities that trade on this exchange.

Conclusions: The general marketplace continues to sneak higher without much in the way of fanfare. However, we are over extended on the NYSE, and to a lesser degree the AMEX, where a pause to refresh as it pertains to this area of analysis is warranted. Now whether we get this pause or not becomes the big question near term, but what the NYSE breadth MCSUM is suggesting is that any price pullbacks from this juncture will be shallow and that new price highs will be forthcoming in the not too distant future. The NASDAQ continues to play catch up with its brothers and is now on the plus side of neutral as far as the liquidity factor is concerned - the same liquidity factor that has kept prices in the markets overall from declining in the face of crude oil trading at continuing all time price highs. With crude oil now trading at levels where a sharp correction, or even an intermediate term top is being suggested by the technicals, any price declines in the energy sector moving forward should provide great rewards to those who are long the market at this time. And if it becomes a foregone conclusion as far as who will more than likely win the general election, both with respect to the Presidency as well as Congressional leaders, this could provide the jump start that will allow price to play catch up to what the cumulative charts have been suggesting over the last two months.

The above charts are courtesy of StockCharts.com

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