Technical Watch Cumulative Charts

Cumulative Data
Week Ending 11/5/04

"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." - 10/22/04 update

The internal foundational base building that would be needed for prices to breakout of the trading range of the last 8 (Fibonacci) months was completed on Monday, October 25th, and the beginning stages of the next uptrend is now underway where price, especially with those products that trade on the New York Stock Exchange, will now play catch up to what the internals have been indicating would be the direct result over the last 3 months.

For a more rounded view of where we are at the current time, this weeks review of the cumulative data will cover the time period from the October 2002 bottoms to provide additional clarity of what to possibly expect over the next several months.

The NYSE cumulative advance/decline volume line is now streaking higher suggesting that fresh money is entering this exchange, and reconfirming the high volume price pattern breakout of the New York Composite Index (NYA) last week. With the NYA now within 300 points of its all time price highs, a move above the cumulative volume highs seen in the first quarter of 2004 will allow NYA to at least challenge these same price highs in the not too distant future.

Even more technically bullish is the NYSE volume McClellan Summation Index which has now not only found recent support at or near the zero line, but this has also left us with a series of bottoms above bottoms controlling this same pattern for the last 2 years. A take out of the most recent double top highs of last month will be enough energy for new all time highs to be seen in many indices, including the Dow Jones Industrial Average.

The NYSE volume McClellan Oscillator has also broken above the short term declining tops line after showing a final purging spike, or "throw over", to the intermediate term pattern shown on the chart. A move above the most recent highs of last September would be a highly bullish event - and would then suggest that the current initiation phase will have multi month staying power.

Here you can see the advancing structure of the NYSE cumulative A/D breadth line which continues to move into uncharted territory. As long as this current advancing structure continues, the price uptrend of the NYA will remain bullish longer term. And for those who may be wondering what the "common stock only" version of this same cumulative breadth line is doing at this time, it too is at all time highs as well. With the help of Randy Nelson in providing the common only data, a 24 year chart of the NYSE composite cumulative A/D line compared to the common only line can be found by clicking here. Additional comments on this data chart will be forthcoming in a future exercise.

The NYSE breadth MCSUM now seems to be "stair stepping" higher, and where a break above the key longer term resistance line shown on the chart would be a highly bullish event - suggesting that the price uptrend now underway will continue well into the end of 2005, if not longer.

The NYSE breadth McClellan Oscillator has also broken above the symmetrical triangle consolidation formation that was traced out after the initial breadth thrust that was made back in May. A near term pause in the MCO should now be expected, and where a move above these same May highs would be a highly bullish event on a longer term basis.

The cumulative TICK continues to advance unabated, and now seems to be accelerating, as cash continues to move into this exchange, while the NYSE cumulative new highs/new lows continues to move in new all time high territory.

Bottom Line: With a large amount of liquidity, the NYSE continues to be the strongest of the exchanges, with any price pullbacks looked upon as buying opportunities dependent on individual chart merit.

The NASDAQ cumulative volume advance/decline line has now taken out its late June highs and is now challenging the highs that were seen last April where, if successful in moving above these highs, the next technical target will be that of the January highs.

The NASDAQ volume MCSUM has now broken above the declining tops line that was controlling the pattern since September of 2003 which is a highly bullish event. The next technical expectation would be for the volume MCSUM to now challenge the divergent highs seen last January.

The NASDAQ volume McClellan Oscillator has also broken the short term declining tops line shown on the chart and this has produced an interesting longer term situation where if the volume MCO is able to take out the highs seen back in November of 2002, this could then conclude the bear market of the NASDAQ Composite Index and highly suggest that a new bull phase would be underway.

The NASDAQ cumulative advance/decline breadth line continues to be the ugly sister in all of this data - but now seems to be getting a face lift after leaving behind a very constructive double bottom formation in the last 2 months - and continues to be on a "on your mark" buy signal. Aggressive buying on this exchange should only be contemplated when the breadth A/D line is able to move back above the 200 day EMA (1% trend), and better yet when the 20 day and 40 day EMA's (10% and 5% trends) have joined the party in this regard.

