FSU Editorial: "If It's Monday..." by David Yu 07/30/2007

IF IT'S MONDAY...
by David Yu
Chartmentary.com
July 30, 2007

The well known 1929 stock market crash was said to have started on Tuesday, September 3, 1929, the 1st trading day after the Labor Day holiday that fell on Monday. The 1929 crash was accentuated by a 22.6% decline on the "Black Monday", October 28. 1929. That was the biggest one-day decline in stock market history. This record was later matched on yet another Monday, October 19, in 1987.

These are the top 4 worst one-day stock market declines in recent history, and they all happened on Mondays.
Date	Day	% One-Day Drop
10-19-1987	Monday	22.6%
10-27-1997	Monday	7.2%
09-17-2001	Monday	7.1%
08-31-1998	Monday	6.4%

It's safe to assume this repetitive pattern is not just pure coincidence. History sometimes seems to be repeating in similar patterns because human nature remains relatively unchanged. Tomorrow, July 30, 2007, is another Monday. With the record high trading volume accompanying the S&P 500's worst one-week percentage loss since 2002, what's in store for us on Monday?

Every support, resistance, and everything else on the S&P 500 and other major indexe charts have already been looked at and talked about over and over again. There's no reason to go there. Let's, instead, take a forensic tour behind the scene.

Since major market price shifts are generally preceded by significant changes in the market breadth, recent market breadth episodes should be a good place to start the tour. The market breadth interestingly enough had actually NOT harmonized with the deterioration of the price action. Despite the beating the market took last week, which resulted in price downfall twice as "ugly" as the mid June correction, my volume weighted Intraday Breadth Performance Chart that measures collective performance disparities between the morning and the afternoon sessions of all 3 major exchanges hadn't fallen as steeply as it did in June (see red arrow on Chart 1).

This performance indicator could be looked at as a market sentiment gauge. While there were large number of sellers dumping their shares, there were almost equal number of buyers that actually feel comfortable enough to continue accumulating in the afternoon session. If the market sentiment's dominated by negative psyche, it'd be more likely for traders to close out their long positions in the afternoon.

Chart 1

In addition the unruffled intraday performance indicator, the intraday 5-minute TRIN index (Chart 2 below) had reached the extreme oversold territory on Thursday afternoon and even more so on Friday.

Chart 2

Meanwhile, the 11-day moving average (blue curve on Chart 3 below) of my short-term contrarian Composite (3 major exchanges) Market Timing Indicator had just had a positive crossing below the zero neutral line. The crossover of the blue curve coincides, more often than not, with the top or the bottom of the indicator (the gray curve). This means that the indicator is about to hit bottom and start to bounce back in the next few days.

The last time the blue curve crossed above the neutral line was on July 11, and the gray curve topped out 2 days later, on July 13. And, since this top was lower than the previous recovering high at the end of March, a SELL signal was triggered on the same day. Friday, the 13th of July also happened to be the day the S&P 500 Index reached its recent top.

Chart 3

Un-scientifically, it may be worth noting that all 4 of the top one-day droppers took place in late August, September, or October.

In any regard, short-term market breadth episodes seem to be providing sufficient support to avert further bloodshed within the next few days. And, a short-term rebound appears to be in order next week. Nevertheless, the longer-term picture remains quite negative, technically and, of course, fundamentally.

Technically speaking, while the Intraday Breadth Performance has been holding steady, it's descended below both the 20-day and the 50-day moving averages. And, the 20-day MA had already crossed below the 50-day MA (see Chart 1). The recent low of my Market Timing Indicator had also just dropped below the previous low on Friday, and the recent 7/13/2007 high was also lower than the previous high (see red arrows on Chart 3).

There may be ample trading opportunities next week, due to high volatility and a probable short-term rebound, but the technical damages and all the fundamental concerns of credit, housing, and oil price, may be too much to overcome over a short time period.

Contact Information
David Yu
Walnut Creek, CA USA
Website | david_3011 @ yahoo.com Space before and after @ was left intentionally to avoid spamming. Please remove this space when sending your emails.