Technical Stock Market Report

December 5, 2015

The good news is:  At the end of a very volatile week most of the major indices were up.

The negatives:  New lows finished the week at their highest levels in nearly a month.

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.

In late June (A) the SPX hit an all time high and NY NH also hit a high for the period. 

In mid July (B) the SPX hit a new all time high while NY NH was lower than it had been in late June.  This pattern is called a non confirmation.

A sharp decline followed about a month later.

Around November 1 (C) the SPX came close to its old high while NY NH did the same.

Around December 1 (D) the SPX came near its level of a month earlier while NY NH made a lower high.

Another non confirmation.

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.

The patterns are the same as in the chart above.

The next chart covers the past 6 months showing the SPX in red and a 10% trend 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).

The description of the previous 2 charts also fits this one.

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

Ditto for the description.

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.

I view NY HL Ratio and OTC HL Ratio as indicators of market condition and not necessarily predictive, however you can see the pattern of non confirmations found in the charts above.

The next chart 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, while weak, has been the strongest of the indicators shown.

The December 1 high in the index was confirmed by OTC HL Ratio.

The positivesThe breadth indicators are mostly weak, but, in about a week, Seasonality becomes very positive.

Conclusion

We have a combination of Seasonal strength with weak breadth.

I expect the major averages to be lower on Friday December 11 than they were on Friday December 4.

Last week all of the major averages were up except the Russell 2000 so I am calling last weeks positive forecast a tie.

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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.

Mike Burk began developing equity trading systems in the early 1980's.  Through the 1990's he marketed an equity trading system called MIRAT based on breadth indicators, but, primarily new lows.  In the early days of this century he developed the seasonal trading strategies currently used by Alpha Investment Management of Cincinnati.  Mr. Burk has been writing equity market newsletters since the early 1990's.  During the past 10 years the letter observes both breadth and seasonal strategies.
 
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