Technical Stock Market Report

The good news is:  On Monday the market retested its August low and bounced off of it. 

The negatives:  Last week was a mirror of the previous week.  Most of the major indices were up for each of the last 4 days of last week while new lows remained at threatening levels.

The first chart shows the S&P500 (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 is a good indicator of market health and it did not respond to last weeks rally.

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 also did not respond to last weeks rally.

The problem is a lack of new highs.

The next chart covers the past 6 months showing the SPX in red and a 10% trend (19 day EMA) of NYSE new highs (NY NH) in green.

NY NH has been unresponsive to any of the rallies in the past month.

The next chart is similar to the one above except it covers the past 5 years and the dashed vertical lines have been drawn on the 1st trading day of each year.

NY NH is about as low as it can go and the last time it was this low was in the fall of 2011.

The next chart is similar to the 2 above except it covers the past 10 years.

NY NH did get a little lower in the late stages of the 2008-9 bear market.

The numbers are not much better on the NASDAQ.

The next chart covers the past 5 years showing the OTC in blue and OTC NH, calculated from NASDAQ data, in green.

OTC NH is still a little above its 2011 low.

The positives

On Monday the major indices retested their August lows and, at least one important indicator did not confirm the retest.

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

OTC NL was higher at last Monday’s low than it was at the August low.  A non confirmation.  Unfortunately it continued to move downward during last weeks rally.

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.

NY NL not only failed to confirm the retest, but, it moved modestly upward during the rally that followed.

There has been a whole lot of buying going on.

The next chart covers the past 6 months showing the SPX in red and a 5% trend (39 day EMA) of NYSE volume of advancing issues (NY UV), in green.

NY UV is at its highest level in over 6 months.

The next chart is similar to the one above except it covers the past 3 years and dashed vertical lines have been drawn on the 1st trading day of each year.

Except for a spike at the end of last year NY UV is at its highs level in over 3 years.

Money supply (M2)

The money supply chart was provided by Gordon Harms.

Money supply growth is well above its trend of the past 3 years.

Conclusions

The persistence of high levels of new lows during last week’s rally leads me to believe it is or was just a bear market rally.

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

Last week the blue chip indices were up, while the small caps were down so I am calling last weeks positive 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.