Technical Stock Market Report

The good news is:  We saw a down week with no buildup of new lows on the NASDAQ.  The negatives:   The market has been following the typical seasonal pattern for the 1st year of the Presidential Cycle pretty closely and that pattern calls for another week of weakness.  Nothing in the breadth indicators suggests otherwise.

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.

With the SPX only 1.1% off its all time high, NY NH is closer to its late June low than its mid May high.

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

OTC NH fell sharply last week.

The positives

New lows remained insignificant on the NASDAQ.

The chart below covers the past 6 months showing the OTC in blue and a 40% trend (4 day EMA) of NASDAQ new highs / (new highs + new lows), (OTC HL Ratio), in red.  Dashed horizontal lines have been drawn at 10% levels for the indicator, the line is solid at the neutral 50% level.

OTC HL Ratio closed at 85% on Friday.

There are trading systems that impose a NO SELL filter when variations of this indicator are above 80%.

There was a significant pickup in NYSE new lows last week.  Detroit city management suggested giving their muni bond holders a haircut which had investors fleeing the sector.  There was a heavy concentration of muni bond funds on the NYSE new low list last week.

The chart below is similar to the one above except is shows the SPX in red and NY HL Ratio, in blue, has been calculated from NYSE data.

NY HL Ratio dropped below the neutral line Wednesday, but recovered a little on Thursday and Friday.

Seasonality

Next week includes the 5 trading days prior to the 3rd Friday of August during the 1st year of the Presidential Cycle.

The tables below show the daily return on a percentage basis for the 5 trading days prior to the 3rd Friday of August during the 1st year of the Presidential Cycle.

OTC  data covers the period from 1963 – 2012 while SPX data runs from 1953 - 2012.  There are summaries for both the 1st year of the Presidential Cycle and all years combined.  Prior to 1953 the market traded 6 days a week so that data has been ignored.

Similar to last week, average returns for the coming week have been slightly positive over all years, but, slightly negative during the 1st year of the Presidential Cycle.

Report for the week before the 3rd Friday of August.

The number following the year is the position in the Presidential Cycle.

Daily returns from Monday through 3rd Friday.

Money Supply (M2)

The money supply chart was provided by Gordon Harms.

Money supply growth has risen above its elevated trend of the last few years.

Conclusion

The breadth indicators were weak last week and seasonality for the coming week has been weak.

Things should not get too bad because the Fed is still chipping in their $85 billion a month.

I expect the major averages to be lower on Friday August 16 than they were on Friday August 9.

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Disclaimer: Mike Burk is an employee and principal of Alpha Investment Management (Alpha) a registered investment advisor. Charts and figures presented herein are believed to be reliable but we cannot attest to their accuracy.   Recent (last 10-15 yrs.) data has been supplied by CSI (csidata.com), FastTrack (fasttrack.net), Quotes Plus (qp2.com) 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.