The good news is:
• It is likely, at least, a short term bottom is in place.
The negatives
The negatives disappeared last week.
New lows peaked on Monday and declined to non threatening levels by Friday.
Friday was a down day and new highs increased while new lows decreased.
The secondaries outperformed the blue chips.
Next Monday has been a seasonally bad day so it might be down, but, if it is, the decline will be unconfirmed by everything and the market will be over sold.
The positives
The big deal is new lows disappeared last week.
The chart below covers the past 6 months showing the NASDAQ composite (OTC) in blue and a 10% trend (19 day EMA) of NASDAQ new lows (OTC NL) in black. OTC NL has been plotted on an inverted Y axis so decreasing new lows move the indicator upward (up is good). Dashed vertical lines have been drawn at the 1st trading day of each month.
OTC NL moved sharply upward last week.
The next chart is similar to the one above except it shows the S&P 500 (SPX) in red and NY NL, calculated from NYSE data, in blue.
The pattern for the past week is similar to the chart above.
The next chart 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). Dashed horizontal lines have been drawn at 10% levels for the indicator, the line is solid at the neutral, 50% level.
OTC HL Ratio rose sharply last week and it continued its rise on Friday which was a down day for the index.
The next chart is similar to the one above except it shows the SPX in red and NY HL Ratio, in black, has been calculated from NYSE data.
NY HL Ratio broke above the neutral level last week.
Seasonality
Next week includes the last 4 trading days June and the 1st trading day of July during the 3rd year of the Presidential Cycle.
The tables below show the return on a percentage basis for the last 4 trading days of June and the 1st trading day of July during the 3rd year of the Presidential Cycle. OTC data covers the period from 1963 - 2010 and SPX data covers the period from 1928 - 2010. There are summaries for both the 3rd year of the Presidential Cycle and all years combined.
Average returns over all periods have been positive.
During the 3rd year of the Presidential Cycle, Monday, on the OTC has not been up since 1975 and the SPX has not been up since 1987.
Report for the last 4 days of June and the first day of July.
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 3 | ||||||
| Day4 | Day3 | Day2 | Day1 | Day1 | Totals | |
| 1963-3 | 0.20% 2 | -0.41% 3 | -0.79% 4 | -0.35% 5 | -0.12% 1 | -1.47% |
| 1967-3 | -0.62% 2 | -0.07% 3 | 0.22% 4 | 0.47% 5 | 0.49% 1 | 0.50% |
| 1971-3 | 0.18% 5 | -0.10% 1 | 0.72% 2 | 0.54% 3 | 0.62% 4 | 1.96% |
| 1975-3 | 0.08% 3 | 0.17% 4 | 0.06% 5 | 0.60% 1 | -0.79% 2 | 0.12% |
| 1979-3 | -0.26% 2 | 0.64% 3 | 0.49% 4 | 0.04% 5 | -0.83% 1 | 0.07% |
| 1983-3 | -1.39% 1 | -2.61% 2 | 0.12% 3 | 0.78% 4 | 0.90% 5 | -2.20% |
| 1987-3 | -0.01% 4 | -0.12% 5 | -0.05% 1 | -0.42% 2 | -0.05% 3 | -0.66% |
| Avg | -0.28% | -0.41% | 0.27% | 0.31% | -0.03% | -0.14% |
| 1991-3 | -0.41% 2 | -0.05% 3 | 0.67% 4 | -0.07% 5 | 1.13% 1 | 1.28% |
| 1995-3 | -0.80% 2 | 0.10% 3 | 0.68% 4 | 0.72% 5 | 0.12% 1 | 0.82% |
| 1999-3 | -0.05% 5 | 1.95% 1 | 1.53% 2 | 1.65% 3 | 0.77% 4 | 5.84% |
| 2003-3 | -0.18% 3 | 1.96% 4 | -0.54% 5 | -0.15% 1 | 1.07% 2 | 2.15% |
