Technical Watch Cumulative Charts

Cumulative Data
Week Ending 10/22/04

"...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."

A price shake out continued this past week with all eyes (and wallets) now turned to what has become the upcoming "global" United States elections to provide additional guidance as to the level of conviction that will needed to finally breakout of the current 8 month trading range...one way or the other.

Because of the continuing importance of cumulative volume in these updates, Technical Watch will now be including the volume McClellan Oscillator and McClellan Summation Index to provide additional clarity to this same cumulative volume data for both the NYSE and NASDAQ.

The NYSE cumulative advance/decline volume line continues to maintain a bullish configuration, but it also broke below the end September lows last week and where tops beneath tops now control the pattern near term. This current configuration would then suggest indecisive price action to continue for most if not all of the next couple of weeks.

The NYSE volume McClellan Summation Index continues to unwind to or towards the zero line after leaving a double top formation near the area that provided "ledge" resistance going back to the March period. This overhead resistance line is important because this is from where the actual price consolidation pattern had its start, and where the NYSE volume MCSUM will need to overcome this same resistance for price to actually breakout of this same sideways trading pattern of the last 8 months. Near term MCSUM support should be found at the gap extension point just above the zero line that took place at the beginning of September, with any break below this area then finding its true support at or near the -200 level. In any event, as long as the volume MCSUM finds ultimate support at the rising bottoms line connecting the May and August divergent double bottom lows, the intermediate to longer term price action of the New York Composite Index will remain bullish.

After showing a lack of trending volume confirmation in relation to the price breakout that took place three weeks ago, the NYSE volume McClellan Oscillator continues to maintain a bottoms above bottoms constructive pattern from the kickoff March low extremes of the 8 month price consolidation pattern. This would suggest that with every lower price move there has been less and less downside volume accompanying each of these same moves which has provided price buoyancy to the pattern of the New York Composite Index. With the NYSE volume MCO now below the zero line for most of the last 3 weeks and finding initial support at the rising bottoms line from last March, combined with the near term divergence with price this past week, any further move to the zero line, and more importantly back above the zero line, would then be the first piece of evidence that a new rally phase is about to begin with the potential of finally breaking out of the price trading range being the main objective.

The NYSE cumulative A/D breadth line continued to find support on the 20 day EMA (10% trend) this past week and remains constructive.

The NYSE breadth McClellan Summation Index continues to unwind from its very "overbought" levels and where a new longer term declining tops line now controls the pattern intermediate term. Near term hesitation to the current unwinding process should come in at what was the prior top formed last July where the bullish expectation would be for a ledge or fishhook pattern to form before the final bottoming process of the current pause to complete in total.

As would be the technical expectation, the NYSE breadth MCO has now snapped back to what was the divergent lows line that was controlling the pattern previously - as well as to or towards the zero line after such a break below this same line as was seen two weeks ago. As with the NYSE volume MCO, one should now be looking for signs of a near term bottoming process in order for price to have a more solid foundation in which to start its next rally phase.

The cumulative TICK and NYSE new highs/new lows have both picked up the pace of their prior advancing structures after their brief flatline movement seen the week before.

Bottom Line The NYSE continues to be highly liquid marketplace overall, and where volume (or the lack of it) will continue to hold the key as to any eventual price breakout of the current intermediate term trading range.

The NASDAQ cumulative advance/decline volume line remains in a constructive configuration with the comments from last week remaining in effect.

The NASDAQ volume McClellan Summation Index has continued to move sideways from the early October high point right below the MCSUM gap resistance line noted on the chart. With the volume MCSUM near the +600 level, we will need to at least partly relieve this near term "overbought" condition before the NASDAQ Composite Index can move importantly higher.

Like its NYSE counterpart, the NASDAQ volume McClellan Oscillator continues to find bottoms above bottoms support from the extremes of last March. However, with the NASDAQ volume MCSUM at such lofty levels, and the MCO itself spending very little time below the zero line since the August low point, a break out of the triangle to the downside would be the most likely expectation going into next week, and where holding above the MCO August lows the short term key as to whether the August price lows of the NASDAQ Composite will be challenged or not.

The NASDAQ cumulative breadth A/D line continues to move below both the 20 day and 40 day EMA's, with the shorter term 10% trend (20 day EMA) moving back below the intermediate term 5% trend (40 day EMA). This is far from constructive behavior, and with the NASDAQ volume MCSUM in its current position, along with the price pattern of the NASDAQ Composite Index perceptively breaking below its rising bottoms line on Friday, near term weakness in this exchange should be expected. It will be important that the breadth A/D line try to remain above the August lows on any further weakness to the pattern or the door would then be wide open for a price retest of the August lows.

The NASDAQ breadth McClellan Summation Index has now met the near term technical expectation of moving back to the zero line. After a brief hesitation at this level, ultimate support should come in at the gap extension to the upside that was seen in early September at the -200 level.

The NASDAQ breadth McClellan Oscillator has completed the expected snapback to or towards the zero line last week and where another week of being below the zero line would be the near term expectation to test the most recent bottom of two weeks ago.

Both the cumulative TICKQ and NASDAQ new highs/new lows remain constructive while maintaining their bullish configurations.

Bottom Line: The NASDAQ continued to gain strength compared with the NYSE and AMEX last week with several growth sectors breaking out to the upside. However, the divergence of strength between the NASDAQ cumulative volume and breadth suggest that the broad market of the NASDAQ is not fully participating at this juncture and that the majority of the money flowing into this exchange is moving into a smaller selection of equities that are proving to be productive in their earnings outlook. Because of this, and with this weeks comments as it applies to the cumulative charts, a defensive position is now warranted until these abnormalities correct themselves, and where better balance between buyers and sellers will be needed for price to continue the current uptrend from the August lows.

Over the past week, the American Stock Exchange cumulative advance/decline volume and breadth charts have continued to mimic each other's bullish configurations, with both playing tag with their respective 20 day EMA's (10% trend) - while flatline action continues in the AMEX cumulative new highs/new lows. With the AMEX composite price index continuing to make new all time price highs in this same time period, this present configuration between the cumulative charts and price is providing negative divergence that will need to be righted soon for this same price advance in the composite index to continue near term.

Conclusions: The final pieces that will be needed to complete the foundational base in which prices can move above the 8 month consolidation phase are now close to completion. The 10 day open ARMS index for both the NYSE and the Total Market are now at levels in which key price bottoms usually occur. However, the NASDAQ is in need of a short term shake out, and other sentiment indicators do allow for additional pessimism to occur. With several major price indices breaking below key short term price support levels on Friday, this should begin the final phase that one would expect to see and feel at important price bottoms, and where spike bottoms will more than likely become common place over the next week or two. It will be from these extreme levels in both price and sentiment where the foundational process that began in August will complete, and from where the long awaited rally to new recovery highs will then have its best chance of materializing.

The above charts are courtesy of StockCharts.com

Comments provided are for informational purposes only
and not intended for trading purposes.

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