Technical Stock Market Report

The good news is:  Last week the market had its best week in a while.

The negatives:  In spite of a sensationally strong week for the major indices,  new lows exceed new highs every day last week on both the NYSE and NASDAQ.

The secondaries underperformed the blue chips and the AD lines were flat.

The chart below 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.

In spite of a strong rally in prices, NY HL Ratio remained in deeply negative territory.

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 has been slightly stronger than NY HL Ratio, but also remained well into negative territory.

Advance – Decline lines (ADL) are running totals of declining issues subtracted from advancing issues.  Their character varies between data sets and over time.  It is short term variations over time often give hints as to where the market is headed.

The chart below covers the past year showing the SPX in red and an ADL calculated from NYSE data in blue.  The NYSE ADL was very strong until April of this year when it began weakening.  Prices held up for several months before catching up with the ADL to the downside.  The NYSE ADL has been failing to keep up with prices for the past month.

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

The OTC ADL has never been as strong as the NYSE ADL, but the patterns are similar.  The OTC ADL also peaked last April and remained very weak during the rally off the late September low.

The positives:  The breadth indicators have been weak, but Seasonality the remainder of the year is pretty strong.

Money supply (M2)

The money supply chart was provided by Gordon Harms.

Money supply growth weakened again last week.

Conclusion

Weakness in the breadth indicators leads me to think the rally off the late September low was not the beginning of a new up leg, but a countertrend rally.

I expect the major averages to be lower on Friday November 27 than they were on Friday November 20.

Last weeks 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.