Technical Stock Market Report

The good news is:  The Dow Jones Industrial Average (DJIA) and S&P 500 (SPX) closed at all time highs on Friday.

The negatives:  A Hindenburg Omen was triggered on both Thursday and Friday.  This signal has not been prophetic in recent years, but it means some conditions are similar to those that preceded previous significant declines.

New lows were at threatening levels every day last week on the NYSE and Monday, Tuesday and Friday on the NASDAQ.

The chart below covers the past 6 months showing the SPX in red and a 10% trend (19 day EMA) of NYSE new lows (NY NL) in blue.  NY NL has been plotted on an inverted Y axis so decreasing new lows move the indicator upward (up is good).  Dashed vertical lines have been drawn on the 1st trading day of the month.

This is an easy chart to read.  The averages usually follow NY NL pretty closely.  The divergence at this time is spectacular.

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

The decline in OTC NL, although not as spectacular as that of NY NL, has also been significant.

Advance decline lines (ADL) are a running total of declining issues subtracted from advancing issues.  Their behavior varies, but technicians are interested in changes in that behavior and recently there have been some changes, all negative.

The chart below covers the past 6 months showing the OTC in blue and an ADL calculated from NASDAQ data (OTC ADL) in green.

The OTC closed less than 1% off its multi year high on Friday while OTC ADL has been falling sharply in a pattern of progressively lower highs and lower lows.

The next chart is similar to the one above except it shows the SPX in red and NYSE ADL has been calculated from NYSE data.

For more than a decade the NYSE ADL has had a wildly positive bias, it failed to confirm Friday’s all time highs in the DJIA and SPX.

The positives:  New highs picked up a bit last week

The chart below covers the past 6 months showing the SPX in red and a 40% trend (4 day EMA) of NYSE new highs / (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 neutral 50% level.

NY HL Ratio fell below the neutral line than recovered last week.

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

This chart is not really positive, but not seriously negative either.  OTC HL Ratio finished the week slightly below the neutral line.

Money Supply (M2)

The money supply chart was provided by Gordon Harms.

M2 growth took a dive last week.

Conclusion:

The breadth indicators are overwhelmingly negative and Seasonality for the next 2 weeks is negative.  All of the conditions are in place for a cycle top.

I expect the major averages to be lower on Friday September 26 than they were on Friday September 19.

Last week the blue chips were up and the secondaries were down so I am calling last weeks positive 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.