The good news is:
• There was no significant increase in new lows last week.
The negatives
The market has rallied about 15% off its early October low, but has failed to generate many new highs along the way.
The chart below covers the past year showing the NASDAQ composite (OTC) in blue and a 10% trend (19 day EMA) of NASDAQ new highs in green. Dashed vertical lines have been drawn on the 1st trading day of each month.
In a strong market new highs would lead the way upward. That has not been the case this year.
The chart below is similar to the one above except it shows the S&P 500 (SPX) in red and NY NH, in green, has been calculated from NYSE data.
The pattern is similar to the chart above.
Rallies without a significant expansion of new highs imply a narrowing of leadership. Not good.
The positives
The positives are the lack of extreme negatives.
The chart below covers the past 6 months showing the SPX in red and a 40% trend (4 day EMA) of NYSE new highs divided by new highs + new lows (NY HL Ratio) in dark blue. Dashed horizontal lines have been drawn at 10% levels for the indicator; the line is solid at the neutral 50% level.
NY HL Ratio managed to hold above the neutral level last week.
The next chart is similar to the one above except it shows the OTC in blue and OTC HL Ratio, in red, has been has been calculated from NASDAQ data.
OTC HL Ratio remained below the neutral level illustrating the current dichotomy with the secondaries underperforming the blue chips.
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 return on a percentage basis for the 5 trading days prior to the 3rd Friday of November during the 3rd year of the Presidential Cycle.
OTC data covers the period from 1963 - 2010 and SPX data covers the period from 1953 - 2010. 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 slightly positive over all years and slightly negative during the 3rd year of the Presidential Cycle.
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% |
| Avg | 0.25% | -0.45% | 0.05% | -0.10% | -0.15% | -0.39% |
| 1991-3 | 0.48% | 0.90% | 0.09% | -0.24% | -4.24% | -3.01% |
| 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% |
| Avg | -0.56% | 0.70% | -0.13% | 0.10% | -0.44% | -0.33% |
| OTC summary for Presidential Year 3 1963 - 2007 | ||||||
| Avg | -0.07% | 0.11% | -0.06% | 0.07% | -0.19% | -0.14% |
| Win% | 50% | 50% | 50% | 50% | 67% | 50% |
| OTC summary for all years 1963 - 2010 | ||||||
| Avg | -0.12% | 0.09% | -0.06% | 0.05% | 0.03% | 0.00% |
| Win% | 47% | 52% | 58% | 56% | 54% | 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% |
| 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% |
| Avg | 0.56% | -0.46% | 0.19% | -0.53% | -0.17% | -0.41% |
| 1991-3 | 0.06% | 0.92% | 0.17% | -0.07% | -3.66% | -2.58% |
| 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% |
| Avg | -0.35% | 0.85% | 0.08% | -0.13% | -0.55% | -0.10% |
| SPX summary for Presidential Year 3 1955 - 2007 | ||||||
| Avg | 0.18% | 0.06% | 0.16% | -0.26% | -0.30% | -0.17% |
| Win% | 50% | 36% | 71% | 36% | 43% | 50% |
| SPX summary for all years 1953 - 2010 | ||||||
| Avg | -0.01% | 0.00% | -0.01% | -0.05% | 0.12% | 0.04% |
| Win% | 46% | 47% | 64% | 50% | 61% | 53% |
Money supply (M2)
The money supply chart was provided by Gordon Harms. M2 growth continued its sharp fall last week.
Conclusion
Looking at the weekly totals, the market appears to have followed the seasonal pattern pretty closely with the blue chips up a little and the secondaries down a little. The daily swings, on the other hand, set some records.
I expect the major averages to be lower on Friday November 18 than they were on Friday November 11.
Last week the blue chips were up a little and the secondaries were down a little, so I am calling last weeks negative forecast a tie.
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Thank you,
