The good news is:
• Although most of the major indices were down for the week, there was no increase in the number of new lows.
Not much changed last week. New highs continued to deteriorate while new lows remained insignificant and the major indices were mixed. This report is just a "fill in the blanks" update of last weeks report.
The negatives
On Monday new highs hit their highest level since early February, but then fell sharply the rest of the week.
The chart covers the past year showing the NASDAQ composite (OTC) in blue and a 10% trend (19 day EMA) of NASDAQ new highs (OTC NH) in green. Dashed vertical lines have been drawn on the 1st trading day of each month.
OTC NH hit a multi month high last Monday, but is well below its earlier highs when the OTC index was considerably lower.
The chart below is similar to the one above except it shows the S&P 500 (SPX) in red and NY NH has been calculated from NYSE data.
Usually NYSE breadth indicators are considerably stronger than those calculated from NASDAQ data, but NYSE NH has been deteriorating recently.
The positives
There still has been no significant build up of 52 week new lows. Unless and until there is a build up of 52 week new lows there will be little price deterioration.
The chart below 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) in red. Dashed horizontal lines have been drawn at 10% levels of the indicator; the line is solid at the neutral 50% level.
OTC HL Ratio recovered to 80% Friday. There are trading systems that impose a No Sell Filter when variations of this indicator are above 80%.
The chart below is similar to the one above except it shows the SPX in red and NY HL Ratio has been calculated from NYSE data.
NY HL Ratio fell to 80% last week, the same as OTC HL Ratio. For the past several years NY HL Ratio has consistently been stronger than OTC HL Ratio; the relative equality suggests difficulties in the fixed income market.
Seasonality
Next week includes the last 5 trading days of March during the 4th year of the Presidential Cycle.
The tables below show the return on a percentage basis for the last 5 trading days of March during the 4th year of the Presidential Cycle.
OTC data covers the period from 1963 - 2011 and SPX data covers the period from 1928 - 2011. There are summaries for both the 4th year of the Presidential Cycle and all years combined.
By all measures, average returns for the coming week have been negative.
Report for the last 5 days of March.
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 4 | ||||||
| Day5 | Day4 | Day3 | Day2 | Day1 | Totals | |
| 1964-4 | -0.13% 2 | -0.37% 3 | 0.27% 4 | 0.35% 1 | -0.27% 2 | -0.16% |
| 1968-4 | 0.16% 1 | 0.50% 2 | 0.66% 3 | 1.18% 4 | 0.26% 5 | 2.75% |
| 1972-4 | 0.13% 5 | 0.01% 1 | 0.13% 2 | -0.15% 3 | 0.48% 4 | 0.60% |
| 1976-4 | -0.29% 4 | 0.24% 5 | -0.22% 1 | -0.22% 2 | 0.14% 3 | -0.34% |
| 1980-4 | -1.55% 2 | -0.23% 3 | -6.15% 4 | 4.16% 5 | 1.35% 1 | -2.42% |
| 1984-4 | -0.27% 1 | -0.08% 2 | 0.77% 3 | 0.25% 4 | -0.34% 5 | 0.32% |
| 1988-4 | -0.81% 5 | -0.57% 1 | 0.69% 2 | -0.32% 3 | 0.77% 4 | -0.25% |
| Avg | -0.56% | -0.13% | -0.96% | 0.74% | 0.48% | -0.42% |
| 1992-4 | 0.13% 3 | -0.66% 4 | -1.74% 5 | -0.43% 1 | 0.28% 2 | -2.42% |
| 1996-4 | -1.37% 1 | 0.12% 2 | 0.51% 3 | 0.08% 4 | 0.60% 5 | -0.06% |
| 2000-4 | -0.09% 1 | -2.51% 2 | -3.91% 3 | -4.02% 4 | 2.58% 5 | -7.96% |
| 2004-4 | 3.02% 4 | -0.36% 5 | 1.66% 1 | 0.40% 2 | -0.32% 3 | 4.40% |
| 2008-4 | 0.61% 2 | -0.71% 3 | -1.87% 4 | -0.86% 5 | 0.79% 1 | -2.04% |
| Avg | 0.46% | -0.83% | -1.07% | -0.97% | 0.79% | -1.62% |
