Technical Stock Market Report

The good news is:  The NASDAQ composite (OTC) hit an all-time high in the past week.

 The negatives:  New highs continued at weak levels during the past week while new lows increased slightly.  Levels of new lows are not alarming, but the direction of the trend is.

The chart below covers the past 6 months showing the S&P500 (SPX) in red and a 10% trend (19 day EMA) of NYSE new highs (NY NH), in green.  Dashed vertical lines have been drawn on the 1st trading day of each month.

NY NH continued to deteriorate. 

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

OTC NH was far from confirming last week’s all-time high for the OTC.

The lack of new highs is indicative of narrowing leadership.  The best performing sector last week was big tech which makes up most of the capitalization of the OTC.

The positives

With the trend of new lows slowly increasing the positives are getting shaky.

The next chart covers the past 6 months showing 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.

NY HL Ratio declined, but finished the week slightly above the neutral level at 52%.

The chart below 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.

OTC HL Ratio was a bit stronger finishing the week moving up to 64%.

M2 growth has fallen a little below the recent trend.

June

Since 1963, over all years the OTC in June has been up 58% of the time with an average gain of 0.5%.  During the 3rd year of the Presidential Cycle June has been up 69% time with an average gain of 2.2%.  The worst June ever, 2008 (-9.4%), the best 2000 (+16.6%)

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 June over all years since 1963 while the black line shows the average during the 3rd year of the Presidential Cycle.

Since 1928 the SPX has been up 55% of the time in June with an average gain of 0.8%.  During the 3rd year of the Presidential Cycle the SPX has been up 67% of the time with an average gain of 2.1%.  The best ever June for the SPX was 1938 (+24.7%) the worst 1930 (-16.5%).

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

Since 1979 the Russell 2000 (R2K) has been up 61% of the time in June with an average gain of 0.6%.  During the 3rd year of the Presidential Cycle the R2K has been up 67% of the time with an average gain of 1.4%.  The best ever June for the R2K, 2000 (+8.6%), the worst 2010 (-7.9%)

The chart below is similar to those above except it shows the daily performance over all years of the R2K in June 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 46% of the time in June with an average gain of 0.1%.  During the 3rd year of the Presidential Cycle the DJIA has been up 56% of the time with an average gain of 1.1%.  The best June ever for the DJIA 1938 (+24.3%), the worst 1930 (-17.7%)

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

Conclusion

The first half of the 3rd year of the Presidential Cycle has been, on average, the strongest 6 month period of the entire cycle.  The first 5 months of this year have been a disappointment.  The OTC has been the strongest of the major averages up 7% YTD while the Dow Jones Industrial Average has been the weakest, up only 1% YTD.  With one month of this seasonally strong period left to go the chances for a strong 1st half are fading.  Big tech issues have been pulling the OTC to new highs while the breadth indicators have been deteriorating.

I expect the major averages to be higher on Friday June 5 than they were on Friday May 29.

Last week’s positive 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.