The good news is:
• The current weakness is part of a seasonal pattern that ends in a week.
The negatives
New lows rose on both the NYSE and NASDAQ every day over the past week finishing the week at over 200 on both exchanges. Those are big numbers.
The chart below covers the past 6 months showing the S&P 500 (SPX) in red and a 40% trend (4 day EMA) of NYSE new highs divided by new highs + new lows (NY HL Ratio), in blue. Dashed vertical lines have been drawn on the 1st trading day of each month. Dashed horizontal lines have been drawn at 10% levels for the indicator, the line is solid at the 50%, neutral level.
NY HL Ratio took a sharp dive into negative territory last week.
The next chart is similar to the one above except it shows the NASDAQ composite (OTC) in blue and OTC HL Ratio, in red, has been calculated from NASDAQ data.
OTC HL Ratio also fell sharply.
The positives
The market is oversold, but this period of seasonal weakness has another week to run.
Seasonality
Next week includes the 5 trading days prior to the 3rd Friday of November during the 3rd year of the Presidential Cycle. The tables below show the daily change, on a percentage basis for that period.
OTC data covers the period from 1963 to 2014 while SPX data runs from 1953 to 2014 There are summaries for both the 3rd 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.
Like last week, average returns for the coming week have been a little weaker during the 3rd year of the Presidential Cycle than other years.
Report for the week before the 3rd Friday of November.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday through 3rd Friday.
| OTC Presidential Year 3 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1963-3 | 0.48% | 0.17% | -0.06% | 0.20% | -0.45% | 0.34% |
| 1967-3 | 0.24% | -0.10% | -0.25% | 0.67% | 1.04% | 1.59% |
| 1971-3 | -0.45% | 0.26% | -0.07% | -0.19% | -0.47% | -0.93% |
| 1975-3 | 0.15% | -0.61% | -0.95% | -0.26% | 0.09% | -1.58% |
| 1979-3 | 0.88% | 0.07% | 0.45% | 0.84% | 0.11% | 2.34% |
| 1983-3 | 0.86% | -0.21% | 0.37% | 0.47% | 0.01% | 1.49% |
| 1987-3 | -0.19% | -1.74% | 0.46% | -1.35% | -0.46% | -3.27% |
| 1991-3 | 0.48% | 0.90% | 0.09% | -0.24% | -4.24% | -3.01% |
| Avg | 0.44% | -0.32% | 0.08% | -0.11% | -0.90% | -0.80% |
| 1995-3 | -0.51% | -1.69% | 0.12% | 0.25% | 0.05% | -1.78% |
| 1999-3 | -0.05% | 2.29% | -0.73% | 2.39% | 0.66% | 4.56% |
| 2003-3 | -1.07% | -1.46% | 0.95% | -0.93% | 0.64% | -1.88% |
| 2007-3 | -1.67% | 3.46% | -1.10% | -0.98% | 0.72% | 0.44% |
| 2011-3 | -0.80% | 1.09% | -1.73% | -1.96% | -0.60% | -4.00% |
| Avg | -0.82% | 0.74% | -0.50% | -0.25% | 0.29% | -0.53% |
| OTC summary for Presidential Year 3 1963 - 2011 | ||||||
| Avg | -0.13% | 0.19% | -0.19% | -0.08% | -0.22% | -0.44% |
| Win% | 46% | 54% | 46% | 46% | 62% | 46% |
| OTC summary for all years 1963 - 2014 | ||||||
| Avg | -0.14% | 0.11% | -0.10% | 0.02% | 0.04% | -0.07% |
| Win% | 45% | 54% | 56% | 56% | 56% | 56% |
| SPX Presidential Year 3 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1955-3 | 2.59% | -0.43% | -0.65% | -0.70% | -0.11% | 0.70% |
| 1959-3 | -1.11% | 0.28% | 1.08% | -0.09% | 0.05% | 0.22% |
| 1963-3 | 0.22% | -0.39% | 0.08% | -0.46% | -0.82% | -1.38% |
| 1967-3 | -0.26% | -0.63% | 0.40% | 0.92% | 0.24% | 0.67% |
| 1971-3 | -0.34% | 0.98% | 0.15% | -0.78% | -0.56% | -0.55% |
| Avg | 0.22% | -0.04% | 0.21% | -0.22% | -0.24% | -0.07% |
| 1975-3 | 0.54% | -0.50% | -1.12% | -0.38% | -0.12% | -1.59% |
| 1979-3 | 1.97% | -0.55% | 0.44% | 0.72% | -0.33% | 2.25% |
| 1983-3 | 0.17% | -0.73% | 0.44% | 0.03% | -0.63% | -0.72% |
| 1987-3 | 0.46% | -1.51% | 1.03% | -2.24% | 0.81% | -1.45% |
| 1991-3 | 0.06% | 0.92% | 0.17% | -0.07% | -3.66% | -2.58% |
| Avg | 0.64% | -0.47% | 0.19% | -0.39% | -0.78% | -0.82% |
| 1995-3 | -0.07% | -0.51% | 0.79% | 0.57% | 0.46% | 1.24% |
| 1999-3 | -0.12% | 1.84% | -0.66% | 1.01% | -0.21% | 1.86% |
| 2003-3 | -0.64% | -0.91% | 0.80% | -0.84% | 0.16% | -1.43% |
| 2007-3 | -1.00% | 2.91% | -0.71% | -1.32% | 0.52% | 0.41% |
| 2011-3 | -0.96% | 0.48% | -1.66% | -1.68% | -0.04% | -3.85% |
| Avg | -0.56% | 0.76% | -0.29% | -0.45% | 0.18% | -0.36% |
| SPX summary for Presidential Year 3 1955 - 2011 | ||||||
| Avg | 0.10% | 0.08% | 0.04% | -0.35% | -0.28% | -0.41% |
| Win% | 47% | 40% | 67% | 33% | 40% | 47% |
| SPX summary for all years 1953 - 2014 | ||||||
| Avg | -0.02% | 0.00% | -0.05% | -0.07% | 0.14% | 0.00% |
| Win% | 48% | 47% | 61% | 50% | 62% | 53% |
Money supply (M2)
The money supply chart was provided by Gordon Harms. Money supply growth weakened last week.
Conclusion
Seasonality and the breadth indicators are weak. Volume has remained low suggesting there has been no panic yet.
I expect the major averages to be lower on Friday November 20 than they were on Friday November 13.
This report is free to anyone who wants it, so please tell your friends. They can sign up at: http://www.stockmarket-ta.com/signup.html. If it is not for you, reply with REMOVE in the subject line.
These reports are archived at: http://www.safehaven.com/
Good Luck,
YTD W 18 / L 15 / T 12
