Technical Stock Market Report

The good news is: The NASDAQ composite (OTC) closed at a multi year high on Friday while all of the other major indices closed at all time highs.

The negatives:  None of the breadth indicators confirmed Friday’s highs.

The chart below covers the past 6 months showing the OTC in blue and a 10% trend (19 day EMA) of NASDAQ new highs (OTC NH) in green.  Dashed vertical lines have been drawn on the 1st trading day of each month.

OTC NH turned up last week, but is closer to its low of the past 6 months than its high.

The next chart is similar to the one above except it shows the S&P 500 (SPX) in red and NY NH has been calculated from NYSE data.

NY NH is also closer to its low of the past 6 months than its high.

The positives: Seasonality rules.  The market rallied in spite of the Fed’s tapering announcement last week.  Seasonally the last half of December has a strong positive bias.

The next chart 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 recovered to 83% on Friday.

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 rose sharply, from negative territory, finishing the week at 70%.

Money Supply (M2):  The money supply chart was provided by Gordon Harms.

Money supply followed the trend line last week.

Conclusion:  Seasonal factors are dominant.  The rest of the year should see modest gains on low volume.

I expect the major averages to be higher on Friday December 27 than they were on Friday December 20.

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Disclaimer: Mike Burk is an employee and principal of Alpha Investment Management (Alpha) a registered investment advisor. Charts and figures presented herein are believed to be reliable but we cannot attest to their accuracy.   Recent (last 10-15 yrs.) data has been supplied by CSI (csidata.com), FastTrack (fasttrack.net), Quotes Plus (qp2.com) 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.