Technical Stock Market Report

The good news is:  The Dow Jones Industrial Average (DJIA) and S&P500 (SPX) closed at all-time highs on Friday.

The negatives:  Last week an alert reader suggested the elevated number of new lows were likely to be from energy related issues. They are.  Energy, natural resource and fixed income issues are all well represented on the new low lists.  The persistently high levels of new lows along with relatively high levels of new highs has triggered a Hindenburg Omen for the past 6 consecutive trading sessions.

The Hindenburg Omen, developed by the late Jim Miekka has been unreliable at predicting tops, however it has been triggered prior to every major top.  It tells you that some conditions are in place for a top.

The positives:  The ratio of new highs to new lows is still positive, but deteriorating.

The chart below covers the past 6 months showing the NASDAQ composite (OTC) in blue and a 40% trend (4 day EMA) of NASDAQ new highs divided by new highs + new lows (OTC HL Ratio), in red.  Dashed vertical lines have been drawn on the 1st trading day of each month and dashed horizontal lines have been drawn at 10% levels of the indicator, the line is solid at the neutral 50% level.

OTC HL ratio fell below the neutral level briefly last week before recovering to a modestly positive 55%.

The next chart is similar to the one above except is shows the SPX in red and NY HL Ratio, in blue, has been calculated from NYSE data.

NY HL Ratio also declined finishing the week at a modestly positive 60%.

Money Supply (M2)

The money supply chart was provided by Gordon Harms.

M2 growth declined a bit last week remaining below its long term trend.

Conclusion

The breadth indicators have been deteriorating and seasonally next week is, on average, the weakest week of December.

I expect the major averages to be lower on Friday December 12 than they were on Friday December 5.

Last week the blue chips were up slightly while the secondaries were down slightly so I am calling last week’s positive forecast a tie.

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Disclaimer: : Charts and figures presented herein are believed to be reliable but I cannot attest to their accuracy.  Recent (last 10-15 yrs.) data has been supplied by CSI (csidata.com), FastTrack (fasttrack.net), Quotes Plus and the Wall Street Journal (wsj.com).  Historical data is from Barron’s and ISI price books.  The views expressed dare provided for information purposes only and should not be construed in any way as investment advice.  Furthermore, the opinions expressed may change without notice.

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