The good news is:
• The blue chip indices all hit new recovery highs last week.
Short Term
Since the late August low the market has been moving in a well defined monthly cyclical pattern that can be seen in any number of breadth oscillators as well as the price charts.
The charts below cover the past 175 trading days (from the March low). The first chart shows the S&P 500 (SPX) in red and an indicator showing momentum of an oscillator of NYSE up side - down volume in green. The oscillator has been calculated by subtracting a 5% trend (39 day EMA) from a 10% trend (19 day EMA) of NYSE down side volume subtracted from up side volume. Dashed vertical lines have been drawn on the 1st trading day of each month.
For the past several months the indicator has defined a clear cyclical pattern slightly leading price movement. It turned down late last week suggesting upside for the next week or so will be limited.
The next two charts show an anomaly for which I have no explanation.
The 1st chart shows the SPX in red and a 5% trend of total volume of the component issues of the SPX in blue. Volume hit a new recovery low as the index hit a new high last week.
The next chart is similar to the one above except it shows the Russell 2000
(!RUT aka R2K) in red and the indicator has been calculated from the component issues of the R2K. It has been going in the opposite direction.
Go figure.
Intermediate term
In a healthy rally new highs expand as prices increase.
The chart below shows the SPX in red and a 10% trend (19 day EMA) of NYSE new highs (NY NH) in green. NY NH hit a recovery high in mid October and is a long way from that high now.
The next chart is similar to the one above except it shows the NASDAQ composite (OTC) in blue and the indicator OTC NH has been calculated from NASDAQ data. The pattern is similar.
I have made the case that NYSE breadth data has developed an extremely positive bias over the past 8-10 years and as such the value derived from indicators using it has deteriorated.
Maybe I was wrong.
The chart below shows the SPX in red and the NYSE AD line in blue (AD lines are running totals of advancing issues - declining issues). Last weeks SPX high was the first one of this rally that was unconfirmed by the NYSE ADL.
Seasonality
Next week includes the 5 trading days prior to the 3rd Friday of November during the 1st year of the Presidential Cycle.
The tables show the daily return on a percentage basis for the 5 trading days prior to the 3rd Friday of November during the 1st year of the Presidential Cycle. OTC data covers the period from 1963 - 2008 and SPX data from 1953 - 2008. 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.
On average the coming week has had a positive bias over all periods. The bias during the 1st year of the Presidential Cycle has been stronger than the other periods.
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 1 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1965-1 | 0.25% | 0.27% | -0.11% | 0.14% | -0.22% | 0.35% |
| 1969-1 | -0.07% | 0.05% | -0.23% | 0.26% | -0.88% | -0.88% |
| 1973-1 | -0.65% | -0.32% | -2.64% | -0.34% | -0.25% | -4.20% |
| 1977-1 | 0.04% | 0.53% | 0.04% | 0.30% | 0.35% | 1.26% |
| 1981-1 | -1.50% | 0.26% | -0.04% | -0.14% | 0.65% | -0.77% |
| 1985-1 | 0.76% | 0.69% | -0.18% | 0.45% | 0.31% | 2.04% |
| Avg | -0.28% | 0.24% | -0.61% | 0.10% | 0.04% | -0.51% |
| 1989-1 | -0.05% | -0.42% | 0.40% | -0.12% | 0.32% | 0.12% |
| 1993-1 | -0.88% | -0.10% | -1.21% | -1.05% | -0.37% | -3.61% |
| 1997-1 | 1.93% | -0.85% | 0.05% | 1.59% | -0.36% | 2.36% |
| 2001-1 | 0.64% | 2.82% | 0.59% | -0.14% | -0.10% | 3.81% |
| 2005-1 | -0.07% | -0.65% | 0.05% | 1.49% | 0.30% | 1.12% |
| Avg | 0.31% | 0.16% | -0.02% | 0.35% | -0.04% | 0.76% |
| OTC summary for Presidential Year 1 1965 - 2005 | ||||||
| Avg | 0.04% | 0.21% | -0.30% | 0.22% | -0.02% | 0.15% |
| Win% | 45% | 55% | 45% | 55% | 45% | 64% |
| OTC summary for all years 1963 - 2008 | ||||||
| Avg | -0.15% | 0.13% | -0.06% | 0.05% | 0.04% | 0.02% |
| Win% | 47% | 52% | 59% | 57% | 54% | 57% |
| SPX Presidential Year 1 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1953-1 | -0.65% | -0.53% | 0.16% | 0.45% | 0.16% | -0.40% |
| 1957-1 | -0.02% | -1.44% | -0.13% | -0.28% | 2.36% | 0.49% |
| 1961-1 | 0.28% | 0.55% | 0.01% | -0.07% | 0.00% | 0.77% |
| 1965-1 | 0.09% | -0.24% | 0.21% | -0.41% | 0.02% | -0.33% |
| 1969-1 | -0.68% | -0.02% | -0.51% | -1.03% | -0.62% | -2.86% |
| 1973-1 | -0.82% | -0.08% | -1.83% | -0.02% | 1.42% | -1.33% |
| 1977-1 | -0.69% | 0.64% | -0.50% | -0.30% | 0.18% | -0.67% |
| 1981-1 | -1.18% | 0.76% | -0.73% | 0.37% | 0.83% | 0.05% |
| 1985-1 | 1.84% | 0.41% | -0.49% | 0.99% | -0.48% | 2.27% |
| Avg | -0.30% | 0.34% | -0.81% | 0.00% | 0.26% | -0.51% |
| 1989-1 | 0.13% | -0.46% | 0.75% | 0.01% | 0.30% | 0.74% |
| 1993-1 | -0.35% | 0.64% | -0.41% | -0.26% | -0.22% | -0.60% |
| 1997-1 | 1.92% | -0.84% | 0.68% | 1.52% | 0.43% | 3.71% |
| 2001-1 | -0.18% | 1.86% | 0.19% | 0.09% | -0.31% | 1.64% |
| 2005-1 | -0.08% | -0.39% | 0.18% | 0.94% | 0.44% | 1.10% |
| Avg | 0.29% | 0.16% | 0.28% | 0.46% | 0.13% | 1.32% |
| SPX summary for Presidential Year 1 1953 - 2005 | ||||||
| Avg | -0.03% | 0.06% | -0.17% | 0.14% | 0.35% | 0.33% |
| Win% | 36% | 43% | 50% | 50% | 69% | 57% |
| SPX summary for all years 1953 - 2008 | ||||||
| Avg | -0.03% | 0.02% | -0.02% | -0.06% | 0.13% | 0.05% |
| Win% | 45% | 46% | 64% | 50% | 62% | 54% |
Money supply (M2)
The money supply chart was provided by Gordon Harms. Money supply growth fell off a little last week.
Conclusion
The market appears to be at or near its short term high. The secondaries and breadth indicators did not confirm the recent highs so, if it continues to follow the cyclical pattern of the past several months, a decline for the next week or so is likely.
I expect the major indices to be lower on Friday November 20 than they were on Friday November 13.
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Thank you,
