Technical Stock Market Report

The good news is:  The Dow Jones Industrial Average (DJIA) and S&P500 (SPX) closed at all-time highs last Monday.

The negatives: The DJIA and the SPX, both blue chip indices closed at all-time highs on Monday.  None of the broader indices accompanied them.

The chart below covers the period from March 4 when the Russell 2000 (R2K) hit its all-time high and the NASDAQ composite (OTC) hit a multi-year high.  It shows the major indices on log scales to illustrate the stratification in performance.  Dashed vertical lines have been drawn on the 1st trading day of the week and the 1st trading day of the month.

Over the period the DJIA, in black, has lingered near its all time high followed closely by the SPX, in red.  Next in performance has been the S&P mid cap (MID), in green, followed by the OTC, in blue, and, at the bottom, the R2K, in magenta.  Highest quality on the top and lowest on the bottom.

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.  Dashed vertical lines have been drawn on the 1st trading day of each month.

OTC NH is at its lowest level in nearly a year and a half.

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

NY NH fell last week.

The next chart covers the past 6 months showing the OTC in blue and a 10% trend of NASDAQ new lows (OTC NL) in red.  OTC NL has been plotted on an inverted Y axis so decreasing new lows move the indicator upward (up is good).

OTC NL recovered a little last week, but remains at a dangerously high level.

The next chart shows the OTC in blue and a 40% trend (19 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 neutral 50% level.

OTC HL Ratio bounced Monday then fell back to 22%, very negative.

The positives: NYSE breadth, in all forms (volume, new highs, new lows, advancing issues and declining issues) weakened a little last week, but continued to hold up much better than breadth on the NASDAQ.

The chart below covers the past 6 months showing the SPX, in red, and a 40% trend (4 day EMA) of NYSE new highs divided by new highs + new lows (NY HL Ratio), in blue.  Dashed horizontal lines have been drawn at 10% increments for the indicator, the line is solid at the neutral 50% level.

NY HL Ratio rose a bit last week to 68%.

Money Supply (M2):  The Money supply chart has been provided by Gordon Harms.

M2 continued its fall.

May through October during the 2nd year of the Presidential Cycle.

The period beginning around May 1 during the 2nd year of the Presidential Cycle has, on average, been the weakest 6 month period of the cycle.  The charts below all cover the period from around May 1 through November 1 during the 2nd year of the Presidential Cycle showing the major indices on log scales to offer a perspective on the relative performance of various segments of the equity market during that period.

The DJIA is shown in black, the SPX in red, OTC in blue and in the more recent charts the R2K in magenta and MID in green.  Prior to the early 1990's the OTC was very similar to the R2K.  Dashed vertical lines have been drawn on the 1st trading day of the month.  The middle month is May.

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2010

Conclusion:  In spite of the blue chip record highs on Monday the breadth indicators continued to deteriorate.

I expect the major averages to be lower on Friday May 23 than they were on Friday May 16.

Last week the OTC was up while all of the other major indices were down… so I am calling last week’s negative forecast a tie.

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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.