Technical Stock Market Report

The good news is:  New lows disappeared at the end of last week.

Chuck Butler writing in the Daily Pfennig last week gave a concise definition of the Plunge Protection Team (PPT): 

“ PPT stands for Plunge Protection Team, but their real name is: The President's Working Group on Financial Markets. This group was created by executive order in 1988 by President Reagan. It consists of the U.S. Treasury Sec. , the Chairperson of the Fed, The chairperson of the SEC, and the Chairperson of the Commodity Futures Trading Commission (CFTC), and they were created after the bloodbath that is otherwise known as Black Monday, or the October Crash 1987, in order to shore up the markets.  and some say to even manipulate them. But I won't go there, I'll just say what the Forbes said yesterday. "U.S. Plunge Protection Team Out In Force This Morning".”

The negatives:  There were 1336 new lows on the NYSE Monday, 41% of issues traded and 772 on the NASDAQ, 26% of issues traded.  A retest usually follows numbers of this size. 

A rally began on Wednesday that left all of the major indices positive for the week, but it was not led by the small caps or accompanied by a significant increase in the number of new highs.

The first chart shows the NASDAQ composite (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 continued falling in spite of the 7% rally in the index.

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.

The 6.5% rally did not generate a blip in NY NH.

The next chart shows 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% levels for the indicator, the line is solid at the 50%, neutral level.

NYSE new lows disappeared last week, but still outnumbered new highs every day of the week.

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

The NASDAQ was a bit stronger than the NYSE, but very weak.

Last weeks rally was, in the vernacular, a dead cat bounce.

The positives

On Monday there were 1336 new lows on the NYSE.  By Friday that number had dropped to a non threatening 21.  The NASDAQ was nearly as impressive with new lows falling from 772 to 28.

The next chart covers the past 6 months showing the SPX in red and a 10% trend 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 began moving sharply upward at the end of last week.

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

OTC NL also turned sharply upward last week.

The problem with the charts above is the extreme number of new lows on Monday suggests a high likelihood of a retest in the next month or so.

In the chart below the blue line shows the average of the OTC in September over all years since 1963 while the black line shows the average during the 3rd year of the Presidential Cycle over the same period.

Since 1928 the SPX has been up 45% of the time in September with an average loss of -1.0%.  During the 3rd year of the Presidential Cycle the SPX has been up 40% of the time with an average loss of -1.1%.  The best September ever for the SPX was 1939 (+16.5%) the worst 1931 (-29.9%).

The chart below is similar to the one above except it shows the daily average performance over all years for the SPX in September in red and the performance during the 3rd year of the Presidential Cycle in black.

Since 1979 the Russell 2000 (R2K) has been up 56% of the time in September with an average loss of -0.4%.  During the 3rd year of the Presidential Cycle the R2K has been up 44% of the time with an average loss of -1.2%.  The best September ever for the R2K, 2010 (+12.3%), the worst 2001 (-13.6%)

The chart below is similar to those above except it shows the daily performance over all years of the R2K in September in magenta and the performance during the 3rd year of the Presidential Cycle in black.

Since 1885 the Dow Jones Industrial Average (DJIA) has been up 44% of the time in September with an average loss of -0.9%.  During the 3rd year of the Presidential Cycle the DJIA has been up 44% of the time with an average loss of -1.2%.  The best September ever for the DJIA 1939 up 13.5%, the worst 1931 (-30.7%).

The chart below is similar to those above except it shows the daily performance over all years of the DJIA in September in dark magenta and the performance during the 3rd year of the Presidential Cycle in black.

Conclusion

There was apparently an intervention on Monday and the sellers went home.  This period of weakness needs to resolve itself, but it is going to take a little longer than it would have if the market were allowed to crash.

I expect the major averages to be lower on Friday September 4 than they were on Friday August 28.

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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.