Technical Stock Market Report

The good news is:  Historically the next 2 weeks have been very strong.

The negatives:  The breadth dichotomy between the NASDAQ and NYSE markets continued last week with the NYSE much weaker than the NASDAQ.

The chart below covers the past 6 months showing the S&P 500 (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 vertical lines have been drawn on the 1st trading day of each month. Dashed horizontal lines have been drawn at 10% levels for the indicator, the line is solid at the 50%, neutral level.

NY HL Ratio dropped below the neutral line Friday finishing the week at 47%.

The next chart covers the past 6 months showing the SPX in red and a 10% trend (19 day EMA) of NYSE new highs (NY NH), in green.

NY NH rose a little last week, but remained near its low of the past 6 months.

The positives:  The next two charts are similar to those above except the index shown is the NASDAQ composite (OTC) and they use NASDAQ rather than NYSE data to calculate the indicators.

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

OTC HL Ratio fell last week, but finished the week at a comfortably positive 72%.

The next chart is similar to the second one above except is shows the OTC in blue and OTC NH has been calculated from NASDAQ data.

OTC NH has been moving sharply upward for over a month and is only slightly off its high for the past year.

The NASDAQ charts suggest a strong bull market while the NYSE charts show a developing top.

Money supply (M2)

The money supply chart was provided by Gordon Harms. M2 growth continued to be sluggish.

July

Since 1963, over-all years the OTC in July has been up 50% of the time with an average gain of 0.3%. During the 3rd year of the Presidential Cycle July has been up 46% time with an average gain of 1.0%. The worst July ever, 2002 (-9.2%), the best 1997 (+10.5%)

The average month has 21 trading days. The chart below has been calculated by averaging the daily percentage change of the OTC for each of the 1st 11 trading days and each of the last 10. In months when there were more than 21 trading days some of the days in the middle were not counted. In months when there were less than 21 trading days some of the days in the middle of the month were counted twice. Dashed vertical lines have been drawn after the 1st trading day and at 5 trading day intervals after that. The line is solid on the 11th trading day, the dividing point.

In the chart below the blue line shows the average of the OTC in July over all years since 1963 while the black line shows the average during the 3rd year of the Presidential Cycle.

Since 1928 the SPX has been up 56% of the time in July with an average gain of 1.5%. During the 3rd year of the Presidential Cycle the SPX has been up 57% of the time with an average gain of 1.1%. The best ever July for the SPX was 1932 (+37.7%) the worst 1934 (-11.5%).

The chart below is similar to the one above except it shows the daily performance over all years for the SPX in July in red and the performance during the 3rd year of the Presidential Cycle in black.

Since 1979 the Russell 2000 (R2K) has been up 47% of the time in July with an average loss of -0.5%. During the 3rd year of the Presidential Cycle the R2K has been up 56% of the time with an average gain of 0.5%. The best ever July for the R2K, 1980 (+11.0%), the worst 2002 (-15.2%)

The chart below is similar to those above except it shows the daily performance over all years of the R2K in July in magenta and the performance during the 3rd year of the Presidential Cycle in black.

Since 1885 the Dow Jones Industrial Average (DJIA) has been up 61% of the time in July with an average gain of 1.2%. During the 3rd year of the Presidential Cycle the DJIA has been up 56% of the time with an average gain of 0.7%. The best July ever for the DJIA 1932 (+26.7%), the worst 1893 (-15.7%)

The chart below is similar to those above except it shows the daily performance over all years of the DJIA in July in Magenta and the performance during the 3rd year of the Presidential Cycle in black.

Conclusion

Recently, the number of new lows on the NYSE has been frightening, but confined to mostly energy and interest rate sensitive issues. The NASDAQ counts have been quite a bit better. Seasonally, the strongest 6 months of the 4 year Presidential Cycle end in about 2 weeks.

I expect the major averages to be higher on Friday July 3 than they were on Friday June 26.

Several alert readers pointed out the date mix up in last week’s forecast. I will call it a senior moment which have been increasing recently.

When you straighten the dates around, 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.