The good news is:
• All of the blue chip indices closed at an all time high and the NASDAQ composite (OTC) closed at a multi year high on Friday.
The negatives
Bonds had a bad week, the secondaries underperformed the blue chips and new highs continue to come up short of what we would like to see when many of the major indices are hitting new highs.
Advance - Decline lines (ADL) are a running total of declining issues subtracted from advancing issues.
The chart below covers the past 6 months showing the NASDAQ composite (OTC) in blue and an ADL calculated from NASDAQ issues (OTC ADL) in green. Dashed vertical lines have been drawn on the 1st trading day of each month.
The OTC ADL has had a pattern of lower highs and lower lows since early July.
The next 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.
This chart looks pretty good with OTC NH hitting a 6 month high about a week ago.
The next chart is similar to the one above except it covers the past year.
While the OTC was hitting a multi year high OTC NH was at less than half of its high earlier in the year and falling.
The positives
New lows have remained at non threatening levels
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 of the indicator, the line is solid at the neutral 50% level.
OTC HL ratio fell a little last week, but remains at a positive 62%.
The next chart is similar to the one above except is 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 comfortably positive 80%.
Seasonality
Next week includes Thanksgiving during the 2nd year of the Presidential Cycle.
The tables below show the daily change, on a percentage basis, of the OTC and SPX for the week of Thanksgiving during the 2nd year of the Presidential Cycle.
OTC data covers the period from 1963 to 2013 while SPX data runs from 1953 through 2013. There are summaries for both the 2nd 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 modestly positive by all measures.
Report for the 3 days before Thanksgiving and 1 day after. Day1 = the day after
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.
| OTC Presidential Year 2 | |||||
| Day4 | Day3 | Day2 | Day1 | Totals | |
| 1966-2 | -0.31% 1 | -1.00% 2 | -0.42% 3 | 0.18% 5 | -1.54% |
| 1970-2 | 0.47% 1 | 0.28% 2 | 0.31% 3 | 0.25% 5 | 1.32% |
| 1974-2 | -0.63% 1 | 1.57% 2 | 0.24% 3 | 0.24% 5 | 1.42% |
| 1978-2 | 0.72% 1 | 0.04% 2 | 0.71% 3 | 0.69% 5 | 2.17% |
| 1982-2 | -1.58% 1 | -0.27% 2 | 0.76% 3 | 0.78% 5 | -0.32% |
| 1986-2 | 0.41% 1 | 0.24% 2 | 0.34% 3 | 0.40% 5 | 1.38% |
| 1990-2 | 0.54% 1 | -1.26% 2 | 0.14% 3 | 0.08% 5 | -0.51% |
| Avg | -0.11% | 0.06% | 0.44% | 0.44% | 0.83% |
| 1994-2 | -0.91% 1 | -2.18% 2 | -0.61% 3 | 0.79% 5 | -2.91% |
| 1998-2 | 2.57% 1 | -0.58% 2 | 0.88% 3 | 1.65% 5 | 4.52% |
| 2002-2 | 0.90% 1 | -2.53% 2 | 3.01% 3 | -0.62% 5 | 0.76% |
| 2006-2 | 0.28% 1 | 0.09% 2 | 0.45% 3 | -0.23% 5 | 0.59% |
| 2010-2 | 0.55% 1 | -1.46% 2 | 1.93% 3 | -0.34% 5 | 0.68% |
| Avg | 0.68% | -1.33% | 1.13% | 0.25% | 0.73% |
| OTC summary for Presidential Year 2 1966 - 2010 | |||||
| Averages | 0.25% | -0.59% | 0.65% | 0.32% | 0.63% |
| %Winners | 67% | 42% | 83% | 75% | 67% |
| MDD 11/23/1994 3.66% -- 11/26/2002 2.53% -- 11/23/1982 1.85% | |||||
| OTC summary for all years 1963 - 2013 | |||||
| Averages | -0.06% | -0.19% | 0.35% | 0.47% | 0.58% |
| %Winners | 49% | 52% | 76% | 80% | 65% |
| SPX Presidential Year 2 | |||||
| Day4 | Day3 | Day2 | Day1 | Totals | |
| 1954-2 | 0.39% 1 | 1.34% 2 | 0.56% 3 | 0.96% 5 | 3.25% |
| 1958-2 | -2.60% 1 | -0.60% 2 | 1.72% 3 | 1.12% 5 | -0.36% |
| 1962-2 | -0.57% 1 | 1.05% 2 | 0.60% 3 | 1.20% 5 | 2.28% |
| 1966-2 | -1.44% 1 | -0.52% 2 | 0.68% 3 | 0.80% 5 | -0.49% |
| 1970-2 | 0.62% 1 | 0.64% 2 | 0.37% 3 | 0.99% 5 | 2.61% |
| Avg | -0.72% | 0.38% | 0.78% | 1.01% | 1.46% |
| 1974-2 | -0.10% 1 | 0.93% 2 | 0.68% 3 | 0.04% 5 | 1.55% |
| 1978-2 | 0.88% 1 | -0.25% 2 | 0.49% 3 | 0.32% 5 | 1.45% |
| 1982-2 | -2.04% 1 | -0.96% 2 | 0.71% 3 | 0.75% 5 | -1.54% |
| 1986-2 | 0.65% 1 | 0.29% 2 | 0.24% 3 | 0.18% 5 | 1.36% |
| 1990-2 | 0.70% 1 | -1.26% 2 | 0.23% 3 | -0.29% 5 | -0.63% |
| Avg | 0.02% | -0.25% | 0.47% | 0.20% | 0.44% |
| 1994-2 | -0.69% 1 | -1.79% 2 | -0.03% 3 | 0.52% 5 | -1.99% |
| 1998-2 | 2.12% 1 | -0.44% 2 | 0.33% 3 | 0.45% 5 | 2.47% |
| 2002-2 | 0.25% 1 | -2.10% 2 | 2.80% 3 | -0.27% 5 | 0.68% |
| 2006-2 | -0.05% 1 | 0.16% 2 | 0.23% 3 | -0.37% 5 | -0.02% |
| 2010-2 | -0.16% 1 | -1.43% 2 | 1.49% 3 | -0.75% 5 | -0.84% |
| Avg | 0.30% | -1.12% | 0.96% | -0.08% | 0.06% |
| SPX summary for Presidential Year 2 1954 - 2010 | |||||
| Averages | -0.14% | -0.33% | 0.74% | 0.38% | 0.65% |
| %Winners | 47% | 40% | 93% | 73% | 53% |
| MDD 11/25/1958 3.19% -- 11/23/1982 2.98% -- 11/23/1994 2.50% | |||||
| SPX summary for all years 1953 - 2013 | |||||
| Averages | -0.11% | 0.09% | 0.35% | 0.37% | 0.70% |
| %Winners | 44% | 60% | 79% | 74% | 68% |
Money Supply (M2)
The money supply chart was provided by Gordon Harms. M2 growth remained below its long term trend.
Conclusion
New highs for the blue chips with only modest support from the breadth indicators is a recipe for a developing top. Seasonality is positive for the next 2 weeks so we should expect modest gains to continue.
I expect the major averages to be higher on Friday November 28 than they were on Friday November 21.
Last week the blue chips were up and the secondaries were down so I am calling last weeks negative forecast a tie.
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Good Luck,
YTD W 15 / L 16 / T 16
