Technical Stock Market Report

July 16, 2016

The good news is:  The blue chip indices closed at all-time highs last week.

The Negatives:  The market is overbought.

Treasury yields, although still absurdly low, increased by nearly 10% last week.

The positives:  New highs increased dramatically while new lows remained insignificant.

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 finished the week at its highest level in over 2 years..

The next chart is similar to the one above except it shows the S&P500 (SPX) in red and NY HL Ratio, in blue, has been calculated from NYSE data.

NY HL Ratio finished the week at its highest level in over 3 years.

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

OTC NH hit its highest level in over a year.

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

NY NH is also at its highest level in over a year.

Money supply (M2) and interest rates

The money supply and interest rate charts were provided by Gordon Harms.

Several years ago the regression line of M2 turned noticeably upward.

The rate of increase appears to have accelerated again.

With the shortest end of the yield curve held artificially at or near 0% it is nearly impossible for the yield curve to invert, but it appears to be flattening.

Conclusion

The major indices have been up 8% - 10% in the last 12 trading days.

Central Banks have been using BREXIT as an excuse to flood their deteriorating economies with even more liquidity.  All of the financial markets may be in a blow off.  I cannot imagine how this can end well.

The technical indicators are strong, while seasonality has been weak.

I expect the major averages to be lower on Friday July 22 than they were on Friday July 15.

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.

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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