Technical Watch Cumulative Charts

Cumulative Data
Week Ending 10/15/04

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.

A near term pause is now finally underway, and where the final pieces of an important price bottom will more than likely be the direct result once the market has had a chance to catch its collective breath and sentiment becomes more attuned to what such important price bottoms should look and feel like.

The NYSE cumulative advance/decline volume continues to take a pause in its previous upward direction, and has moved down and through both the 20 day and the 40 day EMA. This action has now turned the 10% trend (20 day EMA) lower for the first time since the August bottom. The next technical expectation would be for the volume line to move back to or towards the 20 day EMA where near term resistance should be found before later retesting the bottom seen this past Thursday. The longevity of this pullback will now be most directly related to how the volume line reacts over the next week or so - where a break below the late September lows and through the 200 day EMA (1% trend) would imply a pause of greater than two to three weeks, and where holding this same level would more than likely suggest that any price corrections from this juncture will be able to maintain more of a sideways price movement for this same shorter term period of time.

The continued weakness in the A/D volume has finally pulled the NYSE cumulative A/D breadth line down with it...where it found initial support at its 10% trend (20 day EMA) and then bounced higher on Friday. This same bounce point also came where the previous top in mid September is noted on the chart which provided additional technical support to the pattern. With the 5% trend (40 day EMA) now tracking the late September low point, any further breadth deterioration from this juncture should find ultimate support at or near this same area with any break below the 10% trend.

Having had momentum resistance at the +1000 level, and putting in a divergent double top with price, the NYSE McClellan Summation Index is now not only testing the lower range of its resistance zone, but is also testing the rising bottoms line that can be drawn between the May and August lows. With both the amount of time in which the MCSUM has remained above the zero line, along with the shorter term amount of time in which this indicator has been able to maintain such lofty levels by moving sideways, a more pronounced unwinding of these extremes should now be the near term expectation from where a better attempt for price to actually breakout of this years trading range can find better success.

The NYSE McClellan Oscillator has now broken to the downside of the symmetrical triangle noted on the chart. This breakdown will allow the MCSUM to move to or towards its zero line to relieve the "overbought" condition that has continued to task this exchange over the last 4 weeks. At the same time, the breakdown out of this same triangle produced a rally failure for the New York Composite Index, and it's now back within the sideways trading range between the May lows and the June highs shown on the chart. This same trendline break in the MCO will now allow another potential retest of the May and August price bottoms, and if broken, all that would important is that a higher low in the MCO be maintained than that of the May low point to provide greater divergent strength that would evidently be needed for price to eventually catapult higher.

The cumulative TICK has now flattened out with last weeks pullback, but like the end of September, continues to maintain a bullish chart configuration within the overall longer term uptrend.

The NYSE cumulative new highs/new lows chart also flatlined this past week suggesting that the majority of the price declines seen in the major averages at this particular juncture have been in a small percentage of stocks and not broadly based.

Bottom Line: Current liquidity remains quite high on the NYSE, with any further price pullbacks looked upon as buying opportunities dependent on individual chart merit. However, appropriate discipline in trading with the use of stops on any or all positions is now highly recommended for the short term as this exchange goes about its business of bringing better parity between buyers and sellers.

The NASDAQ cumulative advance/decline volume has continued to maintain its bullish constructive pattern both with respect to bottoms remaining above bottoms and its EMA configuration. It will continue to be important that with any short term corrective action seen in the overall marketplace that this exchange remain more buoyant, if not lead, during this same time period.

The NASDAQ cumulative A/D breadth chart is once again below both its shorter term "trendlines", but so far has remained above the late September low point. With bullish divergence now showing up between the cumulative A/D volume and A/D breadth, along with this current poke below these same EMA's, this should lead to a change in leadership within the marketplace overall, and where the NASDAQ exchange should now begin to receive any near term money flow that might be available for investment.

After tracing an inverted ledge, and then finding gap resistance as shown on the chart, the NASDAQ MCSUM has now turned lower after an extended move up from the August bottoms. The next technical expectation would be for a retest of the zero line with ultimate support coming at the gap break to the upside that was seen in early September at the -200 level.

