Technical Stock Market Report

September 7, 2013

The good news is:  New highs picked up to the highest levels in several weeks. The negatives: The chart below covers the past 6 months showing the S&P500 (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.

NY NH peaked last May and failed to confirm the SPX high in early August, but, may have begun turning upward last week.  If this is any more than a bear market rally NY NH will have to turn sharply upward.

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

The OTC is less than 1% off its early August high while OTC NH is only slightly off its low for the year.  If the OTC hits a new high in the next few days OTC NH will not be confirming the high.

The positives:

There have been no new lows to speak of on the NASDAQ for quite a while and new lows declined on the NYSE last week.

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 recovered to 80% on Friday.  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 has been calculated from NYSE data.

NY HL Ratio has been weaker than OTC HL Ratio, but it did manage to go positive last week.

Seasonality:

Next week includes the 5 trading days prior to the 2nd Friday of September during the 1st year of the Presidential Cycle.

The tables below show the daily return on a percentage basis for the 5 trading days prior to the 2nd Friday of September during the 1st year of the Presidential Cycle.

OTC data covers the period from 1963 – 2012 while SPX data runs from 1953 - 2012.  There are summaries for both the 1st year of the Presidential Cycle and all years combined.  Prior to 1953 the market traded 6 days a week so that data has been ignored.

Average returns for the coming week have been negative by all measures.  Those returns are heavily influenced by 9-11-2001.


Money Supply (M2):

The money supply chart was provided by Gordon Harms.

Money supply growth aligned with the elevated trend last week.

Conclusion

  • The market was up for 4 consecutive days last week so it is a little overbought.  Take 9-11 out of the equation and seasonality is neutral.
  • I expect the major averages to be lower on Friday September 13 than they were on Friday September 6.
  • Last week’s negative forecast was a miss.

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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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