Technical Stock Market Report

The good news is:  The Dow Jones Industrial Average (DJIA) closed at an all time high Friday.

The negatives:  The DJIA, the bluest of the blue chips closed at an all time high on Friday.

The DJIA was the only major index that was up for the week.

The chart below is an update of one I showed last week.  It covers the past 2 months showing the major indices on log scales to illustrate the stratification in performance.  Dashed vertical lines have been drawn on the 1st trading day of the week and the 1st trading day of the month.

Over the past 2 months the DJIA, in black, has lingered near its all time high followed closely by the S&P 500 (SPX), in red.  Next in performance has been the S&P mid cap (MID), in green, followed by the NASDAQ composite (OTC), in blue, and, at the bottom, the Russell 2000 (R2K), in magenta.

Highest quality on the top and lowest on the bottom.

The next chart covers the past 6 months showing the OTC in blue and a 10% trend (19 day EMA) of NASDAQ new highs (OTC NH) in green.  Dashed vertical lines have been drawn on the 1st trading day of each month.

OTC NH is at its lowest level in nearly a year and a half.

The next chart is similar to the one above except it covers the past year and a half.

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

NY NH rose a little last week.

The next chart covers the past 6 months showing the OTC in blue and a 10% trend of NASDAQ new lows (OTC NL) in red.  OTC NL has been plotted on an inverted Y axis so decreasing new lows move the indicator upward (up is good).

OTC NL fell sharply last week to its lowest point in a year and a half.

The next chart is similar to the one above except it covers the past year and a half.  You can see that it is approaching its low of November 2012 and falling.

The next chart shows the OTC in blue and a 40% trend (19 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 continued its fall and at 22% is in deeply negative territory.

The next chart is similar to the one above except it covers the past year and a half for a longer term perspective.

The positives:  NYSE breadth, in all forms (volume, new highs, new lows, advancing issues and declining issues) weakened a little last week, but continued to hold up much better than the NASDAQ.

The chart below 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% increments for the indicator, the line is solid at the neutral 50% level.

NY HL Ratio fell a bit to a still positive 65%.

Money Supply (M2)

The Money supply chart has been provided by Gordon Harms.

M2 continued its fall.

The period beginning around May 1 during the 2nd year of the Presidential Cycle has, on average, not been good for equities.  The charts below all cover the period from around April 1 through July 1 during the 2nd year of the Presidential Cycle showing the major indices on log scales to offer a perspective on the relative performance of various segments of the equity market during that period.

The DJIA is shown in black, the SPX in red, OTC in blue and in the more recent charts the R2K in magenta and MID in green.  Prior to the early 1990's the OTC was very similar to the R2K.  Dashed vertical lines have been drawn on the 1st trading day of the month.  The middle month is May.

1966

1970

1974

1978

1982

1986 Volatility came a little later in 86

1990 The market peaked in late July and then had a rough 2-3 months

1994

1998

2002

2006

2010

Conclusion

The severity of the deterioration in the breadth indicators has been masked by the strength in the blue chip indices.  This is typical at major tops.  The secondaries lead and the blue chips are the last to fall.

I expect the major averages to be lower on Friday May 16 than they were on Friday May 9.

Last week the DJIA was up slightly while all of the other major indices were down so I am calling last weeks negative 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.