Technical Stock Market Report

The good news is:  The NASDAQ composite (OTC) closed at an all time high on Friday. 

The negatives:  Last week’s rally was impressive, the kind that makes one question one’s bearhood.

Bull markets begin with the disappearance of new lows and downside volume and continue with the secondaries leading the blue chips upward.

That is not what happened last week.

The first chart covers the past 6 months showing the S&P 500 (SPX) in red and a 10% trend (19 day EMA) of NYSE new lows (NY NL), in blue.  Dashed vertical lines have been drawn on the 1st trading day of each month.  NY NL has been plotted on an inverted Y axis so decreasing new lows move the indicator upward (up is good).

NY NL moved upward last week until Friday when it turned downward in spite of an up day for the SPX.  If the market were coming off a bottom NL would move upward whether or not the index was moving upward.

The Hindenburg Omen is an indicator, developed by the late Jim Miekka, that triggers when the conditions are in place for a serious decline.  One of the main criteria for the indicator is NYSE new highs and new lows must both be in excess of 2.3% of the issues traded.  That criteria was met nearly every day last week.

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

OTC NL has also moved upward last week, but, also turned downward on Friday.

FastTrack (fasttrack.net) has a relative strength indicator called Accutrack.

The chart below covers the past year showing the SPX in green, the Russell 2000 (R2K) in red and Accutrack as a histogram in yellow.  Accutrack is above the neutral line when the R2K, representing the secondaries, is stronger than the blue chips, represented by the SPX.

It is significant that Accutrack fell below the neutral line during last weeks rally.

The next chart covers the past 6 months showing the 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 horizontal lines have been drawn at 10% levels for the indicator, the line is solid at the 50%, neutral level.

NY HL Ratio rallied last week, but turned downward finishing the week at 43% maintaining the pattern of lower highs and lower lows.

The positives:  Last week, on the NASDAQ, new highs outnumbered new lows every day. This is a significant positive tempered by the fact that new lows remained uncomfortably high.

The chart below covers the past 6 months showing the OTC in blue and a 10% trend of NASDAQ new highs (OTC NH) in green.

OTC NH rose sharply last week, but failed to confirm the index high.

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

OTC HL Ratio rallied to a comfortably positive 64%.

Money supply (M2)

The money supply chart was provided by Gordon Harms.

M2 growth has leveled off at its trend line.

Conclusions

Last week’s rally had all the marks of a top it was unconfirmed by everything that matters.

I expect the major averages to be lower on Friday July 24 than they were on Friday July 17.

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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