Technical Watch Cumulative Charts

Cumulative Data
Week Ending 8/27/04

"Though things seem to be running smoothly, it's now "construction time" to repair the damage that the downtrend from the early July highs created. In this case, constructive evidence would be where bottoms above bottoms are evident, the cumulative data is generally advancing, and most importantly, the respective EMA's better represent a positive configuration."

So far, so good, as the market continues to attempt to construct a foundation in which prices can then rally importantly later on.

With this week's update, not only have I gone back to the now familiar McClellan Summation Index/price chart, but now this same chart will include the McClellan Oscillator below this same data for a better all around view of how the market is doing internally as it applies to two different time and price relationships.

(Editors note: Next week will again be an off week for analysis of this data unless something dramatic happens where additional analysis would be warranted. In either case, the charts themselves will of course be posted for your review.)

The NYSE cumulative advance/decline volume line has continued to move higher over the last week and has now broken back above it's 200 day EMA (1% trend). This advance has also turned up the 20 day EMA (10% trend) where it will be important that it cross back above the 40 day EMA (5% trend) to show additional evidence that the internals did in fact bottom on August the 12th.

The daily NYSE cumulative A/D breadth line is now at all time highs since records have been kept going all the way back to 1926 which, in itself, is a highly bullish event. However, until we get the NYSE A/D volume line (shown above) moving in a more constructive configuration, it's difficult to confirm whether or not if this is nothing more than a near term abberation in the pattern as well. In any event, the next technical expectation for the breadth line would be a move back to or towards the breakout level just recently seen in the next couple of weeks. This potential snapback could possibly occur in conjunction with the upcoming 9 month cycle price low due in mid September, and from that juncture the A/D volume could then be in a more bullish formation to provide the last piece in giving the final bullish "all clear" for this exchange overall. We'll see.

With the NYSE breadth A/D line at all time highs, this would also mean that the McClellan Oscillator has remained above the zero line this past week which is very constructive evidence that an important bottom was registered earlier this month. Near term, any break of the bull divergence lows marked on the chart shown will suggest that the final nesting process of the 9 month cycle price bottom would then be in progress. If this break of the divergent line should occur, it will be important that the MCO doesn't take out the late July "power point" low of this current pattern otherwise something else may be going on that will need our trading attention.

After tracing out the "ledge" pattern shown on the chart below, the NYSE McClellan Summation Index is now moving higher to the previous highs seen in mid July. In this area, for the Summation Index to take out this same ledge pattern as easily as its done, this does suggest a highly liquid market as it applies to this exchange at the current time. But we still have a couple of negatives to consider as well, with one being that the MCSUM did not get to or below the zero line as was the expectation when using this tool, and we are again approaching what has been "overbought" levels in the past which alerts us that a possible Summation Index double top might be forming. We'll need to keep an eye on this as to whether the market might be in for a stumble as a result of this current configuration, or with the previous over-extended "overbought" period that this same exchange enjoyed for the majority of 2003, a possible adjustment as to what we have been accustomed to prior to this same 2003 period might be needed to be explored as well.

Both the cumulative TICK and the cumulative new highs/new lows data charts continue to support bullish configurations and are confirming the current breadth advance/decline line's new all time highs.

Bottom Line: The NYSE continues to be the strongest exchange at this juncture with 3 out of 4 buy signals now generated. But as has been the case for the better part of this year, all we need now is for the cumulative A/D volume to get in a better position so that price can then move higher with little or no effort.

The NASDAQ cumulative advance/decline volume chart has made little progress over the past week. However, we were able to break above the 10% "trendline", and did find near term snapback support, so the next challenge will come with the 5% trend above present levels.

The NASDAQ cumulative A/D breadth chart has also been rather lethargic this past week, but it does remain constructive with bottoms above bottoms controlling the current pattern from the August lows.

Like the NYSE, the NASDAQ McClellan Oscillator has also remained above the zero line this past week. More importantly though, the NASDAQ MCO has remained at or near what one would consider "overbought" in this same time frame. This, in turn, has generated a larger separation of the postings of the McClellan Summation Index showing a visual example of the increased money flow coming into the exchange, and with the present data above the ledge formation traced out in July, the current expectation would be for the MCSUM to move to around the -250 level before a rest would be needed in this same pattern.

The cumulative TICKQ continues to move higher after breaking out two weeks ago, and the chart itself is in a bullish configuration. Until this current situation changes, any positions against this prevailing trend of money flow will probably end in failure unless one is nimble.

With this same increase in money flow, the NASDAQ cumulative new highs/new lows has flattened out and is now looking for direction. However, as long as the MCO remains above the zero line, the more than likely outcome will be an upside resolution where the first challenge in the pattern will be at the 10% trend.

Bottom Line: The NASDAQ continues to be the weakest of the three exchanges, but the downside momentum of July/August period has now been terminated and where remaining in a net neutral position being the best recommendation at this time awaiting further information in which to trade.

The AMEX continues its work in providing a foundation in which price can then move importantly higher later on. As with the NASDAQ, an overall neutral position is recommended until more evidence is provided as to what will be the final resolution of the current pattern.

Conclusions: There's really not too much to add from last weeks update as the market continues to support firmness, but the lack of conviction as it applies to volume is suspect to surprises to the downside on any news related item that might happen for the near term.

However, with the Republican Convention now on the front burner in New York next week, and with the high security element involved with this same event, it's probably going to be a very slow trading week going into the Labor Day holiday weekend. Because of this, we're probably not going to gain too much in the way of information that would help in deciding what type of trades would be the most beneficial to ones bottom line. Hopefully after next week though, this blasé attitude will change and will then be able to get back into the swing of things.

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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