Technical Market Report

The good news is:  The Dow Jones Industrial Average (DJIA) hit an all time high last week.

The negatives:  The DJIA, the bluest of the blue chips closed at an all time high last Wednesday likely marking the top of the cycle that began 5 years ago with the bottom in March 2009.  There was a confirmation of the DJIA high by the NYSE advance - decline line which I consider contaminated by the high percentage of fixed income issues.  Other breadth indicators failed to confirm and the stratification of the lower quality indices imply a cycle top.

The chart below covers the past 2 months showing the major indices on log scales to illustrate the stratification.  Dashed vertical lines have been drawn on the 1st trading day of the week and the 1st trading of the month.

Over the past 2 months the DJIA, in black, has lingered near its all time high followed closely by the S&P 500 (SPX), in red.  Next in performance has been the S&P mid cap (MID), in green, followed by the NASDAQ composite (OTC), in blue, and, at the bottom, the Russell 2000 (R2K), in magenta.

Highest quality on the top and lowest on the bottom.

The next chart 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 is at its lowest level in nearly a year and a half.

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

NY NH has been a little stronger, but is only a little above its lowest level in over a year.

The next chart covers the past 6 months showing the OTC in blue and a 10% trend of NASDAQ new lows (OTC NL) in red.  OTC NL has been plotted on an inverted Y axis so decreasing new lows move the indicator upward (up is good).

OTC NL continued falling during last weeks rally and is at its lowest level in over a year.

The next chart is similar to the one above except is shows the SPX in red and NY NL has been calculated from NYSE data.

This chart is not that bad, but notice that NY NL fell during last week's rally.

The next chart shows the OTC in blue and a 40% trend (19 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 fell below the neutral level as the DJIA (not shown) hit its all time high.

The positives:  NYSE breadth, in all forms (volume, new highs, new lows, advancing issues and declining issues) has held up remarkably well.

The chart below 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% increments for the indicator, the line is solid at the neutral 50% level.

NY HL Ratio finished last week where it was at the end of the previous week, at a strong 82%.

Money Supply (M2): The Money supply chart has been provided by Gordon Harms.

M2 has been tumbling.

Conclusion

Topping patterns show up from time to time and sometimes they amount to something and other times they do not.  This time the topping pattern coincides with the beginning of a seasonal pattern which includes the worst 6 months of the 4 year Presidential Cycle.

I expect the major averages to be lower on Friday May 9 than they were on Friday May 2.

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.