• Last weeks decline caused little technical damage.

Short Term

The market is over sold.

Many of the breadth indicators are at their lowest levels since the March low.

The chart below covers the current year showing the S&P 500 (SPX) in red and an indicator showing momentum of the ratio of NYSE upside to downside volume (up vol / (up vol + dn vol)) in green. Dashed vertical lines have been drawn on the 1st trading day of the month.

This is an extreme example to illustrate the point.

Intermediate Term

New lows picked up a bit last week, but, not enough to generate any more than a modest wiggle in the new low indicators.

The chart below covers the past 6 months showing the NASDAQ composite (OTC) in blue and a 10% trend (19 day EMA) of NASDAQ new lows (OTC NL) in red. OTC NL has been plotted on an inverted Y axis so increasing new low move the indicator downward (up is good).

We like to see volume increase on rallies and decrease on pull backs.

NYSE volume is at its lowest level in over 3 years.

The chart below covers the past 6 months showing the SPX in red and a 5% trend (39 day EMA) in black. The only thing good about this chart is that volume did not pick up during last weeks decline.

There is no evidence to suggest that last weeks decline was any more than a pull back in an advancing market.

Seasonality

Next week includes the last 4 trading days of May during the 4th year of the Presidential Cycle.

The tables show the daily return on a percentage basis for the last 4 trading days of May during the 4th year of the Presidential Cycle. NASDAQ (OTC) data covers the period from 1963 – 2007 and SPX data from 1928 – 2007.? There are summaries for both the 4th year of the Presidential Cycle and all years combined.

A big loss in 1932 skews the SPX results negatively, but, by all measures the results are modestly positive.

Last 4 days of May.
The number following the year represents its position in the presidential cycle.
The number following the daily return represents the day of the week;
1 = Monday, 2 = Tuesday etc.

OTC Presidential Year 4
               Day4      Day3      Day2      Day1      Totals
 1964-4       0.03% 1  -0.28% 2   0.33% 3   0.15% 4     0.23%

 1968-4       0.67% 1   0.29% 2   0.46% 3   0.69% 5     2.12%
 1972-4       0.25% 4   0.11% 5  -0.37% 2  -0.69% 3    -0.70%
 1976-4      -0.39% 2   0.33% 3  -0.36% 4   0.30% 5    -0.12%
 1980-4       0.41% 2   0.40% 3  -0.40% 4   0.24% 5     0.65%
 1984-4      -0.07% 5  -1.11% 2  -0.29% 3   0.38% 4    -1.09%

 Avg          0.18%     0.00%    -0.19%     0.18%       0.17%

 1988-4       0.16% 3   0.43% 4  -0.17% 5   1.00% 2     1.41%
 1992-4      -0.80% 2   0.30% 3   0.54% 4   0.83% 5     0.87%
 1996-4      -0.92% 2  -0.87% 3   0.64% 4   0.80% 5    -0.34%
 2000-4      -1.99% 4  -0.01% 5   7.94% 2  -1.69% 3     4.24%
 2004-4       2.17% 2   0.59% 3   0.42% 4   0.11% 5     3.29%

 Avg         -0.28%     0.09%     1.88%     0.21%       1.89%

OTC Summary for Presidential Year 4 1964 - 2004
Averages     -0.04%     0.02%     0.79%     0.19%       0.96%
% Winners       55%       64%       55%       82%         64%
MDD  5/26/2000  2.00% --  5/29/1996  1.78% --  5/30/1984  1.47%

OTC summary for all years 1963 - 2007
Averages     -0.04%     0.05%     0.16%     0.26%       0.43%
% Winners       51%       62%       56%       71%         60%
MDD 5/30/2001  8.65% --  5/27/1970  3.17% --  5/25/1999  2.97%


SPX Presidential Year 4
               Day4      Day3      Day2      Day1      Totals
 1928-4       0.15% 5  -1.66% 1   1.28% 2   0.91% 4     0.68%
 1932-4       1.59% 4  -5.48% 5   0.41% 6  -7.84% 2   -11.31%
 1936-4       1.40% 2  -0.21% 3  -0.83% 4   0.70% 5     1.06%
 1940-4       1.41% 1  -2.03% 2   0.65% 3   0.22% 5     0.25%
 1944-4       0.16% 5   0.25% 6   0.16% 1   0.65% 3     1.22%

 Avg          0.94%    -1.83%     0.34%    -1.07%      -1.62%

 1948-4      -0.06% 2   0.91% 3   0.00% 4   0.06% 5     0.91%
 1952-4       0.21% 1  -0.25% 2  -0.17% 3   0.08% 4    -0.12%
 1956-4       0.04% 5  -1.17% 1   2.29% 2   0.20% 4     1.37%
 1960-4      -0.05% 3   0.07% 4   0.05% 5   0.16% 2     0.23%
 1964-4      -0.21% 1  -0.21% 2  -0.16% 3   0.14% 4    -0.45%

 Avg         -0.01%    -0.13%     0.40%     0.13%       0.39%

 1968-4      -0.16% 1   0.65% 2   0.31% 3   0.78% 5     1.57%
 1972-4       0.14% 4   0.18% 5  -0.28% 2  -0.74% 3    -0.71%
 1976-4       0.05% 2  -0.15% 3   0.04% 4   0.80% 5     0.74%
 1980-4       0.71% 2   0.59% 3  -1.60% 4   0.88% 5     0.58%
 1984-4       0.26% 5  -0.88% 2   0.04% 3   0.13% 4    -0.45%

 Avg          0.20%     0.08%    -0.30%     0.37%       0.35%

 1988-4       0.10% 3   0.34% 4  -0.48% 5   3.45% 2     3.42%
 1992-4      -0.63% 2   0.18% 3   1.11% 4  -0.33% 5     0.33%
 1996-4      -0.93% 2  -0.64% 3   0.57% 4  -0.38% 5    -1.38%
 2000-4      -1.26% 4  -0.25% 5   3.23% 2  -0.13% 3     1.58%
 2004-4       1.61% 2   0.17% 3   0.57% 4  -0.05% 5     2.30%

 Avg         -0.22%    -0.04%     1.00%     0.51%       1.25%

SPX summary for Presidential Year 4 1928 - 2004
Averages      0.23%    -0.48%     0.36%    -0.02%       0.09%
% Winners       65%       45%       65%       70%         70%
MDD  5/31/1932  12.52% --  5/28/1940  2.03% --  5/28/1928  1.66%

SpX summary for all years 1928 - 2007
Averages      0.05%    -0.04%     0.18%     0.04%       0.23%
% Winners       55%       49%       59%       58%         61%
MDD 5/31/1932  12.52% --  5/28/1962  8.45% --  5/31/1935  4.49%