The good news is:
• Friday's low was unconfirmed by many of the breadth indicators.
The negatives
It is the counter trend days that give clues about possible trend changes and last week there was only one.
The chart below covers the past 6 months 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 continued to fall last week confirming Friday's low.
The next chart 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.
NY NH also continued to decline confirming Friday's low, but, the rate of decline has diminished.
The positives
New lows increased last week but, on the NASDAQ, remained below their May highs. On the NYSE, new lows hit their highest level since last November.
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 turned downward last week, but remains above its mid May low. It is well below the neutral level and falling.
The next chart is similar to the one above except it shows the SPX in red and NY HL Ratio (In dark blue) has been calculated from NYSE data.
NY HL Ratio is slightly more positive than OTC HL Ratio.
The next chart shows the OTC in blue and a 10% trend of NASDAQ new lows (OTC NL) in orange. OTC NL has been plotted on an inverted Y axis so decreasing new lows move the indicator upward (up is good).
OTC NL turned downward last week, but remains above its mid May lows.
Seasonality
Next week includes the 5 trading days prior to the 2nd Friday of June during the 4th year of the Presidential Cycle.
The tables below show the daily return on a percentage basis for the 5 trading days prior to the 2nd Friday of June 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 mixed, slightly negative over all years and slightly positive during the 4th year of the Presidential Cycle.
Report for the week before the 2nd Friday of June.
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 | -0.03% | -0.46% | 0.44% | 0.41% | 0.13% | 0.49% |
| 1968-4 | 0.38% | -0.71% | 0.00% | 0.21% | -0.32% | -0.44% |
| 1972-4 | -0.58% | -0.56% | -0.76% | 0.05% | -0.38% | -2.23% |
| 1976-4 | -0.60% | -0.11% | -0.20% | 0.41% | 0.46% | -0.04% |
| 1980-4 | 0.21% | 0.75% | 0.69% | 0.06% | 0.82% | 2.54% |
| 1984-4 | 1.21% | -0.13% | 0.44% | 0.17% | 0.19% | 1.88% |
| 1988-4 | 0.77% | -0.11% | 1.08% | 0.31% | 0.43% | 2.47% |
| Avg | 0.20% | -0.03% | 0.25% | 0.20% | 0.30% | 0.92% |
| 1992-4 | -0.58% | -1.41% | -0.71% | -0.36% | 0.32% | -2.74% |
| 1996-4 | 0.02% | 0.07% | 0.37% | -0.79% | -1.01% | -1.35% |
| 2000-4 | 0.22% | -1.71% | 2.21% | -0.36% | 1.29% | 1.65% |
| 2004-4 | -1.49% | 1.30% | 0.13% | -0.73% | 0.15% | -0.64% |
| 2008-4 | -0.61% | -0.43% | -2.24% | 0.43% | 2.09% | -0.76% |
| Avg | -0.49% | -0.44% | -0.05% | -0.36% | 0.57% | -0.77% |
| OTC summary for Presidential Year 4 1964 - 2008 | ||||||
| Avg | -0.09% | -0.29% | 0.13% | -0.02% | 0.35% | 0.07% |
| Win% | 50% | 25% | 64% | 67% | 75% | 42% |
| OTC summary for all years 1963 - 2011 | ||||||
| Avg | -0.24% | -0.19% | -0.02% | 0.06% | 0.10% | -0.29% |
| Win% | 47% | 29% | 52% | 67% | 61% | 39% |
| SPX Presidential Year 4 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1956-4 | 0.59% | 0.02% | -0.50% | 0.79% | -1.85% | -0.95% |
| 1960-4 | 1.17% | 0.95% | 0.80% | 0.19% | -0.05% | 3.06% |
| 1964-4 | -0.48% | 0.64% | 0.38% | 0.37% | -0.16% | 0.74% |
| 1968-4 | 0.14% | 0.25% | 0.00% | -0.40% | -0.12% | -0.14% |
| 1972-4 | -0.83% | -0.56% | -0.52% | -0.34% | -0.39% | -2.64% |
| 1976-4 | -0.52% | 0.17% | -0.06% | 0.83% | 1.37% | 1.78% |
| 1980-4 | 0.45% | 0.84% | 1.19% | -0.43% | 0.25% | 2.29% |
| 1984-4 | 0.72% | -0.45% | 0.89% | -0.06% | 0.16% | 1.26% |
| 1988-4 | 0.23% | -0.70% | 2.39% | -0.49% | 0.39% | 1.82% |
| Avg | 0.01% | -0.14% | 0.78% | -0.10% | 0.36% | 0.90% |
| 1992-4 | -0.03% | -0.80% | -0.69% | 0.44% | 0.17% | -0.90% |
| 1996-4 | -0.17% | -0.18% | -0.29% | -0.17% | -0.31% | -1.11% |
| 2000-4 | -0.66% | -0.67% | 0.93% | -0.66% | -0.32% | -1.37% |
| 2004-4 | -0.98% | 0.60% | 0.14% | -0.13% | 0.26% | -0.12% |
| 2008-4 | 0.08% | -0.24% | -1.69% | 0.33% | 1.50% | -0.02% |
| Avg | -0.35% | -0.26% | -0.32% | -0.04% | 0.26% | -0.70% |
| SPX summary for Presidential Year 4 1956 - 2008 | ||||||
| Avg | -0.02% | -0.01% | 0.23% | 0.02% | 0.06% | 0.26% |
| Win% | 50% | 50% | 54% | 43% | 50% | 43% |
| SPX summary for all years 1953 - 2011 | ||||||
| Avg | -0.24% | -0.06% | 0.00% | 0.08% | 0.16% | -0.05% |
| Win% | 44% | 42% | 47% | 59% | 61% | 46% |
Money supply (M2)
The money supply chart was provided by Gordon Harms. M2 growth was flat again last week.
Conclusion
The end of month - beginning of month seasonal rally did not materialize. The bottom indicators, new lows and down side volume, did not confirm Friday's low, but, could easily catch up in the next few days. Seasonally, beyond the next 2 - 3 days June has not been strong. There should be a relief rally soon.
I expect the major averages to be higher on Friday June 8 than they were on Friday June 1.
Last weeks positive forecast was a miss.
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Good Luck,
YTD W 6 /L10/T 6
