The good news is:
• The S&P 500 (SPX) and Dow Jones Industrial Average closed at multi year highs last Monday.
The negatives
The lack of 52 week new highs (leadership) caught up with the market last week.
The chart below covers the past 6 months showing the 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.
Since early February the SPX and NY NH have been going in opposite directions.
The chart below is similar to the one above except it shows the NASDAQ composite (OTC) in blue and OTC NH has been calculated from NASDAQ data.
This chart looks a lot better than the one above.
The next chart is similar to the one above except it covers the past year.
This picture is not as positive. The recent high of OTC NH was lower than it was a year ago when the index was much lower.
The lack of leadership indicated by the shortage of new highs is a negative, but, as long as the number of new lows is limited price deterioration will be limited. New lows increased last week, but not to threatening levels.
The positives
The long standing rule of thumb for new lows is: There is limited risk until there have been several days of NYSE new lows above 40 and NASDAQ new lows above 70. Those numbers have not been breached recently.
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 closed at 58% Friday, still above the neutral 50% level.
The chart below 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 has been ratcheting lower for the past month and is and is now lower than it has been at any time since the December low.
Seasonality
Next week includes the 5 trading days prior to the 2nd Friday in April during the 4th year of the Presidential Cycle.
The tables below show the return on a percentage basis for the 5 trading days prior to the 2nd Friday in April during the 4th year of the Presidential Cycle.
OTC data covers the period from 1963 - 2011 and SPX data covers the period from 1953 - 2011. 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.
Next week is the anniversary of the beginning of the 2000 market collapse and could easily be the worst week in market history. In the week of the 1987 crash the OTC fell 19.76% and the SPX fell 9.97%, during the coming week in 2000 the OTC fell 28.16% and the SPX fell 10.87%.
Report for the week before the 2nd Friday of April.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday to 2nd Friday.
| OTC Presidential Year 4 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1964-4 | 0.37% | 0.47% | -0.31% | 0.50% | 0.08% | 1.10% |
| 1968-4 | 1.66% | 1.09% | 0.19% | 1.00% | -0.55% | 3.40% |
| 1972-4 | -0.03% | 0.54% | 0.53% | -0.08% | 0.62% | 1.57% |
| 1976-4 | 0.88% | 0.13% | -0.82% | -0.84% | -1.28% | -1.92% |
| 1980-4 | -0.78% | -0.20% | -0.46% | -0.89% | 0.08% | -2.26% |
| 1984-4 | -0.45% | 0.25% | -0.68% | 0.32% | 0.60% | 0.03% |
| 1988-4 | 0.18% | 0.22% | 0.01% | -2.32% | -0.17% | -2.07% |
| Avg | -0.04% | 0.19% | -0.29% | -0.76% | -0.03% | -0.93% |
| 1992-4 | 1.06% | -2.46% | -1.36% | 2.28% | -0.43% | -0.91% |
| 1996-4 | 0.86% | 1.31% | -0.36% | 1.37% | 0.21% | 3.40% |
| 2000-4 | -5.81% | -3.16% | -7.06% | -2.46% | -9.67% | -28.16% |
| 2004-4 | 0.61% | -1.71% | -0.26% | -1.12% | -0.32% | -2.80% |
| 2008-4 | -0.26% | -0.68% | -1.13% | 1.27% | -2.61% | -3.41% |
| Avg | -0.71% | -1.34% | -2.03% | 0.27% | -2.56% | -6.38% |
| OTC summary for Presidential Year 4 1964 - 2008 | ||||||
| Avg | -0.14% | -0.35% | -0.98% | -0.08% | -1.12% | -2.67% |
| Win% | 58% | 58% | 25% | 50% | 42% | 42% |
| OTC summary for all years 1963 - 2011 | ||||||
| Avg | 0.01% | -0.08% | -0.08% | 0.22% | -0.26% | -0.20% |
| Win% | 61% | 53% | 55% | 57% | 55% | 61% |
| SPX Presidential Year 4 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1956-4 | -0.49% | -1.40% | 0.79% | -0.60% | -0.15% | -1.84% |
| 1960-4 | 0.20% | 0.59% | 1.15% | 0.02% | -0.23% | 1.73% |
| 1964-4 | 0.10% | -0.35% | 0.01% | -0.06% | 0.19% | -0.11% |
| 1968-4 | 0.06% | 0.03% | 0.20% | 0.28% | -1.27% | -0.70% |
| 1972-4 | -0.16% | 0.28% | 0.38% | -0.25% | -0.06% | 0.20% |
| 1976-4 | 1.23% | -0.14% | -1.11% | -0.91% | -0.92% | -1.85% |
| 1980-4 | -0.92% | -0.20% | -1.06% | -0.48% | -0.49% | -3.16% |
| 1984-4 | -0.02% | 0.27% | -0.56% | 1.76% | -0.27% | 1.19% |
| 1988-4 | 0.27% | 0.45% | 0.07% | -4.35% | 0.01% | -3.55% |
| Avg | 0.08% | 0.13% | -0.46% | -0.85% | -0.35% | -1.43% |
| 1992-4 | 1.01% | -1.86% | -0.89% | 1.56% | 0.91% | 0.72% |
| 1996-4 | 0.91% | 0.39% | -0.53% | 0.31% | 0.23% | 1.31% |
| 2000-4 | -0.78% | -0.26% | -2.23% | -1.82% | -5.78% | -10.87% |
| 2004-4 | 0.52% | -1.38% | -0.11% | 0.06% | 0.51% | -0.40% |
| 2008-4 | 0.16% | -0.51% | -0.81% | 0.45% | -2.04% | -2.75% |
| Avg | 0.36% | -0.72% | -0.91% | 0.11% | -1.23% | -2.40% |
| SPX summary for Presidential Year 4 1956 - 2008 | ||||||
| Avg | 0.15% | -0.29% | -0.34% | -0.29% | -0.67% | -1.43% |
| Win% | 64% | 43% | 43% | 50% | 36% | 36% |
| SPX summary for all years 1953 - 2011 | ||||||
| Avg | 0.16% | 0.07% | 0.04% | 0.01% | -0.08% | 0.19% |
| Win% | 62% | 54% | 56% | 54% | 53% | 56% |
Money supply (M2)
The money supply chart was provided by Gordon Harms. M2 growth increased a little last week, but the 50 day ROC fell sharply.
Conclusion
All of the technical indicators deteriorated last week and seasonally next week has been weak.
I expect the major averages to be lower on Thursday April 13 than they were on Thursday April 5.
Last weeks positive forecast was a miss.
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Good Luck,
YTD W 3 /L6 /T 5
