The good news is:
• There should be a good buying opportunity near the end of the month.
The negatives
Last week finished badly. New lows hit threatening levels on both the NYSE and NASDAQ.
The chart below covers the past 6 months showing the NASDAQ composite in blue and a 10% trend (19 day EMA) of NASDAQ new lows (OTC NL) in red. 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 on the 1st trading day of each month.
OTC NL is at its lowest point in months and heading downward.
A positive, is this indicator is easy to read because it reverses and moves upward sharply when a bottom has been reached as you can see on the left side of the chart.
The positives
The breadth indicators took a thumping last week, but for many of them the positive pattern of higher highs and higher lows has not been broken.
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 is still slightly above the neutral 50% level.
The chart below is similar to the one above except it shows the S&P 500 (SPX) in red and NY HL Ratio, in black, has been calculated from NYSE data.
At 70% NY HL Ratio is still in pretty good shape. The direction it appears to be headed is a problem.
Seasonality
Next week includes the 5 trading days prior to the 2nd Friday of May 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 of May 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.
Average returns for the coming week have been negative by all measures.
Report for the week before the 2nd Friday of May.
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 | 0.85% | -0.36% | 0.59% | 0.25% | 0.18% | 1.51% |
| 1968-4 | 0.09% | 0.18% | 0.53% | 0.26% | -0.56% | 0.51% |
| 1972-4 | -0.63% | -2.21% | 0.79% | 0.93% | 1.16% | 0.05% |
| 1976-4 | 0.59% | 0.04% | 0.06% | -0.46% | -0.49% | -0.26% |
| 1980-4 | 0.56% | 0.84% | 0.95% | -0.22% | -0.14% | 1.99% |
| 1984-4 | 0.18% | 0.43% | 0.07% | 0.12% | -0.93% | -0.12% |
| 1988-4 | -0.83% | -0.22% | -1.65% | 0.27% | 0.61% | -1.83% |
| Avg | -0.02% | -0.22% | 0.04% | 0.13% | 0.04% | -0.03 |
| 1992-4 | 0.93% | 0.78% | 0.22% | -0.37% | -0.24% | 1.32% |
| 1996-4 | 0.14% | -0.30% | 0.06% | 0.37% | 1.26% | 1.53% |
| 2000-4 | -3.86% | -2.30% | -5.59% | 3.39% | 0.84% | -7.51% |
| 2004-4 | -1.14% | 1.86% | -0.30% | 0.02% | -1.13% | -0.69% |
| 2008-4 | -0.52% | 0.78% | -1.80% | 0.52% | -0.23% | -1.26% |
| Avg | -0.89% | 0.16% | -1.48% | 0.79% | 0.10% | -1.32% |
| OTC summary for Presidential Year 4 1964 - 2008 | ||||||
| Avg | -0.30% | -0.04% | -0.51% | 0.42% | 0.03% | -0.40% |
| Win% | 58% | 58% | 67% | 75% | 42% | 50% |
| OTC summary for all years 1963 - 2011 | ||||||
| Avg | 0.05% | -0.09% | -0.01% | -0.09% | 0.04% | -0.10% |
| Win% | 53% | 51% | 53% | 59% | 57% | 55% |
| SPX Presidential Year 4 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1956-4 | -0.60% | -0.41% | -0.17% | -1.63% | -0.08% | -2.89% |
| 1960-4 | 0.09% | -0.69% | 0.28% | 0.51% | 0.82% | 1.01% |
| 1964-4 | 0.37% | 0.51% | 0.22% | 0.11% | -0.18% | 1.03% |
| 1968-4 | -0.31% | 0.56% | 0.01% | -0.53% | 0.11% | -0.16% |
| 1972-4 | -0.46% | -1.32% | 0.65% | 0.33% | 0.58% | -0.22% |
| 1976-4 | 1.20% | -0.15% | -0.17% | -0.59% | -0.80% | -0.52% |
| 1980-4 | 0.76% | -0.12% | 0.88% | -0.98% | -1.33% | -0.80% |
| 1984-4 | 0.23% | 0.66% | -0.26% | -0.07% | -0.94% | -0.38% |
| 1988-4 | -0.37% | 0.42% | -1.67% | 0.21% | 1.15% | -0.25% |
| Avg | 0.27% | -0.10% | -0.12% | -0.22% | -0.27% | -0.43% |
| 1992-4 | 1.06% | -0.02% | -0.01% | -0.23% | 0.05% | 0.86% |
| 1996-4 | -0.13% | -0.40% | 1.02% | 0.10% | 1.03% | 1.63% |
| 2000-4 | -0.59% | -0.85% | -2.05% | 1.79% | 0.94% | -0.77% |
| 2004-4 | -1.05% | 0.77% | 0.17% | -0.08% | -0.07% | -0.26% |
| 2008-4 | -0.45% | 0.77% | -1.81% | 0.37% | -0.67% | -1.81% |
| Avg | -0.23% | 0.05% | -0.54% | 0.39% | 0.25% | -0.07% |
| SPX summary for Presidential Year 4 1956 - 2008 | ||||||
| Avg | -0.02% | -0.02% | -0.21% | -0.05% | 0.04% | -0.25% |
| Win% | 43% | 43% | 50% | 50% | 50% | 29% |
| SPX summary for all years 1953 - 2011 | ||||||
| Avg | 0.00% | 0.01% | -0.01% | -0.15% | 0.03% | -0.12% |
| Win% | 41% | 47% | 53% | 47% | 53% | 42% |
Money supply (M2)
The money supply chart was provided by Gordon Harms. M2 growth fell last week.
Conclusion
The market had a bad week and seasonality for next week is negative.
I expect the major averages to be lower on Friday May 11 than they were on Friday May 4.
Last weeks positive forecast was a miss.
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Good Luck,
YTD W 5 /L7 /T 6
