Technical Stock Market Report

The good news is: The market averages are likely to be at or near their low point for this month. The Negatives: New highs have disappeared. There were 406 new lows on the NYSE last Thursday, that is huge.

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 1^st trading day of each month.

NY NH is close to its low of last June and falling.

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.

OTC NH continued its tumble last week.

The chart below covers the past 6 months showing the SPX in red and a 40% trend (4 day EMA) of NYSE new highs / (new highs + new lows), (NY 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.

NY HL Ratio is near its low of late June and falling sharply.

The Positives:  New lows remained insignificant on the NASDAQ.

The chart is similar to the one above except it shows the OTC in blue OTC HL Ratio, in red, has been calculated from NASDAQ data.

OTC HL Ratio closed at 64% on Friday, still above the neutral level.

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Seasonality:  Next week includes the 5 trading days prior to the 4^th Friday of August during the 1^st year of the Presidential Cycle.

The tables below show the daily return on a percentage basis for the 5 trading days prior to the 4^th Friday of August during the 1^st 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 1^st 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 mixed, slightly positive for the OTC and slightly negative for the SPX.

Money Supply (M2)

The money supply chart was provided by Gordon Harms.

Money supply growth remained above its elevated trend of the last few years.

Conclusion

The market has been following the average seasonal pattern for the 1^st year of the Presidential Cycle quite closely.  That pattern suggests we should be at or near the low for this month.  The market is oversold with many of the breadth indicators near their lows of the year.

I expect the major averages to be higher on Friday August 23 than they were on Friday August 16.

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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.