| 2007-3 | -0.11% 2 | 1.21% 3 | 0.12% 4 | -0.20% 5 | 1.12% 1 | 2.13% |
| Avg | -0.31% | 1.04% | 0.49% | 0.39% | 0.84% | 2.44% |
| OTC summary for Presidential Year 3 1963 - 2007 | ||||||
| Averages | -0.28% | 0.22% | 0.27% | 0.30% | 0.37% | 0.88% |
| % Winners | 25% | 50% | 75% | 58% | 67% | 75% |
| MDD 6/28/1983 3.96% -- 7/1/1963 1.66% -- 7/2/1979 .83% | ||||||
| OTC summary for all years 1963 - 2010 | ||||||
| Averages | -0.08% | 0.02% | 0.11% | 0.18% | 0.06% | 0.29% |
| % Winners | 44% | 54% | 63% | 60% | 58% | 69% |
| MDD 7/1/2010 5.49% -- 7/1/1970 5.06% -- 7/1/1974 4.99% | ||||||
| SPX Presidential Year 3 | ||||||
| Day4 | Day3 | Day2 | Day1 | Day1 | Totals | |
| 1931-3 | 2.40% 5 | 0.98% 6 | -2.65% 1 | -1.72% 2 | 1.62% 3 | 0.63% |
| 1935-3 | -1.16% 3 | -0.49% 4 | 0.89% 5 | -0.10% 6 | 0.49% 1 | -0.38% |
| 1939-3 | 0.44% 2 | -2.04% 3 | -2.44% 4 | 0.65% 5 | 1.01% 6 | -2.37% |
| 1943-3 | 0.33% 6 | 0.57% 1 | -0.32% 2 | 0.57% 3 | 0.08% 4 | 1.23% |
| 1947-3 | 0.80% 3 | 0.40% 4 | 0.00% 5 | 0.60% 1 | 1.64% 2 | 3.44% |
| Avg | 0.56% | -0.12% | -0.90% | 0.00% | 0.97% | 0.51% |
| 1951-3 | 0.05% 2 | 0.33% 3 | -1.26% 4 | -0.66% 5 | 0.67% 1 | -0.88% |
| 1955-3 | 0.07% 1 | -0.54% 2 | 0.05% 3 | 0.59% 4 | 0.39% 5 | 0.56% |
| 1959-3 | 0.03% 4 | 0.96% 5 | 0.67% 1 | 0.17% 2 | 0.86% 3 | 2.69% |
| 1963-3 | -0.23% 2 | -0.90% 3 | -0.49% 4 | 0.43% 5 | -0.74% 1 | -1.92% |
| 1967-3 | -0.37% 2 | 0.01% 3 | -0.50% 4 | -0.23% 5 | 0.30% 1 | -0.80% |
| Avg | -0.09% | -0.03% | -0.31% | 0.06% | 0.30% | -0.07% |
| 1971-3 | -0.18% 5 | -0.26% 1 | 1.10% 2 | 0.89% 3 | 0.08% 4 | 1.64% |
| 1975-3 | 0.46% 3 | 0.20% 4 | 0.00% 5 | 0.40% 1 | -0.36% 2 | 0.70% |
| 1979-3 | -0.42% 2 | 0.60% 3 | 0.52% 4 | 0.11% 5 | -0.89% 1 | -0.09% |
| 1983-3 | -1.14% 1 | -1.65% 2 | 0.58% 3 | 0.88% 4 | 0.48% 5 | -0.85% |
| 1987-3 | 0.68% 4 | -0.58% 5 | 0.24% 1 | -1.27% 2 | -0.35% 3 | -1.27% |
| Avg | -0.12% | -0.34% | 0.49% | 0.20% | -0.21% | 0.02% |
| 1991-3 | -0.08% 2 | 0.25% 3 | 0.76% 4 | -0.87% 5 | 1.82% 1 | 1.89% |
| 1995-3 | -0.31% 2 | 0.42% 3 | -0.16% 4 | 0.16% 5 | 0.43% 1 | 0.55% |
| 1999-3 | -0.04% 5 | 1.22% 1 | 1.51% 2 | 1.57% 3 | 0.60% 4 | 4.87% |
| 2003-3 | -0.83% 3 | 1.08% 4 | -0.97% 5 | -0.18% 1 | 0.80% 2 | -0.10% |
| 2007-3 | -0.32% 2 | 0.90% 3 | -0.04% 4 | -0.16% 5 | 1.07% 1 | 1.45% |
| Avg | -0.32% | 0.78% | 0.22% | 0.11% | 0.95% | 1.73% |
| SPX summary for Presidential Year 3 1931 - 2007 | ||||||
| Averages | 0.01% | 0.07% | -0.13% | 0.09% | 0.50% | 0.55% |
| % Winners | 45% | 65% | 45% | 60% | 80% | 55% |
| MDD 6/29/1939 4.43% -- 6/30/1931 4.32% -- 6/28/1983 2.77% | ||||||
| SPX summary for all years 1928 - 2010 | ||||||
| Averages | -0.02% | -0.10% | 0.12% | 0.11% | 0.31% | 0.40% |
| % Winners | 44% | 50% | 58% | 56% | 70% | 58% |
| MDD 7/1/2010 4.59% -- 6/29/1939 4.43% -- 6/30/1931 4.32% | ||||||
Money supply (M2)
The money supply chart was provided by Gordon Harms. M2 growth has been holding above trend.
Conclusion
It is likely a short term bottom is in place. New lows declined sharply last week and seasonality for next week is strong.
I expect the major averages to be higher on Friday July 1 than they were on Friday June 24.
Last week the blue chips were down and the small caps were up so I am calling last weeks negative forecast a tie.
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