Technical Stock Market Report

The good news is:   NASDAQ breadth data was stronger than NYSE breadth data last week.

The negatives:  As of Thursday most of the major indices were short term oversold having been down for 5 consecutive days.  A violent rally on Friday took the NASDAQ composite (OTC) to a new multi year high, but left the breadth indicators and other major indices down for the week.

Today’s headline in the WSJ is “Fed Closes In On Bond Exit”.  That should spook the market next week which seasonally has been weak anyway.

All of the breadth indicators deteriorated last week and the High Low ratio indicators which I consider among the most important are split, the NASDAQ derived indicators are pretty strong while the NYSE derived indicators are pretty weak.

The chart below covers the past 6 months showing the S&P 500 (SPX) in red and a 40% trend (4 day EMA) of NYSE new highs divided by (new highs + new lows), (NY HL Ratio) in magenta.  Dashed vertical lines have been drawn on the 1st trading day of each month and  dashed horizontal lines have been drawn at 10% levels for the indicator, the line is solid at the neutral 50% level.

NY HL Ratio fell from above 80% a week ago to under 50% Friday.

The positives:  NASDAQ breadth data has held up better than NYSE breadth data.

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 fell last week, but closed at a very strong 81%.

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

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

Money supply growth continued to decline last week.

Conclusion:  The threat of tapering along with seasonal weakness is likely to take its toll on the market next week. 

Just a wild guess:  A little havoc in the financial markets will spook the Fed and they will promise to continue QE for the foreseeable future.

I expect the major averages to be lower on Friday December 13 than they were on Friday December 6.

Last week the OTC was up a little while the other indices were down a little so I am calling last weeks positive forecast a tie.

********

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.

You may reproduce these letters provided you include a citation along with a link to the subscription page: http://alphaim.net/signup.html