Technical Stock Market Report

April 2, 2016

The good news is:  New lows declined to insignificant levels and the secondaries have been outperforming the blue chips.

The Negatives:  The market is overbought.

The chart below covers the past 34 trading days showing the major indices on log scales.  Dashed vertical lines have been drawn on the 1st trading day of each week.  The first line in the legend shows the symbol followed by the current percentage change from the starting date followed by the range of changes which have all been up.  The second line begins with maximum drawdown (MDD) and the date it occurred.  CAR is compound annual return.  If the market were to continue to advance at the same rate for an entire year this is what the return would be.

The positivesNew highs picked up significantly last week.

The chart below 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.

After dancing around the neutral line for several weeks OTC HL Ratio shot up and finished the week at a strong 70%.

The next chart below is similar to the one above except it shows the 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 94%.

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

OTC NH rose sharply last week.

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

NY NH rose to its highest level in a year.

Conclusion

The breadth indicators were all strong last week.  NYSE new highs hit their highest levels in nearly a year and the NYSE AD line reached its all time high of about a year ago.  NASDAQ breadth indicators improved, but continued to underperform the NYSE breadth indicators.  This is the anniversary of one of the worst weeks in market history, April 2000.  Technical conditions compared to that period are not similar.

I expect the major averages to be higher on Friday April 8 than they were on Friday April 1.

Last weeks negative forecast was a miss.

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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