Technical Stock Market Report

The good news is: The NASDAQ composite (OTC) closed at a multi year high on Friday while all of the other broad based indices closed at all time highs.

The negatives - The chart below covers the past 6 months showing the S&P 500 (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.

The SPX closed at an all time high Friday while NY NH remains closer to its low of the past 6 months than its high.  This is an example of an extreme non confirmation.

The next chart is similar to the one above except it shows the OTC in blue and OTC NH, in green, has been calculated from NASDAQ data.

The OTC closed at a multi year high Friday while OTC NH is well below its July high.

New highs failing to confirm index highs is an indication of narrowing leadership.

The positives - New index highs are a strong positive.  52 week new highs of the individual issues have come up short, but, even more important, new lows have remained dormant.

The chart below 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 finished the week above 90%.

There are trading systems that impose a NO SELL filter when variations of this indicator are above 80%.

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 also rallied to a very strong 89%.

Money Supply (M2)

The money supply chart was provided by Gordon Harms.

Money supply growth declined a little last week.

Conclusion - The market had a strong week with the major indices up 1% - 3% with good strength in the breadth indicators.  New highs are not confirming the index highs and volume leaves something to be desired,  but, all time highs by all of the broad based indices suggest further advances.

I expect the major averages to be higher on Friday October 25 than they were on Friday October 18.

Last weeks negative forecast was a miss.

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Disclaimer: Mike Burk is an employee and principal of Alpha Investment Management (Alpha) a registered investment advisor. Charts and figures presented herein are believed to be reliable but we cannot attest to their accuracy.   Recent (last 10-15 yrs.) data has been supplied by CSI (csidata.com), FastTrack (fasttrack.net), Quotes Plus (qp2.com) 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.