Technical Stock Market Report

The good news is:  There will be great opportunities when this decline is over.

The Negatives:  In the early years of this century housing was the only game going.  The Fed kept the game going by keeping interest rates too low for too long.  When housing finally collapsed of its own weight it took the financial system with it.  Since the collapse of 2008 – 2009, health care and energy have been the big winners and the Fed has kept that game going by keeping rates too low for too long.  The financial system is again in jeopardy.

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 declined to 14% last week.

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 remarkably went from very bad to worse again last week.

The next 2 charts show how the indicators above behaved in the 2008 – 2009 period.

The positives:  New lows increased to levels high enough to turn the new low indicators downward, but, on the bright side, the indicators failed to confirm the new low in the indices.

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 clearly did not confirm the lower low in the SPX.

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

OTC NL is showing a similar pattern to NY NL.

The next 2 charts show how the new low indicators looked during the 2008 – 2009 period.  There were multiple non confirmations as the indices continued their fall.

Money supply (M2)

The charts were provided by Gordon Harms.

Money supply growth is back above its trend line.

Conclusion

Violent rallies are a characteristic of bear markets -- and we may have seen the beginning of one Friday.  However the extreme numbers of new lows suggest the bear market has not been exhausted.

I expect the major averages to be lower on Friday February 19 than they were on Friday February 12.

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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.