Technical Watch Cumulative Charts

Cumulative Data
Week Ending 8/6/04

"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 (July 26 & 27) 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..."

"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..."

"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."

I don't think Hollywood could have scripted the last two weeks any better.

This weeks charts continue to indicate that a defensive posture should currently be maintained.

I will again be unavailable next weekend to provide weekly comments on this data, but the cumulative charts themselves will again be posted for your review.

The NYSE cumulative A/D volume chart is now in a bearish configuration with the 20 day EMA (10% trend) breaking below the 200 day EMA (1% trend) for the first time in 15 months. After breaking below this same 1% trend line two weeks ago, the cumulative volume line itself attempted to snapback to or towards this same line (as well as the crossover point of the two EMA's previously mentioned), and has now moved to a new low for the time period shown confirming the current negative New York Composite price structure.

Unlike what the cumulative volume is suggesting, the NYSE cumulative A/D breadth data continues to support the idea of firm exchange overall, with those stocks that are declining making up the majority of the volume seen over the last two weeks.

The NYSE McClellan Summation Index reflects this continued firmness of this data by only being able to move down to just under the +400 level where it formed a horizontal hesitation point, or what is referred to as a "ledge" formation. With regards to this type of formation, ledges are formed to "fall off" from, which currently represents what we are seeing at the present time. The good news is that when these formations do develop it suggests that this "falling off" period is usually the last move in the direction in which these hesitation patterns take place. However, with the Summation Index still expected to move to the zero line during this upcoming time period, one should expect at least one more hesitation point for the NYSE breadth data to unwind completely from where it was deemed as "overbought" several weeks ago.

The last item of note in this section is that of the New York Composite Price Index which has now broken below the symmetrical triangle shown on the chart and has generated a downside price objective of the 5700 level. Because of this, and since the cumulative chart itself has plenty of room to correct back down to the 200 day EMA, as well as the expectation for the Summation Index to continue to still move lower to the zero line, a continued defensive position should be maintained until all these objectives have been satisfied.

The cumulative NYSE TICK chart continues to suggest that money is finding it's way into this exchange, with an acceleration of this positive money flow in the last two weeks. This information also suggests that the market is more than likely correcting the excesses that the rally of 2003 produced, and once completed, a move back up to the mid point of the trading range seen over the last four months would be the minimal expectation once a price bottom has finally materialized.

The cumulative NYSE new highs/new lows chart continues to maintain a constructive formation, but because of what we know as far as what the volume, breadth, and price charts are suggesting, it's a pretty good bet that a sell signal will more than likely be generated within the next two weeks.

Bottom Line: The NYSE exchange continues to be the strongest of the three exchanges, but it should continue to play "catch up" to the present deterioration seen in the equity markets overall.

Like the chart of the NYSE, the NASDAQ cumulative A/D volume data is tracing out the same negative pattern mentioned above at this time. And like the NYSE, it will be important for the longer term constructive nature of the market overall that cumulative A/D volume support come when both of the faster EMA's dip below the 200 day EMA and then reverse higher. Something like this would then produce the first sign of the market attempting to construct an important price bottom.

The NASDAQ cumulative advance/decline breadth line continues to maintain it's bearish configuration from it's "Bear Signature" formation (a hard move down from the April top, followed by a double top formation in the month of June).

The NASDAQ breadth Summation Index is now approaching a critical area of support of the rising bottoms line from the September 1999 lows, as well as coming into the area in which washouts in the exchange itself are generally seen. As marked on the chart, last week's action also traced out a "ledge" formation, which with the Summation Index as low as it presently is, strongly suggests that this will be the final selling wave to be seen in this time period. What will be important for the intermediate trend of market is for this exchange's MCSUM to hold at or about the previous lows seen in May, with any further movement below the -1000 level suggesting that a more important price top was probably seen earlier this year.

The NASDAQ price objective of the 1750 level, given back on the July 16th update, will more than likely be satisfied based on the present position of the internals in the not too distant future.

The NASDAQ cumulative TICKQ continues to trace out a very negative pattern by breaking below it's faster moving averages, snapping back to these same EMA's, and is now falling away from them. This suggests that there is very little interest in investing in this exchange at this time. However, if the cumulative TICKQ line can remain at or above the lows seen at the end of July, and then move back above these same faster EMA's, this would be another piece of evidence that the worst of the current selling has completed, and a new attempt to rally, to now relieve these extreme "oversold" levels, would be the next technical expectation overall.

The NASDAQ cumulative new highs/new lows continues to unwind aggressively, suggesting that there's very little out there that is bucking the larger downward trend at this time.

Bottom Line: This exchange is now getting to a point in which a conclusion to the sell off seen over the last several months should be expected. Those who may be short (or hedged) this exchange should look to close these same positions once the 1750 price objective of the NASDAQ Composite Index has been attained...while also looking for areas of resilient strength to possibly play the expected bounce that should materialize in the not too distant future.

The American Stock Exchange continues to be on a solid sell signal at this time. Like the NYSE and NASDAQ, what will be important to watch is how the cumulative A/D volume line reacts as the 20 and 40 day EMA's approach the 200 day EMA - where a brief move down below the 1% trend, and then a thrust up by the volume line itself back above the faster EMA's, could suggest that an short term bottom has been constructed.

Conclusions: August will more than likely continue to be a vulnerable time for the markets overall, but where intermarket divergences should begin to materialize with the forecast of the 9 month cycle low for the internals due next week. The technical expectation at this time would be for the NASDAQ market to bottom first internally since it was leading the market down for the better part of this year, with a price bottom, the one in which we rally out of, due with the actual nesting of the 9 month cycle price low due in early September.

In the meantime, a defensive posture overall should be maintained, but now is also the time to start making a list for potential long candidates to choose from once the actual price bottom for this correction is hammered out, and a change of direction is actually confirmed.

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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