The NASDAQ breadth McClellan Summation Index has traced out a very bullish pattern by not only testing the zero line twice, but has now moved above the most recent highs after the second test. This would suggest that the declining tops line (not shown) that has been controlling this MCSUM pattern since the June 2003 highs will not only be challenged, but with the current pattern of the NASDAQ volume MCSUM, it should also be exceeded as well.

The "sign of strength" pattern in which the NASDAQ breadth McClellan Oscillator showed during the August/September period was a prelude to the current shorter term break above the declining tops line shown on the chart. As with the volume MCO, a move above the high point made back in the November 2002 period will more than likely be the demarcation point between whether the NASDAQ exchange is in a longer term bear or bull market going forward.

The cumulative TICKQ chart basically speaks for itself and is showing a large amount of capital entering this exchange at the current time.

The NASDAQ cumulative new highs/new lows presently remains constructive and is suggesting that what money flow is coming into this exchange continues to be narrowly based. But as the breadth charts above also suggest, this same flow of capital is starting to spread out to other areas at the current time.

Bottom Line: Though still the weakest of the three exchanges, the NASDAQ is now gaining internal strength. With the current position of the other two exchanges as a guide, an aggressive trading strategy should begin to be employed based again on individual chart merit and sector strength.

The internals of the American Stock Exchange continue to maintain bullish configurations, with the AMEX cumulative A/D volume line not only leading cumulative A/D breadth, but it is also confirming the all time price highs of the AMEX Composite Index itself.

Conclusions: The increasing internal energy as represented by what the cumulative charts were showing over the last couple of months has now catapulted prices higher where new recovery highs have been the direct result for the New York Composite, Wilshire 5000, and the S&P 500 - and where new all time highs were the result with the S&P 400 and S&P 600.

The near vertical price rise in many broad and sector charts has also flipped many from a bearish longer term stance to either one of being bullish short or intermediate term. Because of this sentiment change, and because of the time duration of the price consolidation patterns themselves, no less the "overbought" nature of the market in general, a short term pause should be expected to convince everyone that prices cannot move higher to reinforce the "wall of worry" psychology which accompanies many trending advancing price structures.

Since we're more than likely in a new intermediate term uptrend, as a technical trader, it now becomes important to adjust the weighting one uses to measure this same trending price move. It is then highly suggested that the use of such tools as the Average Directional Index (ADX) and/or the Parabolic SAR (as but two examples) would be better used during this time as opposed to oscillators, such as the Relative Strength Index (RSI), to measure the underlying strength of a given move. One reason for this is that in strong uptrends - like the one were about to have - these moves will usually be able to maintain overbought oscillator readings for longer periods of time than what would be expected during trading range patterns, and using trending indicators will then aid you with the decision making process of possible future exit points, and hopefully, be able to squeeze out every last point that position may be able to give you.

One last thing...in all of the years since breadth advance/decline data has been recorded since 1926, there has never been a time when the NYSE marketplace has made a terminal high without this same data diverging with price - that is to say - price making a higher high with A/D breadth making a lower high. And though anything can happen in this business, this kind of track record should give comfort to any or all who read this that the possibility of a crash like event happening over the next several months, if not years, is a very low probability indeed with the current position of this same measuring tool.

Over the last 6 months, these updates were provided to possibly help the reader to understand how best to use this type of information within the parameters of ones own personal time and investment objectives and strategies, and the author hopes that the information provided was useful in this respect. From this point forward, in-depth commentary with these updates will be provided on a "when needed" basis, however, the weekly updated charts will continue with key observations annotated on the charts themselves. In the interim, Technical Watch will be expanding into other areas of technical analysis, so do come back often as there will be many exciting, and hopefully, money making ideas coming soon.

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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