Technical Stock Market Report

The good news is:  The market has worked off its overbought condition will be ready to rally when this sell off ends.

The negatives:  Strength of the breadth indicators peaked about a year ago.  Either they will recover or prices will tumble.  If the breadth indicators recover, that recovery should begin soon because, seasonally, we are in the strongest period of the 4 year Presidential Cycle.  If prices tumble, that is likely to happen sometime after July 1st, because that is the end of the seasonally strong period.

The chart below covers the past 3 years showing the Russell 2000 (R2K) in red and an Advance – Decline line (AD ADL) calculated from the component issues of the R2K in blue.  This Advance – Decline line is a running total of daily declining issues subtracted from advancing issues.

Dashed vertical lines have been drawn on the 1st trading day of each month, those lines are red on the 1st trading day of the year.

The AD line peaked around the 1st of March last year and did not confirm the recent all time highs in the R2K.

The positives: New highs declined a bit last week, but new lows remained at non threatening levels.

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

OTC HL Ratio fell last week, but finished the week at a comfortably positive 65%.

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 also declined last week, closing at 67%.

Money Supply (M2)

The money supply chart was provided by Gordon Harms.

M2 growth tumbled last week.

Conclusion

There could be a few more days of consolidation.  The market will be ready to rally when this period of consolidation ends.

I expect the major averages to be higher on Friday March 13 than they were on Friday March 6.

Last week’s positive 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.