Technical Stock Market Report

The good news is:  The blue chip indices closed at all time highs on Friday.

The negatives:  New lows declined a little last week, but, their levels remained above recent averages.

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 numbers of new lows move the indicator downward (up is good).  Dashed vertical lines have been drawn on the 1st trading day of each month.

OTC NL continued to fall as the index moved to a new multi year high.

Advance – decline lines (ADL) are a running total of the number of declining issues subtracted from the number of advancing issues.  Their characteristics vary, but in the short to intermediate term, in a strong market, they usually confirm index highs.  The next 2 charts show ADL’s failing to confirm Friday’s index highs.

The next chart covers the past 6 months showing the OTC in blue and an ADL calculated from NASDAQ issues in green.

The next chart is similar to the one above except is shows the S&P500 (SPX) in red and NYSE ADL, in blue, has been calculated from NYSE issues.

I complain frequently about the contamination of NYSE data with fixed income issues which make up about half of the issues traded on the NYSE.  The problem is, baring changes in interest rates, fixed income issues accumulate value daily until they go ex dividend (one day a month or quarter).  This gives ADL’s calculated from fixed income issues a wildly positive bias.

The chart below is similar to the one above except it shows the NYSE composite in red and AD ADL, in dark blue, is an ADL calculated from only NYSE common issues.

In the past few days the common only ADL has been stronger than the composite ADL, however, over the past 6 months, it has been noticeably weaker.

The positives:  New lows declined a bit last week while new highs increased a little.

The chart below covers the past 6 months showing the 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 horizontal lines have been drawn at 10% levels for the indicator, the line is solid at the neutral 50% level.

OTC HL Ratio rose to 80% on Friday. 

There are trading systems that impose a No Sell Filter when variations of this indicator are above 80%.

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

NY HL Ratio also recovered last week finishing the week at a very strong 86%.

Money Supply (M2):  The money supply chart was provided by Gordon Harms.

Money supply growth declined last week.

Conclusion:  The index highs were unconfirmed by most of the breadth indicators, but we are coming into a seasonally strong period and the Fed continues to add $85B a month.

I expect the major averages to be higher on Friday November 22 than they were on Friday November 15.

Last weeks negative forecast was a miss.

In his latest newsletter titled “Stories”, Jerry Minton discusses explanations for some market behavior.  You can sign up for his free newsletter at:  http://www.alphaim.net/

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.