Technical Stock Market Report

The good news is:  The blue chip indices and NYSE breadth data have been holding up well.

The negatives:  The secondaries continue to underperform the blue chips and the NASDAQ breadth indicators continue to underperform those on the NYSE.

The chart below covers the past 6 months showing the NASDAQ composite (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 continued to fall last week.

The next chart is similar to the one above except it covers the past year to offer a longer term perspective on how this indicator has been deteriorating. 

OTC NH is near its low of the past year.  The OTC is capitalization weighted so the large cap issues are keeping the index up.  The low value of OTC NH implies the support is not broad based.

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 neutral 50% level.

OTC HL Ratio fell below the neutral line last week.

Advance Decline lines (ADL) are running totals of declining issues subtracted from advancing issues.  Their behavior varies and often changes near tops.

The chart below covers the past 6 months showing the OTC in blue and an ADL calculated from NASDAQ data in green.

The OTC ADL peaked in early March and its deterioration has accelerated in the past 2 weeks.

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

You can see how the OTC ADL hit a new high whenever the OTC hit a new high until last March.  Now it appears to be leading the way down.

The next chart is similar to the first chart except it shows the S&P 500 (SPX) in red and NY NH has been calculated from NYSE data.

NY NH has been stronger than OTC NH, but it continued its fall last week.

The positives:  NYSE breadth data, although weakening, has continued to hold up better than NASDAQ breadth data and the number of new lows on the NYSE has remained insignificant.

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% levels for the indicator, the line is solid at the neutral 50% level.

NY HL Ratio held at a very strong at 83%.

Money Supply (M2)

The money supply chart was provided by Gordon Harms.

M2 growth has been declining, but still holding close to its trend line.

Conclusion

Prices have been holding up remarkably well considering the deterioration in the breadth indicators.  On average the blue chips have been stronger than the secondaries during this seasonal period and that pattern has been evident this year.

In 1999 the SPX was up 19% but very few of the component issues of the SPX were up that year (11% is the figure that comes to mind, but I am not sure of that).  The blue chip rally lasted until March of 2000.  Conditions in the equity markets are not as extreme now as they were in 1999, but the pattern is similar.

I expect the major averages to be lower on Friday July 25 than they were on Friday July 18.

Last week the blue chips were up a little while the secondaries were down a little, 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.