Technical Stock Market Report

December 10, 2016

The good news is:  All of the major indices closed at all-time highs last Friday.

The Negatives: The market is overbought.

The Positives: Last week new lows disappeared while new highs soared to their highest levels in several years and the secondaries continue to lead the way up.

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 rose to 92.5%, tying its level of a little over a week ago, its highest level in about 3 years.

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

NY HL Ratio rose to 92%.

The next chart covers the past 6 months showing 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 3 years.

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

NY NH closed at its highest level by a hair.

Conclusion

The major indices hit all-time highs and the breadth indicators finally caught up with them. Seasonality is positive for the rest of the month.

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

Last week’s negative 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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