Technical Stock Market Report

The good news is:  Last Thursday, with great fanfare, the Dow Jones Industrial Average (DJIA), S&P500 (SPX) and NASDAQ composite (OTC) all closed at all time highs.

The Negatives:  The market is overbought. In spite of being the strongest of the indices for most of this year, the Russell 2000 (R2K) remains nearly 5% off its all time high of June 23, 2015.

The positives:  Lots of new highs and few new lows.

The first chart 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.  Dashed horizontal lines have been drawn at 10% levels for the indicator, the line is solid at the 50%, neutral level.

OTC HL Ratio recovered last week ending the week at a very strong 80%.

The next chart is similar to the one above except it shows the S&P 500 (SPX) in red and NY HL Ratio, in blue, has been calculated from NYSE data.

NY HL Ratio gained a little to 95%.

The next chart shows the OTC in blue and a 10% trend (19 day EMA) of NASDAQ new highs (OTC NH) in green.

OTC NH rose to 137.  This is no selling allowed territory.

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

NY NH finished the week at 218. 

In the early 1990’s I developed a timing system that imposed a No Sell Filter (NSF) when NY NH rose above 130.  The huge increase in fixed income issues since then - and the Fed’s manipulation of rates at all levels since then has made me uncomfortable with that filter now.

Money Supply (M2) And Interest Rates

The money supply and interest rate charts were provided by Gordon Harms.

Gordon pointed out in a note with these charts that he has not recalculated the M2 regression line.  Apparently with the M2 rate of expansion accelerating over the past several months, he is considering recalculation of the regression line a likely necessity.  There has been a lot written about this recently.  Expansion of M2 is considered necessary because the velocity of money has been slowing.

This chart is like watching grass grow.  However it is captivating because it is doing something it has never done before, converging with declining rates.

Conclusion

What?  Me worry?  No.

Lots of new highs, few new lows, favorable seasonality…and it’s summer.

I expect the major averages to be higher on Friday August 19 than they were on Friday August 12.

Last week the R2K was down slightly while everything else was up slightly so I am calling last weeks positive forecast a tie.

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.