The good news is:
• The NYSE advance - decline line hit an all time high last Thursday.
The negatives
The rally over the past week was on weak breadth with weak volume and the secondaries underperformed the blue chips.
The chart below covers the past 6 months showing the NASDAQ composite (OTC) in blue and an advance - decline line of NASDAQ issues (OTC ADL) in green. Advance - decline lines are running totals of the number of declining issues subtracted from advancing issues. Dashed vertical lines have been drawn on the 1st trading day of each month.
The rally of the past week failed to generate any strength in the OTC ADL.
The next chart covers only the last 2 months shown in the chart above.
You can see the OTC ADL closed at its low for the month on Friday.
The next chart covers the past 6 months showing the S&P 500 (SPX) in red and On Balance Volume (NY OBV) in brown. OBV is similar to ADL in that it is a running total of volume of declining issues subtracted from advancing issues.
Usually OBV tracks pretty closely with the index, however, in the past week, NY OBV displayed weakness relative to the SPX.
The next chart is from FastTrack (http://www.fasttrack.net/). The chart covers the past 6 months showing the Russell 2000 (R2K) in red, the SPX in green and Accutrack, a relative strength indicator as a histogram in yellow.
Except for a brief period at the end of June and early July the secondaries have been underperforming the blue chips since early February.
The positives
Until Friday, new highs held well above new lows on both the NASDAQ and NYSE.
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 has held well above the neutral level.
The next chart 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 is even stronger than OTC HL Ratio and finished the week above 80%.
The next chart 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.
NY NH is close to its high for the year.
The next chart is similar to the one above except is shows the OTC in blue and OTC NH has been calculated from NASDAQ data.
OTC NH was not as strong as NY NH.
Seasonality
Next week includes the 5 trading days prior to the 4th Friday of July 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 4th Friday of July 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.
The July 4th holiday occasionally falls on a Friday so, in some years there are only 3 Friday's in July.
Average performance, over all years, has been flat, however, during the 4th year of the Presidential Cycle returns have been very negative with the averages up less than 30% of the time.
Report for the week before the 4th Friday of JulY.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday through the 4th Friday.
| OTC Presidential Year 4 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1964-4 | -0.02% | -0.34% | 0.02% | 0.05% | 0.10% | -0.19% |
| 1968-4 | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| 1972-4 | 0.89% | -0.23% | 0.14% | -0.23% | -0.16% | 0.41% |
| 1976-4 | -0.35% | -0.43% | -0.16% | 0.14% | -0.07% | -0.87% |
| 1980-4 | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| 1984-4 | -1.01% | -0.59% | -0.19% | 0.78% | 0.99% | -0.02% |
| 1988-4 | 0.05% | -0.88% | 0.09% | -0.71% | -0.39% | -1.84% |
| Avg | -0.10% | -0.53% | -0.03% | 0.00% | 0.09% | -0.58% |
| 1992-4 | -0.16% | 1.22% | 1.03% | 0.23% | 0.35% | 2.67% |
| 1996-4 | -1.48% | -2.99% | -0.64% | 1.92% | 1.60% | -1.59% |
| 2000-4 | -2.76% | 1.21% | -1.04% | -3.65% | -4.66% | -10.90% |
| 2004-4 | 0.04% | 1.76% | -2.23% | 0.78% | -2.12% | -1.76% |
| 2008-4 | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| Avg | -1.09% | 0.30% | -0.72% | -0.18% | -1.21% | -2.90% |
| OTC summary for Presidential Year 4 1964 - 2008 | ||||||
| Avg | -0.53% | -0.14% | -0.33% | -0.08% | -0.48% | -1.57% |
| Win% | 33% | 33% | 44% | 67% | 44% | 22% |
| OTC summary for all years 1963 - 2011 | ||||||
| Avg | -0.32% | -0.10% | 0.12% | 0.06% | -0.08% | -0.32% |
| Win% | 41% | 59% | 54% | 63% | 61% | 51% |
| SPX Presidential Year 4 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1956-4 | -0.04% | 0.00% | 0.22% | 0.08% | -0.81% | -0.55% |
| 1960-4 | -0.62% | 0.00% | -0.16% | -0.92% | -0.69% | -2.39% |
| 1964-4 | -0.46% | -0.28% | 0.08% | 0.21% | 0.11% | -0.33% |
| 1968-4 | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| 1972-4 | 1.18% | -0.30% | -0.07% | -0.23% | 0.09% | 0.68% |
| 1976-4 | -0.37% | -0.55% | 0.10% | 0.11% | 0.13% | -0.59% |
| 1980-4 | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| 1984-4 | -0.40% | -0.76% | 0.68% | 0.84% | 0.74% | 1.10% |
| 1988-4 | -0.57% | -0.75% | 0.57% | -1.24% | -1.19% | -3.17% |
| Avg | -0.04% | -0.59% | 0.32% | -0.13% | -0.06% | -0.50% |
| 1992-4 | -0.01% | 1.45% | 1.13% | 0.40% | 0.07% | 3.04% |
| 1996-4 | -0.78% | -1.09% | -0.04% | 0.72% | 0.75% | -0.43% |
| 2000-4 | -1.07% | 0.69% | -1.50% | -0.19% | -2.05% | -4.12% |
| 2004-4 | -0.04% | 0.71% | -1.33% | 0.27% | -0.97% | -1.37% |
| 2008-4 | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| Avg | -0.48% | 0.44% | -0.43% | 0.30% | -0.55% | -0.72% |
| SPX summary for Presidential Year 4 1956 - 2008 | ||||||
| Avg | -0.29% | -0.10% | -0.03% | 0.00% | -0.35% | -0.74% |
| Win% | 09% | 33% | 55% | 64% | 55% | 27% |
| SPX summary for all years 1953 - 2011 | ||||||
| Avg | -0.18% | -0.11% | 0.32% | 0.17% | -0.05% | 0.15% |
| Win% | 32% | 54% | 62% | 63% | 60% | 56% |
Money Supply (M2)
The money supply chart was supplied by Gordon Harms. M2 growth increased last week.
Conclusion
Last weeks jump in the blue chips was not reflected in most of the breadth indicators or the small caps. Seasonally the coming week has been weak during the 4th year of the Presidential Cycle.
I expect the major averages to be lower on Friday July 27 than they were on Friday July 20.
Last week the secondaries were down while the blue chips were up so I am calling last weeks positive forecast a tie.
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Good Luck,
YTD W 8 /L11/T 10
