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Technical Market Report

The good news is:
 • All of the major averages, even the XAU closed at multi year highson Friday.

Short term

Is it a lift-off or a blow-off?
Most of the major indices were up close to 4% in the past 4 days.
New highs soared and new lows disappeared.
Breadth was overwhelmingly positive.
The secondaries outperformed the blue chips.

Unfortunately, that list of positives describes both a lift-off and a blow-off.

Nearly 1% per day is a pace that cannot be maintained so, in the short term, the pace will, at least, slow.

Intermediate term

The NASDAQ reported 212 new highs on Friday, the highest number since August 1, 2005 when there were 222 reported new highs.

The NASDAQ new high indicator (OTC NH) is a 10% trend (19 day EMA) of NASDAQ new highs. The chart below covers the period from late March 2005 through last Friday. Vertical dashed lines are drawn on the 1 st trading day of each month. The Wilshire 5000 is shown in red and OTC NH is shown in green.

OTC NH is lower than it was at the highs in early December and that high was lower than it was in early August. Successive highs since August have been made on narrowing leadership. Countertrend rallies, like the one in late August - early September are impressive affairs. If the market began a downtrend in early December (with prices held up by seasonal strength), last weeks strong move could be seen as a countertrend rally.

The key is NASDAQ new highs, the value of the indicator is 106 so if new highs drop below 106 (less than half of what was reported Friday), the indicator will turn downward. If new highs stay below 106 on an up day, the past weeks move should be viewed as a countertrend rally that just happened to take most of the indices to new highs. If new highs remain above 106 on days when the averages are down, an uptrend is in place.

Seasonality

During the 2nd year of the Presidential Cycle the first few days of January are, on average, sharply up and, on average the next week eliminates the gains of the first few days.

Conclusion

The market is overbought and next week is seasonally weak.

I expect the major indices to be lower on Friday January 13 than they were on Friday January 6.

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