The good news is:
• The NYSE advance - decline line hit a new all time high last week.
The negatives
There have been remarkably few new highs for a 3 month rally that has added 15%+ to the major indices and NYSE new highs have been declining since the 1st of the year in spite of the continuing rally.
The chart below covers the past 6 months showing the S&P 500 (SPX) in red and a 10% trend (19 day EMA) of NYSE new highs (NY NH) in green. Dashed vertical lines have been drawn on the 1st trading day of each month.
NY NH has been falling since the 1st of the year.
The positives
Since the 1st of the year the secondaries have been leading the way upward and there have been few new lows.
The chart below covers the past 2 weeks showing the major broad based indices plotted on log scales. CAR, the last item in the legend, is Compound Annual Return, the rate of return for the past 2 weeks annualized. The NASDAQ composite (OTC) is leading the way at 205% followed by the Russell 2000 (R2K) at 138%, the Mid cap (MID) at 137% and the laggard is the SPX at "only" 100%.
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 of the indicator; the line is solid at the neutral 50% level.
In spite of the fall off of new highs this indicator has held above 80%, very strong.
The next chart is similar to the one above except is shows the OTC in blue and OTC HL Ratio, in red, has been calculated from NASDAQ data.
At 65% OTC HL Ratio is as high as it has been since last summer.
Seasonality
Next week includes the 4 trading days prior to the 3rd Friday of January during the 4th year of the Presidential Cycle. The market will be closed Monday in observance of the Martin Luther King holiday which has usually fallen on the Monday prior to the 4th Friday of January.
The tables below show the return on a percentage basis for the 5 trading days prior to the 3rd Friday of January during the 4th year of the Presidential Cycle.
NASDAQ composite (OTC) data covers the period from 1963 - 2010 and SPX data covers the period from 1953 - 2010. There are summaries for both the 4th 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, in the coming week, the secondaries have been much stronger than the blue chips which has been consistent with recent patterns.
Report for the week before the 3rd Friday of January.
The number following the year is the position in the presidential cycle.
Daily returns from Monday through 3rd Friday.
| OTC Presidential Year 4 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1964-4 | -0.19% | 0.14% | 0.38% | 0.14% | -0.22% | 0.25% |
| 1968-4 | 0.43% | 0.18% | -0.85% | 0.36% | 0.16% | 0.28% |
| 1972-4 | 0.16% | 0.62% | -0.18% | -0.11% | -0.09% | 0.40% |
| 1976-4 | 0.49% | -1.56% | 2.70% | 0.13% | 0.68% | 2.44% |
| 1980-4 | 0.34% | 0.36% | 0.66% | -0.12% | 0.21% | 1.47% |
| 1984-4 | -0.20% | 0.20% | 0.12% | -0.25% | -0.73% | -0.85% |
| 1988-4 | 0.11% | -0.05% | -1.96% | 0.17% | 1.00% | -0.73% |
| Avg | 0.18% | -0.08% | 0.27% | -0.03% | 0.21% | 0.55% |
| 1992-4 | 0.31% | 1.31% | 0.81% | -0.55% | -0.08% | 1.81% |
| 1996-4 | -1.95% | 0.74% | 0.24% | 0.89% | 1.12% | 1.05% |
| 2000-4 | 0.00% | 1.64% | 0.50% | 0.92% | 1.10% | 4.15% |
| 2004-4 | 1.19% | -0.73% | 0.70% | -0.10% | 1.49% | 2.56% |
| 2008-4 | 1.57% | -2.45% | -0.95% | -1.99% | -0.29% | -4.11% |
| Avg | 0.28% | 0.10% | 0.26% | -0.17% | 0.67% | 1.09% |
| OTC summary for Presidential Year 4 1964 - 2008 | ||||||
| Avg | 0.21% | 0.03% | 0.18% | -0.04% | 0.36% | 0.73% |
| Win% | 73% | 67% | 67% | 50% | 58% | 75% |
| OTC summary for all years 1963 - 2011 | ||||||
| Avg | 0.03% | 0.23% | 0.00% | 0.24% | -0.01% | 0.48% |
| Win% | 63% | 61% | 57% | 65% | 59% | 67% |
| SPX Presidential Year 4 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1956-4 | -1.19% | 0.75% | -0.67% | -1.02% | -1.14% | -3.28% |
| 1960-4 | -0.84% | -1.07% | -0.35% | 0.25% | 0.30% | -1.72% |
| 1964-4 | -0.03% | 0.18% | 0.37% | -0.12% | 0.01% | 0.42% |
| 1968-4 | -0.31% | -0.62% | -0.19% | -0.08% | -0.33% | -1.54% |
| 1972-4 | 0.30% | 0.34% | -0.16% | 0.00% | -0.22% | 0.25% |
| 1976-4 | 1.45% | -0.79% | 1.63% | -0.54% | 0.40% | 2.17% |
| 1980-4 | 0.42% | 0.69% | -0.08% | -0.32% | 0.33% | 1.05% |
| 1984-4 | 0.10% | 0.39% | -0.17% | -0.30% | -0.50% | -0.48% |
| 1988-4 | -0.07% | -1.02% | -2.68% | 0.21% | 1.38% | -2.17% |
| Avg | 0.44% | -0.08% | -0.29% | -0.24% | 0.28% | 0.16% |
| 1992-4 | -0.18% | 1.47% | 0.08% | -0.61% | 0.16% | 0.91% |
| 1996-4 | -0.33% | 1.44% | -0.34% | 0.31% | 0.59% | 1.66% |
| 2000-4 | 0.00% | -0.69% | 0.05% | -0.71% | -0.29% | -1.63% |
| 2004-4 | 0.48% | -0.53% | 0.83% | 0.14% | 0.69% | 1.60% |
| 2008-4 | 1.09% | -2.49% | -0.56% | -2.91% | -0.60% | -5.48% |
| Avg | 0.26% | -0.16% | 0.01% | -0.76% | 0.11% | -0.59% |
| SPX summary for Presidential Year 4 1956 - 2008 | ||||||
| Avg | 0.07% | -0.14% | -0.16% | -0.44% | 0.06% | -0.59% |
| Win% | 46% | 50% | 36% | 31% | 57% | 50% |
| SPX summary for all years 1953 - 2011 | ||||||
| Avg | -0.05% | 0.10% | -0.07% | 0.04% | -0.12% | -0.09% |
| Win% | 46% | 59% | 53% | 59% | 53% | 49% |
Money supply (M2)
The money supply chart was provided by Gordon Harms. M2 jumped last week.
Conclusion
The secondaries have been leading the way upward and there are no suggestions of trouble.
I expect the major averages to be higher on Friday January 20 than they were on Friday January 13.
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In his latest newsletter (The Big Skew) Jerry Minton looks at the uneven history of equity markets over time. To read it and subscribe to his free newsletter go to http://www.alphaim.net/.
Good Luck,
YTD W 1 /L 1 /T 0
