Technical Market Report for April 16, 2016
The good news is:
• The secondaries have been outperforming the blue chips.
NASDAQ breadth indicators continue to underperform NYSE breadth indicators. Considering the NASDAQ composite (OTC) is only about 5% off its all time high, the number of NASDAQ new highs has been abysmal.
The first chart covers the past 6 months showing the 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.
In a healthy bull market OTC NH would be leading the way upward.
The next chart is similar to the one above except it covers the past year. OTC NH has been deteriorating for quite a while.
The next chart is similar to the first chart except it shows the S&P 500 (SPX) in red and NY NH, in green has been calculated from NYSE data.
The NYSE has a lot more interest rate sensitive issues than the NASDAQ and the yield on 10 yr treasuries has fallen to around 1.7%. The NYSE new high list has been dominated by interest rate sensitive issues.
The next chart is similar to the one above except it covers the past year and a half.
NY NH looks pretty good here, but not quite as good as the shorter term chart suggests.
While new highs have been disappointing, new lows have disappeared and nothing really bad happens without a significant increase in new lows.
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 50%, neutral level.
OTC HL Ratio rose to a very strong 73%.
The next chart below 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 finished the week at a sensational 96%.
Next week includes the 5 trading days prior to the 4th Friday of April during the 4th year of the Presidential Cycle. Good Friday usually falls in April so there have been very few April's with 4 Fridays. There are 10 trading days left in April so tables below show the daily change, on a percentage basis for the last 10 trading days in April.
You may have to widen the window to avoid the word wrap.
OTC data covers the period from 1963 to 2015 while SPX data runs from 1928 to 2015. There are summaries for both the 4th year of the Presidential Cycle and all years combined.
The coming week has been stronger during the 4th year of the Presidential Cycle than other times.
Report for the last 10 days of April.
The number following the year represents its position in the Presidential Cycle.
The number following the daily return represents the day of the week;
1 = Monday, 2 = Tuesday etc.
Money supply (M2) and interest rates
The charts below were provided by Gordon Harms. It looks like there was a spike in M2 early in the month. And M2 growth is well above its long term trend.
An inverted yield curve (short term rates above long term rates) has been the best predictor of a recession. The chart below shows a comparison of 2yr - 30 yr rates over the past 16 years. It is difficult to imagine how the yield curve could invert when the Fed is holding short term rates at or near 0% and M2 is expanding rapidly.
There is nothing alarming in the breadth indicators and seasonally the last half of April has been pretty strong, especially for the secondaries.
I expect the major averages to be higher on Friday April 22 than they were on Friday April 15.
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YTD W 8 / L 7 / T 0