Technical Stock Market Report

The good news is most of the major indices closed at all-time or multi year highs on Friday. The negatives:

New highs have become problematic everywhere. The chart below covers the past 6 months showing  the S&P 500 (SPX) in red and a 10% trend (19 day EMA) of NYSE new highs (NY NH) in green.  Dashed vertical lines have been drawn on the 1st trading day of each month. Since its May high NY NH has made several consecutive non confirmations of the SPX and has remained well below its May high.

The next chart is similar to the one above except it shows the NASDAQ composite (OTC) in blue and OTC NH, in green has been calculated from NASDAQ data.

OTC NH has been much stronger than NY NH, but, it also failed to confirm Friday’s high in the index.

Advance – decline lines (ADL’s) are running totals of the number of declining issues subtracted from advancing issues.  Their characteristics vary widely.  In the past 10 years or so the ADL calculated from NYSE composite data has shifted from having a slightly negative bias to a very positive bias because of high percentage fixed income issues on the exchange.  Baring changes in interest rates, fixed income issues accumulate value daily until they go ex-dividend, usually monthly or quarterly.

The chart below shows the SPX in red and the NYSE ADL in blue.

The NYSE ADL failed to confirm Friday’s all time high for the SPX.

The positives

The number of new lows has remained insignificant.

The chart below covers the past 6 months showing the OTC in blue and a 40% trend (4 day EMA) of NASDAQ new highs / (new highs + new lows), (OTC HL Ratio), in red.  Dashed horizontal lines have been drawn at 10% levels for the indicator, the line is solid at the neutral 50% level.

OTC HL Ratio closed at 92% on Friday, the same as last week, extremely strong.

There are trading systems that impose a NO SELL filter when variations of this indicator are above 80%.

The chart below 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 recovered a bit last week to 77% on Friday.

Seasonality:

Next week includes the 5 trading days prior to the 2nd Friday of August during the 1st year of the Presidential Cycle.

The tables below show the daily return on a percentage basis for the 5 trading days prior to the 2nd Friday of August during the 1st year of the Presidential Cycle.

OTC  data covers the period from 1963 – 2012 while SPX data runs from 1953 - 2012.  There are summaries for both the 1st year of the Presidential Cycle and all years combined.  Prior to 1953 the market traded 6 days a week so that data has been ignored.

Average returns for the coming week have been slightly positive over all years, but, slightly negative during the 1st year of the Presidential Cycle.

Report for the week before the 2nd Friday of August.

The number following the year is the position in the Presidential Cycle.

Daily returns from Monday to 2nd Friday.

Conclusion

The market is overbought, the breadth indicators failed to confirm Friday’s highs and seasonally next week has been a little weak.

Things should not get too bad because the Fed is still chipping in their $85 billion a month.

I expect the major averages to be lower on Friday August 9 than they were on Friday August 2.

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This report is free to anyone who wants it, so please tell your friends.
They can sign up at: http://www.alphaim.net/signup.html

Disclaimer: Mike Burk is an employee and principal of Alpha Investment Management (Alpha) a registered investment advisor. Charts and figures presented herein are believed to be reliable but we cannot attest to their accuracy.   Recent (last 10-15 yrs.) data has been supplied by CSI (csidata.com), FastTrack (fasttrack.net), Quotes Plus (qp2.com) 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.