Technical Watch Cumulative Charts

Cumulative Data
Week Ending 7/23/04

The second piece of bad news is that this continuing wave of positive money flow has now kept the (NYSE) McClellan Summation Index moving in this same direction for a longer period of time than what is usual and customary. And when you add the fact that the NYSE MCSUM has remained above the +500 level, which is historically a level in which the market tends to exhaust itself to the upside and soon turns down to or towards the zero line of neutral, the odds are pretty good that a reversal of fortunes should be seen very soon to play some sort of catch up to what the NASDAQ market price pattern has already traced out over the last two weeks.

This pretty much sums up this past weeks action, and as you will see by the data provided this week, the next month or so will be a vulnerable time for the market overall as an intermediate term cleansing process appears to be underway.

This week I have updated the longer term cumulative charts to provide a longer term view of where we are in relation to these shorter term updates. These charts can be seen by clicking here, and I will have additional analysis of this longer term perspective the next time they are updated. On a personal note, I will be on the road next weekend, so no comments will be made, but the cumulative charts themselves will be posted for your review.

The NYSE A/D volume line has accelerated once again below the 200 day EMA (1% trend) over the last week reinforcing the new shorter term dominant trend of money flow. The next technical expectation would be a snapback to or towards this same "trend" line, from where a continuation to the downside would be the most likely technical expectation given from the current pattern structure.

At long last, the NYSE cumulative breadth A/D line is now moving aggressively to the downside in its attempt to catch up to what the NASDAQ market was suggesting to be the case for the better part of this month. This, in turn, has allowed the McClellan Summation Index to start its journey back to or towards the zero line with the kick off coming with last Wednesday's intraday rally failure and large reversal close. NYSE breadth of market should now maintain this downward direction for the better part of the next 3 weeks, with this market now becoming vulnerable to any negative surprises that might pop up during this natural wave of liquidity movement from that of positive to one of a negative bias.

Both the cumulative TICK and cumulative new highs/new lows continue to support a constructive longer term marketplace, though it appears that a further corrective rest will be the near term expectation based on the pause seen on the TICK chart, and the leading indication of the advance/decline charts shown above.

Bottom Line: The NYSE is now under an A/D sell signal, and though this exchange continues to be the strongest of the three, a defensive posture towards this exchange should now be maintained.

The NASDAQ cumulative A/D volume chart has now joined the breadth A/D in taking out the May lows of this year further confirming the recent price action of this exchange. Near term importance will be how the faster EMA's shown on the chart perform once they follow this same data to the 1% trend (200 day EMA) in the next couple of weeks as to whether this current pullback will become one of an intermediate term nature or not (that of months and not weeks).

The trend of the NASDAQ cumulative A/D breadth continues to accelerate to the downside, suggesting that the downside price objective given last week of the 1750 area will more than likely be met before any key rally attempts are to be seen.

The cumulative TICKQ broke below the 5% trend (40 day EMA) last week generating a sell signal, with the cumulative new highs/new lows continuing to unwind aggressively bringing the 10% trend (20 day EMA) within striking range of the 5% trend. This kind of action should bring about a pause in the current decline in the next day or so. However, with the present positions of the advance/decline data, it shouldn't be long before we'll see these two charts be more reflective of what the A/D charts are showing at the present time.

Bottom Line:With the lack of support as shown by the unwinding of the A/D data, a defensive overall position towards this exchange should be maintained at this time.

The AMEX continues its negative bias as well. All three charts suggest that an attempt at a stabilizing bounce near term should be expected, and where a take out of any lows created in this time frame as being important ones for the short term buoyancy of the price structure itself.

Conclusions: On the technical side of the equation, the bears are now in firm control of the market at this time, with overall liquidity satisfactory, but close to being inadequate.

Like last week at this time, many shorter term indicators are suggesting that a bounce should be anticipated near term that should last a bit longer than that of the reflex rally seen late last Monday and into Tuesday. Any price firmness that might materialize in the market should be used as an opportunity for portfolio adjustments to better reflect the current data shown with this weeks comments.

On the geopolitical side of the equation, the market is entering a skittish period beginning next week with the Democratic Convention in Boston (7/26-7/29), the Olympics during the middle part of August (8/13-8/29), and then finishing up with the Republican Convention in New York at the end of August (8/30-9/2) which will present the opportunity for terrorists to have the world stage if they want to take advantage of such events. This, by itself, is probably keeping many from participating in the market at this time, and until this time passes, this will more than likely continue to keep the market hesitant in making any new commitments until these events have passed.

On the fundamental side of the equation, August includes the next FOMC meeting on the 10th where another quarter point increase in the Fed Funds rate is expected. We also now have a rare event in that Congress will be meeting in the month of August to go over the just released suggestions given by the 9/11 Commission's report. And while they're at it, there's also talk about a vote on whether to extend the Bush tax cuts of two years ago as well where, if passed, would be continued welcome news for the economy and for the marketplace at large.

Cyclically, we still have the anticipation of the 9 month cycle bottom to deal with and is due on August 10th, plus or minus two weeks on a calendar day basis, with August 24th being the target on a trading day basis (again plus or minus two weeks). If correct, this potential nesting of this important cycle will provide a negative tone for the market overall until the nesting of this economic cycle has passed. And, of course, the harmonic half way point of the 4 year cycle is still out there to deal with as we move into the September/October period as well.

And so, we now enter the long awaited month of August in which many potential negative factors all come together for the market to digest. For the near term, Monday and Tuesday will probably set the stage for the rest of the week. If we see softness, I would then look for a firm to advancing market for the rest of the week in preparation for the final shakeout into the upcoming 9 month cycle low. However, if we have firmness on Monday and Tuesday, the rest of the week could provide a good acceleration point for many of the index price patterns traced out through last Friday, with the NYSE related charts starting to take on the appearance of a waterfall type of decline which would be rather relentless as to reaching not only extreme oversold readings with regards to breadth of market, but this should also sharply reverse any remaining bullish sentiment and/or complacency that has permeated the market for the better part of the last 9 to 12 months.

In other words, look for volatility to increase over the next 2/3 weeks when it becomes apparent that "something is wrong" with the market, and the lemmings begin to cash in their chips as to not get hurt again as they did during the previous bear market cycle - but also keep in mind that for a market to move importantly higher, it needs to "shake the tree" from time to time to keep the many from participating in such a move as well.

The above charts are courtesy of StockCharts.com

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