Price action of the NASDAQ Composite Index has now snapped back to not only the intermediate term breakout line from January, but is also resting on the intersection of both this same breakout line and the rising bottoms line that has been controlling the pattern since the August lows. If price is able to remain steady while the internals of this exchange remain firm as to any further deterioration that might be seen over the next couple of weeks, this should be enough of a constructive foundation in which this exchange's stocks can then rally importantly.

After tracing bear divergence with price, the NASDAQ McClellan Oscillator has now broken below the divergent lows line suggesting that a pause in the upward progress is now underway. The near term objective would be for the MCO to move back to or towards both the zero line and the now broken divergent lows line where a retest of the lows just seen would be the most likely outcome before any new rally phase attempt is actually seen.

The cumulative TICKQ is once again testing its 5% trend but at higher levels than that of the previous lows seen in late September. Any continuing short term firmness from this juncture, accompanied by further weakness in the NYSE, would then suggest that money is moving out of stocks of value and into those of growth which would be more in synch with important overall price advances which can, in fact, be sustained.

Like its NYSE counterpart, the NASDAQ cumulative new highs/new lows has also flatlined this past week, but remains in a bullish intermediate term configuration.

Bottom Line: The NASDAQ exchange is now gaining strength compared to the NYSE and AMEX marketplaces. Continued firmness in this exchange will be needed in order for the marketplace overall to rally importantly, and as long as this strength continues relative to the NYSE and AMEX, price pullbacks should be looked upon as buying opportunities dependent on individual chart merit and sector leadership.

The AMEX cumulative advance/decline charts were in lock step with each other last week - with both volume and breadth moving down and then through their 20 day EMA's (10% trend) and then snapping back to these same "trendlines" on Friday. The bigger picture continues to maintain a bullish structure, and with the flatline action of the AMEX cumulative new highs/new lows, this current market pullback is probably more related to the energy sector's sell off than anything more broadly based. Because of this, any additional price pullbacks from this juncture should be looked upon as buying opportunities dependent on individual chart merit.

Conclusions: The marketplace is finally taking the long awaited pause that's been expected for the last 3 to 4 weeks. At this juncture, the pullback in the internals seems to be quite orderly while the movements of key price averages now starting to generate the kind of extreme pessimisim that will be needed to put the final constructive puzzle pieces in place for a bullish price breakout to finally occur later on. In the case of the Dow Industrials, an index of only 30 weighted stocks, it has been only a small minority that make up this index that have generated the larger negative price action over the last 3 weeks. One example of this was last Thursday's 108 point decline where 60 of those points were attributed to AIG Insurance alone, with General Motors making up another 40 of these same total Dow points.

One cautionary near term note is the lack of sector rotation seen last Wednesday and Thursday, but this could be attributed to October options expiration that took place on Friday. It will be important that with any further internal and/or price deterioration that money continue to rotate within the marketplace and not leave the market as witnessed by this same lack of rotation and what the cumulative TICK and new highs/new lows charts visually represent with their recent flatline action.

With all of the bearish technical and cyclical items now out of the way, and fully discounting any surprises that might occur, we are now only left with how oil and the election are going to affect investor committments. On the energy side, all maximum upside price objectives have now been met on a technical basis, and we are now very overbought and in need of a rest if not a correction. In anticipation of this topping phase, energy related stocks starting to sell off last week, while margin requirements for crude oil were raised this past Thursday which, in itself, usually leads to important price tops in the not too distant future. This would then leave us with the political situation to sort out, and this will probably be the near term excuse used for the market to continue to clean out the excesses that have been generated from the August lows. In this respect, as long as the internals remain buoyant during this final phase of construction, and once the outcome of November 2nd is known by one and all, the marketplace will then know what it will be dealing with moving forward, and a price breakout to the upside will occur no matter who is finally elected.

And it will be from this next rally phase that will indeed set the tone for the marketplace for the next 6 to 9 months, and where the first pieces of any future longer term bearish reversals will more than likely begin to assimilate.

The above charts are courtesy of StockCharts.com

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