Technical Stock Market Report

The good news is:  New lows disappeared on Friday.

The negatives:  At bottoms downside volume, like new lows disappears.  Friday was the only day last week where that appeared to be happening.

The chart below covers this calendar year showing the S&P 500 (SPX) in red and a 5% trend (39 day EMA) of NYSE downside volume, (NY DV) in maroon.  NY DV has been plotted on an inverted Y axis so decreasing downside volume moves the indicator upward (up is good).  Dashed vertical lines have been drawn on the 1st trading day of each month.

You can see how NY DV has moved sharply upward following a short term price lows earlier in the year.  That is not visible yet.

There was a lot of buying going on last week.

For contrast the next chart shows the SPX in red and a 5% trend of NYSE upside volume (NY UV) in green.  NY UV has been plotted on a conventional Y Axis.

NY UV moved sharply upward last week.

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

OTC DV also did not snap up like it typically does coming off a bottom.

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

OTC UV also moved sharply upward.

The high levels of downside volume remain a threat to the rally.

The positives

Last week I incorrectly attributed a Fed definition of QE success to Donald Kohn.  It was actually James Bullard, President of the St. Louis Fed that defined QE as a success because it pushed the stock market up and the dollar down.  I saw the error Thursday when he was reported as saying it might be appropriate to put QE tapering on hold.  In some circles that statement was credited with arresting the decline in the equity market.

New lows on the NYSE declined from a high of 617 of Wednesday to 23 on Friday.  On the NASADAQ they declined from 362 on Wednesday to 39 on Friday.

Last week the secondaries outperformed the blue chips.  The Russell 2000 and S&P mid cap indices were up for the week while the Dow Jones Industrial Average, SPX and OTC were down.

If last week's low turns out to be the bottom for this period of weakness, it will have come only 4-5 days later than the average for the 2nd year of the Presidential Cycle.

Since it was only the last 2 days of the week that were strong there is nothing very convincing in the charts and downside volume suggests there is still a lot of selling going on.  Next week will be important.  If new lows remain anywhere near the levels we saw on Friday, we will be out of the woods.

Money Supply (M2)

The money supply chart was provided by Gordon Harms.

M2 growth continued to fall last week.

Conclusion

A little jawboning from the Fed and it looks like we have a bottom.

From a seasonal perspective the bottom, if it holds, was about a week late.

Seasonally next week has been pretty strong so the market has that wind at its back.

I expect the major averages to be higher on Friday October 24 than they were on Friday October 17.

Last week the blue chips were down while the secondaries were up so I am calling last weeks negative forecast a tie.

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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.