Technical Stock Market Report

The good news is:  New lows have remained at insignificant levels.

The negatives:  Market tops seem to take forever to develop.  So long that it is hard to believe it when it happens.  This one has been developing for a long time and I still do not believe it.

On Wednesday the Russell 2000 index of small cap issues closed at an all time high and most of the other major indices were within 1% of their all time highs.  New lows remain non existent and seasonally a top is not expected until July.

However, there are problems, new highs have been deteriorating for a long time and are at levels that are not indicative of a robust market.

The chart below covers the past 6 months showing the S&P 500 (SPX) in red and a 10% trend (19 day EMA) of NYSE new highs (NY NH), in green.  Dashed vertical lines have been drawn on the 1st trading day of each month.

The SPX was within 0.5% of its all time high on Wednesday while NY NH was flat.  NY NH fell sharply on Thursday and Friday.

The deterioration in NY NH has been going on for a long time.

The chart below is similar to the one above except it covers the past 2 years.

The SPX has been at or near all time highs for the past 2 months while NY NH has been at less than half of its high of the past 2 years.

The next chart is similar to the first one except is shows the NASDAQ composite (OTC) in blue and OTC NH has been calculated from NASDAQ data.

On Wednesday the OTC closed 0.3% off its recent multi year high and within 1% of its all time high reached over 15 years ago.  OTC NH has been well off its recent high.

The next chart is similar to the one above except is covers the past 2 years.

OTC NH has been trending upward for the past 6 months, but, remains well below its high of the past 2 years.

The positives:  New lows remained at insignificant levels.

The chart below covers the past 6 months showing the 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 for the indicator.

OTC HL Ratio hit a very strong 82% on Thursday before falling to a still strong 68%.  This indicator is likely to fall further, but there is not much concern as long as it remains above 50%.

The next chart is similar to the one above except is shows the SPX in red and NY HL Ratio, in blue, has been calculated with NYSE data.

NY HL Ratio finished the week at a comfortable 80% down from 95%.

Advance decline lines (ADL) are running totals of the number of declining issues subtracted from advancing issues.  Their character varies from market to market and time to time.  It is changes in character over time that offer clues to the strength of the market.

The chart below covers the past 6 months showing the OTC in blue and an ADL derived from NASDAQ issues in green.

The OTC ADL hit a multi month high last Wednesday.

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

In the chart below you can see variations in strength on OTC ADL.  It peaked in early July last year deteriorating into the October low.  After an initial rebound from the October low it flattened out until early February.  It has been strong since early February hitting a multi month high last Wednesday.  It is too early to tell if the character of this indicator is changing, but when it does there should be a good lead time.

Seasonality

Next week includes the 5 trading days prior to the 4th Friday of April during the 3rd year of the Presidential Cycle.

The tables below show the daily change, on a percentage basis for the 5 trading days prior to the 4th Friday of April during the 3rd year of the Presidential Cycle.  The program that generates the tables counts market Fridays to establish its timing.  Good Friday usually falls in April so the accuracy of the tables leaves something to be desired.

OTC data covers the period from 1963 to 2014 while SPX data runs from 1953 through 2014.  There are summaries for both the 3rd year of the Presidential Cycle and all years combined.  Prior to 1953 the market traded 6 days a week so that data has been ignored.

Average returns for the coming week have been modestly positive during the 3rd year of the Presidential Cycle and modestly negative over all years.

Report for the week before the 4th Friday of April.

The number following the year is the position in the Presidential Cycle.

Daily returns from Monday through the 4th Friday.

Money supply (M2)

The money supply chart was provided by Gordon Harms.

Money supply growth recovered last week.

Conclusion

Last Wednesday’s highs were pretty well confirmed suggesting the decline that began on Thursday will not amount to much.

I expect the major averages to be higher on Friday April 24 than they were on Thursday April 17.

Last weeks 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.