Technical Stock Market Report

December 13, 2014

The good news is:  The market is oversold as we are approaching a very strong seasonal period.

The negatives: New lows hit their highest levels since mid October on Friday.

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 and dashed horizontal lines have been drawn at 10% levels of the indicator, the line is solid at the neutral 50% level.

OTC HL ratio fell below the neutral level closing the week at 36%.

The next chart is similar to the one above except is shows the S&P 500 (SPX) in red and NY HL Ratio, in blue, has been calculated from NYSE data.

NY HL Ratio also declined finishing the week at 40%.

The positivesThe decline last week was seasonally on schedule and aggravated by the sharp decline in oil prices.

Short term, new highs which usually give a warning of impending tops, peaked a week ago with prices.

The chart below 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 peaked a few days after the peak in prices.  Not what you expect to see at a top.

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

Longer term OTC_NH is far from confirming the recent high.

The next chart is similar to the first of this group covering the past 6 months except is shows the SPX in red and NY NH has been calculated from NYSE data.

Looking at the past 6 months NY NH failed to confirm the recent all time high in the SPX, but was not too far off.

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

Longer term NY NH looks stronger than OTC NH.

Money Supply (M2)

The money supply chart was provided by Gordon Harms.

M2 growth picked up a bit last week but is still below its long term trend.

Conclusion

The market is oversold and seasonally this period of weakness ends around the middle of next week.

I expect the major averages to be higher on Friday December 19 than they were on Friday December 12.

If it is not for you, reply with REMOVE in the subject line.

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.

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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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