Technical Stock Market Report

The good news is:   The S&P 500 (SPX) closed at an all time high last Friday.

The negatives:  The market was pretty strong last week with the secondaries leading the advance.  My guess is this is a seasonal bear market rally that began a few days early.  I know, it is a little odd to call it a bear market when the SPX is hitting all-time highs.  But, the secondaries are off their highs of earlier in the year and new highs of individual issues have all but disappeared.

The chart below covers the period from March 4 when the Russell 2000 (R2K) hit its all time high and the NASDAQ composite (OTC) hit a multi-year high.  It shows the major indices on log scales to illustrate the stratification in performance.  Dashed vertical lines have been drawn on the 1st trading day of each week and the 1st trading day of each month.

Over the period shown both the Dow Jones Industrial Average (DJIA), in black, and the SPX, in red, have floated near the top of the chart followed by the S&P mid-cap (MID), in green, 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 picked up a little at the end of last week, but remains near its lowest level in nearly a year and a half.

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

For the past 5 months NY NH has been lower at each new record high.

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 rise last week closing at a neutral 49%.

The positives: New lows declined last week.

The chart below 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 rose to a very strong 84%.

The chart below shows the OTC in blue and a 10% trend of NASDAQ new lows (OTC NL) in orange.  OTC NL has been plotted on an inverted Y axis so decreasing new lows move the indicator upward (up is good).

OTC NL moved sharply upward last week and established a pattern of higher highs and higher lows.

Money Supply (M2): 

The Money supply chart has been provided by Gordon Harms.

M2 has been increasing near its multi year trend.

Conclusion

The secondaries have been following their average seasonal pattern pretty closely while the blue chips have been holding up pretty well.  We are now in a strong seasonal pattern which lasts until the 3rd trading day of June.

I expect the major averages to be higher on Friday May 30 than they were on Friday May 23.

Last week’s negative forecast was a miss.

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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.

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