Technical Stock Market Report

September 11, 2016

The good news is:

• The NASDAQ composite (OTC) and S&P Mid-cap indices closed at all-time highs last Wednesday before falling to losses for the week.

The Negatives

2%+ declines are scary, but when they follow confirmed all-time highs, scary is all they are.

The first chart 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.

I am presenting this chart a negative because the last high in NY NH was in early July and it has been falling ever since, failing to confirm the all-time SPX high last month and well below its early July high. However, it could be worse. Over 25 years ago I developed a timing system called MIRAT and one of the parameters was a No Sell Filter imposed when NY NH was above 130. As of Friday's close NY NH was at 172. That was back in the day when the percentage of fixed income issues on the NYSE was much smaller than it is today. The extent to which the high percentage of fixed income issues contaminates the data is still unknown.

The positives

Most of the breadth indicators confirmed Wednesday's high.

The secondaries have been leading the blue chips upward.

On Friday, the worst day of the week, new lows remained at insignificant levels.

The next chart covers the past 6 months showing the 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 horizontal lines have been drawn at 10% levels for the indicator, the line is solid at the 50%, neutral level.

OTC HL Ratio at 71% remains very strong.

The next chart 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 fell to a very strong 80%. On Friday, the worst day of the week, NYSE new highs outnumbered new lows.

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 confirmed Wednesday's all time high for the OTC.

The next chart is similar to the one above except it covers the past year.

OTC NH hit its highest level in nearly 3 years on Wednesday.


Friday's market action will probably shut down any talk of a September rate hike by the FED. If the typical non confirmation patterns are followed as there should be, at least, one more new highs in the blue chip indices before a significant decline gets under way. I am not suggesting a high likelihood of a significant decline. Just saying if it comes, it did not begin last week.

I expect the major averages to be higher on Friday September 16 than they were on Friday September 9.

Last week's positive forecast was a miss.

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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