The good news is:
• All of the major indices closed at multi year highs last Thursday.
The Dow Jones Industrial Average completed 10 consecutive up days last Thursday. The last time that occurred was November of 1996.
The negatives
The market is overbought.
The chart below covers the past year showing the S&P 500(SPX) in red and a 10% trend (19 day EMA) of NYSE new lows NY NL in blue. Dashed vertical lines have been drawn on the 1st trading day of each month. NY NL has been plotted on an inverted Y axis so decreasing new lows move the indicator upward (up is good).
NY NL has been falling in spite of the new index highs.
New lows, although increasing, are not at threatening levels and with the FED pumping out 85B a month nothing else matters much.
The positives
New highs have been pretty robust while new lows have remained at unthreatening levels.
The chart below covers the past 6 months showing the NASDAQ composite (OTC) in blue and a 40% trend (4 day EMA) of NASDAQ new highs / (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 neutral 50% level.
OTC HL Ratio is very strong at 93%.
There are trading systems that impose a No Sell filter when variations of this indicator are above 80%.
The chart below is similar to the one above except it shows SPX in red and NY HL Ratio, in blue, has been calculated from NYSE data.
NY HL Ratio also declined and recovered last week and remains very high at 82%.
Seasonality
Next week includes the 5 trading days prior to the 4th Friday of March during the 1st year of the Presidential Cycle.
The tables below show the daily return on a percentage basis for the 5 trading days prior to the 4th Friday of March during the 1st year of the Presidential Cycle.
OTC data covers the period from 1963 - 2012 and SPX data covers the period from 1953 - 2012. There are summaries for both the 1st 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 have been modestly positive by most measures.
Report for the week before the 4th Friday of March.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday through the 4th Friday.
| OTC Presidential Year 1 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1965-1 | 0.02% | -0.25% | -0.10% | 0.08% | -0.14% | -0.39% |
| 1969-1 | 0.06% | -0.10% | -0.29% | 0.15% | 0.34% | 0.16% |
| 1973-1 | -1.06% | -0.57% | -1.17% | -1.85% | -0.19% | -4.83% |
| 1977-1 | -0.19% | -0.22% | -0.30% | -0.23% | -0.27% | -1.21% |
| 1981-1 | 0.64% | 0.04% | 0.78% | 0.11% | -0.34% | 1.22% |
| 1985-1 | -0.30% | 0.62% | -0.03% | 0.09% | -0.04% | 0.34% |
| 1989-1 | -0.09% | 0.51% | 0.27% | 0.21% | 0.54% | 1.44% |
| Avg | -0.20% | 0.08% | -0.09% | -0.33% | -0.06% | -0.61% |
| 1993-1 | -0.89% | -0.23% | -0.10% | 0.99% | 0.08% | -0.16% |
| 1997-1 | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| 2001-1 | 3.19% | -4.81% | -1.46% | 3.69% | 1.63% | 2.24% |
| 2005-1 | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| 2009-1 | 6.76% | -2.52% | 0.82% | 3.80% | -2.63% | 6.22% |
| Avg | 3.02% | -2.52% | -0.25% | 2.82% | -0.31% | 2.76% |
| OTC summary for Presidential Year 1 1965 - 2009 | ||||||
| Avg | 0.81% | -0.75% | -0.16% | 0.70% | -0.10% | 0.50% |
| Win% | 50% | 30% | 30% | 80% | 40% | 60% |
| OTC summary for all years 1963 - 2012 | ||||||
| Avg | 0.05% | -0.21% | 0.15% | 0.22% | 0.02% | 0.23% |
| Win% | 53% | 42% | 53% | 58% | 51% | 60% |
| SPX Presidential Year 1 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1953-1 | -0.61% | 0.58% | -0.27% | -0.57% | 0.15% | -0.72% |
| 1957-1 | -0.45% | 0.43% | 0.14% | 0.02% | -0.11% | 0.02% |
| 1961-1 | 0.40% | -0.19% | -0.06% | -0.26% | -0.17% | -0.28% |
| 1965-1 | -0.01% | 0.12% | 0.18% | -0.29% | -0.74% | -0.74% |
| 1969-1 | -0.13% | 0.16% | 0.73% | 0.71% | 0.41% | 1.88% |
| Avg | -0.16% | 0.22% | 0.14% | -0.08% | -0.09% | 0.03% |
| 1973-1 | -1.21% | -0.20% | -1.30% | -1.49% | 0.04% | -4.16% |
| 1977-1 | -0.54% | -0.31% | -0.79% | -0.50% | -0.64% | -2.78% |
| 1981-1 | 1.20% | -0.75% | 1.81% | -0.61% | -1.19% | 0.46% |
| 1985-1 | 0.20% | 1.50% | -0.26% | 0.15% | -0.17% | 1.42% |
| 1989-1 | 0.55% | 0.35% | 0.26% | 0.06% | 0.80% | 2.02% |
| Avg | 0.04% | 0.12% | -0.06% | -0.48% | -0.23% | -0.61% |
| 1993-1 | -0.29% | -0.03% | -0.15% | 0.63% | -0.69% | -0.53% |
| 1997-1 | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| 2001-1 | 1.76% | -2.41% | -1.79% | -0.41% | 1.99% | -0.85% |
| 2005-1 | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| 2009-1 | 7.08% | -5.97% | 5.18% | 2.33% | -2.03% | 6.59% |
| Avg | 2.85% | -2.80% | 1.08% | 0.85% | -0.24% | 1.73% |
| SPX summary for Presidential Year 1 1953 - 2009 | ||||||
| Avg | 0.61% | -0.52% | 0.28% | -0.02% | -0.18% | 0.18% |
| Win% | 46% | 46% | 46% | 46% | 38% | 46% |
| SPX summary for all years 1953 - 2012 | ||||||
| Avg | 0.09% | -0.12% | 0.09% | 0.00% | -0.10% | -0.03% |
| Win% | 44% | 46% | 44% | 42% | 52% | 40% |
Money supply (M2)
The money supply chart was provided by Gordon Harms. Interestingly, money supply growth has been declining in spite of the FED's QE efforts.
Conclusion
The market is overbought, but the breadth indicators have been strong and seasonality is also modestly strong.
I expect the major averages to be higher on Friday March 22 than they were on Friday March 15.
Last weeks negative forecast was a miss.
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In his latest newsletter, Jerry Minton, after heaping some well deserved abuse on the FOMC, goes on to discuss broad seasonal patterns in the market. You can sign up at: http://www.alphaim.net/
Good Luck
YTD W 5/L 2/T 4
