Technical Stock Market Report

The good news is: All of the major indices hit all time or multi year highs last week. The negatives:  While the major indices have been hitting progressively new, higher highs this year they have been doing it with progressively fewer of their component issues hitting new highs. 

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.

NY NH has been trending lower while the SPX has been trending higher.

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

OTC NH rose sharply last week, but remains closer to its low for the year than its high.

The positives:  New lows have remained dormant.

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.

OTC HL Ratio finished the week at 92%.  There are trading systems that impose a NO SELL filter when variations of this indicator are above 80%.

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

NY HL Ratio finished the week at a very strong 86%.

Seasonality:    Next week includes the 5 trading days prior to the 4th Friday of September during the 1st year of the Presidential Cycle.

The tables below show the daily percentage return for the 5 trading days prior to the 4th Friday of September during the 1st year of the Presidential Cycle.  

OTC data covers the period from 1963 - 2012 while SPX data runs from 1953 - 2012.  There are summaries for both the 1st 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 negative by all measures.

Money Supply (M2)

The money supply chart was provided by Gordon Harms.

Money supply growth has been steady.

Conclusion

The market is overbought and seasonality for next week is negative.

The exuberance over the Fed promising to continue to chip in $85 billion a month gave the market a boost last week.

I expect the major averages to be lower on Friday September 27 than they were on Friday September 20. 

Last week’s negative forecast was a miss.

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