Technical Stock Market Report

The good news is:  Last week the secondaries outperformed the blue chips.

The negatives:  New lows decreased while new highs increased last week which is a positive.  However, with both the S&P 500 (SPX) and NASDAQ composite (OTC) closing the week only 1.8% off their all time highs, new highs are lagging.

The chart below covers the past 6 months showing the 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.

This chart is not too bad.  NY NH moved sharply upward last week while the SPX was static.  However, NY NH has some catching up to do if it is going to confirm a new high in the SPX which is likely in the next few weeks.

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

OTC NH has been weaker than NY NH and appears unlikely to confirm a likely new high in the index.

The positives:  Because of the holiday, last week does not count for much, but, what did happen was good.  The breadth indicators were positive and the secondaries outperformed the blue chips.

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

NY HL Ratio recovered to positive territory last week.

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

OTC HL Ratio, like NY HL Ratio returned to positive territory.

Money supply (M2)

The money supply chart was provided by Gordon Harms.

Money supply growth weakened again last week.

December

Since 1963, over all years, the OTC in December has been up 62% of the time with an average gain of 1.9%.  During the 3rd year of the Presidential Cycle December has been up 62% time with an average gain of 4.6%.  The best December for the OTC was 1999 (+22.0%), the worst, 2002 (-9.7%).

The average month has 21 trading days.  The chart below has been calculated by averaging the daily percentage change of the OTC for each of the 1st 11 trading days and each of the last 10.  In months when there were more than 21 trading days some of the days in the middle were not counted.  In months when there were less than 21 trading days some of the days in the middle of the month were counted twice.  Dashed vertical lines have been drawn after the 1st trading day and at 5 trading day intervals after that.  The line is solid on the 11th trading day, the dividing point.

In the chart below the blue line shows the average of the OTC in December over all years since 1963 while the black line shows the average during the 3rd year of the Presidential Cycle over the same period.

Since 1928 the SPX has been up 74% of the time in December with an average gain of 1.4%.  During the 3rd year of the Presidential Cycle the SPX has been up 76% of the time with an average gain of 2.4%.  The best December for the SPX was 1991 (+11.2%) the worst, 1931 (-14.5%).

The chart below is similar to the one above except it shows the daily average performance over all years for the SPX in December in red and the performance during the 3rd year of the Presidential Cycle in black.

Since 1979 the Russell 2000 (R2K) has been up 81% of the time in December with an average gain of 2.8%.  During the 3rd year of the Presidential Cycle the R2K has been up 78% of the time with an average gain of 4.0%.  The best December for the R2K, 1999 (+11.2%), the worst, 1980 (-3.7%)

The chart below is similar to those above except it shows the daily performance over all years of the R2K in December in magenta and the performance during the 3rd year of the Presidential Cycle in black.

Since 1885 the Dow Jones Industrial Average (DJIA) has been up 70% of the time in December with an average gain of 1.3%.  During the 3rd year of the Presidential Cycle the DJIA has been up 81% of the time in December with an average gain of 1.6%.  The best December for the DJIA, 1903 (+10.8%), the worst, 1931 (-17.0%).

The chart below is similar to those above except it shows the daily performance over all years of the DJIA in December in grey and the performance during the 3rd year of the Presidential Cycle in black.

Conclusion

We are looking at a nice combination of seasonal strength along with improvement in the breadth indicators and, seasonally, the coming week has not been down since 1987.

I expect the major averages to be higher on Friday December 4 than they were on Friday November 27.

Last week’s the Dow Jones Industrial Average was down a little while the other indices were up a little, so I am calling last week’s negative 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.