Technical Stock Market Report

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

The negatives: For the 1st time since last May, by the measure shown in the chart below, the secondaries are underperforming the blue chips.

The chart below from FastTrack covers the past year showing the Russell 2000 (R2K) in red and the S&P 500 (SPX) in green and relative strength indicator called Accutrack shown as a histogram at the bottom.  Dashed vertical lines have been drawn on the 1st trading day of each month.

When Accutrack is above the neutral line, the R2K is outperforming the SPX.  For the first time since last May, Accutrack has gone negative indicating the blue chips are outperforming the secondaries.

Volume has been increasing, which is good.  But, it is all going to the down side which is bad.

The chart below covers the past 6 months showing OTC in blue and a 5% trend (39 day EMA) of NASDAQ total volume (OTC Tot Vol T) in red.

Volume has been increasing steadily for the past 2 months.

The next chart shows the OTC in blue and only the upside volume component (OTC UV), in green, of OTC Tot Vol.

OTC UV jumped up in early September, but has been pretty steady for the past 6 weeks.

The next chart shows the OTC in blue and only the down side component of OTC DV, in red of OTC Tot Vol.  OTC DV has been plotted on an inverted Y-axis so decreasing down side volume moves the indicator upward (up is good).

The chart below shows that nearly all of the increase in volume over the past 6 weeks has been going to the down side.

The positives: New highs declined last week, but new lows 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 fell sharply last week to 74%, but remains well into positive territory.

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

NY HL Ratio, for a change, held up better than OTC HL Ratio, finishing the week, down a little, but still at a strong 87%.

Money Supply (M2): The money supply chart was provided by Gordon Harms.

Money supply growth accelerated last week.

Conclusion: I commented last week that market conditions were so good they could only get worse and they did.  The breadth indicators deteriorated and the secondaries underperformed the blue chips.  On the positive side, the Fed is still chipping in $85B a month and Seasonality is positive.

I expect the major averages to be lower on Friday November 8 than they were on Friday November 1.

Last week the blue chips were up while the secondaries were down so I am calling last weeks positive forecast a tie.

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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.