Technical Stock Market Report

The good news is:  The market is oversold and next week seasonality turns positive.

The negatives:  New highs disappeared last week, while new lows returned to threatening levels.

The first chart covers the past 6 months showing the S&P 500 (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 vertical lines have been drawn on the 1st trading day of each month.  Dashed horizontal lines have been drawn at 10% levels for the indicator, the line is solid at the 50%, neutral level.

NY HL Ratio moved downward finishing the week at a very weak 22% and is in a clearly defined down trend.

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

OTC HL Ratio declined to 27%.

The Positives:  The market weakness of the past several weeks has been consistent with a negative seasonal pattern that ends early next week.  New lows increased last week, but, so far, have not reached the levels of 2 weeks ago.

The chart below covers the past 6 months showing the SPX in red and a 10% trend (19 day EMA) of NYSE new lows (NY NL), in blue.  NY NL has been plotted on an inverted Y axis so decreasing new lows move the indicator upward (up is good).

NY NL turned downward last week, but stopped, possibly initiating a pattern of higher lows. 

Most of the breadth indicators were moving downward as of Friday’s close.  However, this period of weakness has been right on schedule with the average seasonal pattern and that pattern turns positive on Tuesday.

Money Supply (M2)

The money supply chart was provided by Gordon Harms.

M2 growth has been holding at its trend.

Conclusion

The recent period of weakness has been consistent with the average seasonal pattern and that pattern turns positive next Tuesday.

I expect the major averages to be higher on Friday August 14 than they were on Friday August 7.

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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.