Technical Stock Market Report

The good news is:  The market has had 4 consecutive winning weeks.

The Negatives: The market is overbought.

The Dow Jones Industrial Average (DJIA) has been the worst performer of the major indices and it has been up 9.9% in the past 4 weeks.

The Russell 2000 (R2K) has been the best performer of the major indices, up 14.0% in the past 4 weeks.

The NYSE and NASDAQ markets have, internally, been performing differently with the NASDAQ weaker than the NYSE.

The first chart covers the past 6 months showing the NASDAQ composite (OTC) in blue and a 40% trend (4 day EMA) of NASDAQ new highs divided by new highs + new lows (OTC HL Ratio), in red.  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.

OTC HL Ratio was, for all practical purposes, unchanged last week at a slightly above neutral 53.9%.

The next chart covers the past 6 months showing the OTC in blue and a 10% trend (19 day EMA) of NASDAQ new highs (OTC NH) in green.

OTC NH has been pretty sluggish over the past month considering the magnitude of the rally.

The positives:  New lows continued to decline last week falling to signal digits on the NYSE.

The chart below is similar to the 1st chart except it shows the S&P 500 (SPX) in red and NY HL Ratio, in blue, has been calculated from NYSE data.

NY HL Ratio finished the week at a very strong 89.9%.

The next chart is similar to the 2nd chart above except it shows the SPX in red and NY NH, in green, has been calculated from NYSE data.

NY NH has been very strong and is leading the index upward.

The next chart 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 continued its sharp move upward.

The next chart is similar to the one above except it 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.

March

I neglected to do the monthly comparison for March in at the end of February, sorry.

Since 1963, over all years, the OTC in March, has been up 62% of the time with an average gain of 0.8%.  During the 4th year of the Presidential Cycle March has been up 54% time with an average loss of -1.4%; helped considerably by a 17.1% loss in 1980.  The best March for the OTC was 2009 (+10.9%), the worst 1980 (-17.1%).

The average month has 21 trading days.  The chart below has been calculated by averaging the daily percentage change of the OTC for each of the 1st 11 trading days and each of the last 10.  In months when there were more than 21 trading days some of the days in the middle were not counted.  In months when there were less than 21 trading days some of the days in the middle of the month were counted twice.  Dashed vertical lines have been drawn after the 1st trading day and at 5 trading day intervals after that.  The line is solid on the 11th trading day, the dividing point.

In the chart below the blue line shows the average of the OTC in March over all years since 1963 while the black line shows the average during the 4th year of the Presidential Cycle over the same period.

Since 1928 the SPX has been up 61% of the time in March with an average gain of 0.6%.  During the 4th year of the Presidential Cycle the SPX has been up 68% of the time with an average gain of 1.2%.  The best March ever for the SPX was 1928 (+10.8%) the worst 1938 (-25.0%).

The chart below is similar to the one above except it shows the daily average performance over all years for the SPX in March in red and the performance during the 4th year of the Presidential Cycle in black.

Since 1979 the Russell 2000 (R2K) has been up 73% of the time in March with an average gain of 1.3%.  During the 4th year of the Presidential Cycle the R2K has been up 67% of the time with an average loss of -2.1%; aided by a -18.5% loss in 1980.  The best March for the R2K, 1979 (+9.7%), the worst 1980 (-18.5%)

The chart below is similar to those above except it shows the daily performance over all years of the R2K in March in magenta and the performance during the 4th year of the Presidential Cycle in black.

Since 1885 the Dow Jones Industrial Average (DJIA) has been up 60% of the time in March with an average gain of 0.7%.  During the 4th year of the Presidential Cycle the DJIA has been up 66% of the time in March with an average gain of 1.5%.  The best March for the DJIA 1920 (+12.6%), the worst 1938 (-23.7%)

The chart below is similar to those above except it shows the daily performance over all years of the DJIA in March in grey and the performance during the 4th year of the Presidential Cycle in black.

Conclusion

The market indices weakened a bit early last week, but new lows continued to decline.  The secondaries were weaker than the blue chips last week, other than that, there is little to suggest this rally is over.

I expect the major averages to be higher on Friday March 18 than they were on Friday March 11.

Last week’s 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.