Written by Jim Welsh
Macro Tides Weekly Technical Review – Update 25 October 2019
The Nasdaq Composite and Nasdaq 100 made new intra-day highs today October 25, which on the surface looks positive. However, the number of Nasdaq stocks recording a new 52 week low have exceeded the number of new highs over the past 21 days. This indicates that the majority of Nasdaq stocks are not participating in the run to a new high in the averages.
The 21 High – Low % will rise from – 0.47% to – 0.30%, based on preliminary figures for October 25.
Click on any chart below for a large image.
The warning being flashed by the 21 day High – Low percent is also evident in the NASDAQ Advance – Decline Line which peaked in August 2018. This is another indication that the majority of Nasdaq stocks are not participating in the run to a new high in the averages.
The only other instance in which the Nasdaq averages recorded a new high, but the 21 day percent was below 0%, was in early December 2015. Within 2 months the Nasdaq 100 was down more than -17.5%.
If the Nasdaq continues to move higher early next week, the 21 day percent will likely rise above 0%. However it was +1.56% when the Nasdaq topped in April and +1.36% at the July high. So, even if the 21 day percent rises above 0%, the pattern of lower highs is likely to persist which is not positive.
I do not expect the Nasdaq to fall as much as it did in 2015 -2016 since the overall technical health of the market is in better shape than in December 2015. The NYSE Advance – Decline Line has been making new highs, which was not the case in December 2015. The percent of stocks above their 200 day average was just 38% compared to 56% on October 24.
Even though the percent of stocks above their 200 day average is stronger than in December 2015, it was 65% at the July 2019 high and 63% when the S&P 500 topped in August.
The expectation has been that the S&P 500 would rally to a new high. Rather than a sign that the S&P 500 is breaking out, it is more likely that it is completing the rally from the low in early June or late August. This suggests the S&P 500 may subsequently drop to 2830 (August low) or 2730 (May low), after the current move higher ends.
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