| OTC Presidential Year 4 1964 - 2008 | ||||||
| Averages | -0.04% | -0.39% | -0.77% | 0.04% | 0.53% | -0.63% |
| % Winners | 42% | 33% | 58% | 50% | 75% | 33% |
| MDD 3/30/2000 10.18% -- 3/27/1980 7.82% -- 3/28/2008 3.41% | ||||||
| OTC summary for all years 1963 - 2011 | ||||||
| Averages | 0.09% | 0.02% | -0.19% | -0.08% | 0.15% | -0.02% |
| % Winners | 53% | 49% | 57% | 57% | 65% | 55% |
| MDD 3/30/2000 10.18% -- 3/27/1980 7.82% -- 3/29/2001 7.69% | ||||||
| Year 4 | ||||||
| Day5 | Day4 | Day3 | Day2 | Day1 | Totals | |
| 1928-4 | -0.58% 2 | -0.26% 3 | 0.32% 4 | 1.74% 5 | -0.78% 6 | 0.44% |
| 1932-4 | -3.05% 6 | -0.39% 1 | -0.13% 2 | 2.11% 3 | -5.56% 4 | -7.02% |
| 1936-4 | -0.33% 4 | -1.53% 5 | 0.13% 6 | -0.20% 1 | 0.74% 2 | -1.18% |
| 1940-4 | -0.50% 2 | 1.33% 3 | -0.25% 4 | 0.33% 5 | 0.57% 6 | 1.49% |
| 1944-4 | -0.08% 1 | -0.99% 2 | -0.25% 3 | 0.67% 4 | -0.08% 5 | -0.74% |
| 1948-4 | 0.41% 4 | -0.20% 6 | -0.14% 1 | 1.16% 2 | 1.41% 3 | 2.64% |
| Avg | -0.71% | -0.36% | -0.13% | 0.81% | -0.58% | -0.96% |
| 1952-4 | -0.04% 3 | 0.88% 4 | 0.79% 5 | 0.66% 6 | 0.12% 1 | 2.42% |
| 1956-4 | 0.23% 5 | -0.43% 1 | -0.76% 2 | 0.54% 3 | -0.06% 4 | -0.49% |
| 1960-4 | 0.00% 5 | -0.21% 1 | -0.14% 2 | -0.22% 3 | -0.57% 4 | -1.15% |
| 1964-4 | -0.18% 2 | 0.23% 3 | 0.28% 4 | -0.06% 1 | -0.20% 2 | 0.06% |
| 1968-4 | -0.10% 1 | 0.68% 2 | 0.82% 3 | -0.10% 4 | 0.70% 5 | 2.00% |
| Avg | -0.02% | 0.23% | 0.20% | 0.16% | 0.00% | 0.57% |
| 1972-4 | -0.21% 5 | -0.20% 1 | -0.12% 2 | -0.63% 3 | 0.67% 4 | -0.51% |
| 1976-4 | -0.55% 4 | 0.00% 5 | -0.43% 1 | -0.39% 2 | 0.75% 3 | -0.62% |
| 1980-4 | -0.09% 2 | -0.51% 3 | -0.47% 4 | 2.50% 5 | 1.40% 1 | 2.83% |
| 1984-4 | -0.12% 1 | 0.40% 2 | 1.64% 3 | -0.23% 4 | -0.21% 5 | 1.48% |
| 1988-4 | -1.84% 5 | -0.17% 1 | 0.78% 2 | -0.77% 3 | 0.32% 4 | -1.68% |
| Avg | -0.56% | -0.10% | 0.28% | 0.10% | 0.58% | 0.30% |
| 1992-4 | -0.33% 3 | 0.08% 4 | -1.07% 5 | -0.12% 1 | 0.17% 2 | -1.27% |
| 1996-4 | -0.09% 1 | 0.45% 2 | -0.62% 3 | 0.01% 4 | -0.53% 5 | -0.79% |
| 2000-4 | -0.24% 1 | -1.06% 2 | 0.05% 3 | -1.37% 4 | 0.72% 5 | -1.89% |
| 2004-4 | 1.64% 4 | -0.10% 5 | 1.30% 1 | 0.40% 2 | -0.07% 3 | 3.17% |
| 2008-4 | 0.23% 2 | -0.88% 3 | -1.15% 4 | -0.80% 5 | 0.57% 1 | -2.02% |
| Avg | 0.24% | -0.30% | -0.30% | -0.37% | 0.17% | -0.56% |
| SPX summary for Presidential Year 4 1928 - 2008 | ||||||
| Averages | -0.28% | -0.14% | 0.03% | 0.25% | 0.00% | -0.13% |
| % Winners | 19% | 33% | 43% | 48% | 57% | 43% |
| MDD 3/31/1932 7.00% -- 3/28/2008 2.79% -- 3/30/2000 2.59% | ||||||
| SPX summary for all years 1928 - 2011 | ||||||
| Averages | -0.03% | -0.01% | -0.06% | -0.04% | -0.15% | -0.28% |
| % Winners | 37% | 48% | 53% | 45% | 42% | 51% |
| MDD 3/31/1938 9.09% -- 3/31/1939 8.80% -- 3/31/1932 7.00% | ||||||
Money supply (M2)
The money supply chart was provided by Gordon Harms. M2 growth remained leveled off at its elevated trend.
Conclusion
The market appears to be consolidating its gains of the past several months. New highs have been declining, but new lows have not been increasing so risk remains limited
I expect the major averages to be lower on Friday March 30 than they were on Friday March 23.
Last week the OTC was up while all of the other major indices were down so I am calling last weeks negative forecast a tie.
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In his latest newsletter Jerry Minton looks at how the stock market's performance is January foretells the rest of the year. To read about it and sign up for his free newsletter go to www.alphaim.net.
Good Luck,
YTD W 3 /L 4 /T 5
