The good news is:
• The market is closely following the average seasonal pattern and that pattern calls for another 2 weeks of strength.
The negatives
Most of the major indices have been up for 5 consecutive days so, for the short term, the market is overbought.
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.
A 4.5% jump in the index failed to turn OTC NH upward.
The next chart is similar to the one above except it shows the S&P 500 (SPX) in red and NY NH, in green, has been calculated from NYSE data.
The pattern of NY NL is a little better, but, not as strong as it has been in previous rallies during the decline of the past 3 months.
The positives
New lows provide the best bottom indicator and they are giving a pretty clear signal. On Thursday November 15 there were 272 new lows on the NYSE and 187 on the NASDAQ. Last Friday there were 21 new lows on the NYSE and 19 on the NASDAQ. The holiday week, no doubt, distorted the numbers, but a 90% drop in new lows in a week is a pretty clear signal.
The chart below covers the past 6 months showing the OTC in blue and a 10% trend (19 day EMA) 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 sharply upward last week.
The chart below is similar to the one above except it shows the SPX in red and NY NL, in blue, has been calculated from NYSE data.
NY NL has also turned sharply upward.
The sharp drop in new lows suggests we have seen the low for a while.
Seasonality
Next week includes the last 5 trading days of November during the 4th year of the Presidential Cycle.
The tables below show the daily return on a percentage basis for the last 5 trading days of November 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.
Average returns have been positive by all measures, but they have been distorted by what was probably a record in 2008.
Report for the last 5 days of November.
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 | -0.16% 1 | -0.40% 2 | -0.18% 3 | -0.16% 5 | -0.36% 1 | -1.26% |
| 1968-4 | 0.03% 5 | 0.47% 1 | 0.20% 2 | 1.52% 3 | 0.68% 5 | 2.89% |
| 1972-4 | 0.40% 5 | -0.34% 1 | 0.11% 2 | 0.02% 3 | 0.17% 4 | 0.36% |
| 1976-4 | -0.28% 2 | 0.52% 3 | 0.80% 5 | -0.37% 1 | 0.04% 2 | 0.72% |
| 1980-4 | -0.21% 5 | -0.90% 1 | 0.58% 2 | 0.80% 3 | 0.53% 5 | 0.81% |
| 1984-4 | -0.22% 1 | 0.21% 2 | -0.15% 3 | -0.71% 4 | -0.32% 5 | -1.19% |
| 1988-4 | 0.66% 3 | -0.38% 5 | -0.08% 1 | 0.56% 2 | 0.90% 3 | 1.66% |
| Avg | 0.07% | -0.18% | 0.25% | 0.06% | 0.26% | 0.47% |
| 1992-4 | -0.59% 1 | 1.11% 2 | 0.37% 3 | 0.18% 5 | 0.50% 1 | 1.57% |
| 1996-4 | 1.30% 5 | 0.47% 1 | 0.06% 2 | 0.48% 3 | 0.41% 5 | 2.72% |
| 2000-4 | 5.41% 5 | -0.82% 1 | -5.05% 2 | -1.03% 3 | -4.03% 4 | -5.52% |
| 2004-4 | -0.04% 2 | 0.88% 3 | -0.03% 5 | 0.23% 1 | -0.48% 2 | 0.56% |
| 2008-4 | 5.18% 5 | 6.33% 1 | -0.50% 2 | 4.60% 3 | 0.23% 5 | 15.85% |
| Avg | 2.25% | 1.59% | -1.03% | 0.89% | -0.67% | 3.04% |
| OTC summary for Presidential Year 4 1964 - 2008 | ||||||
| Averages | 0.96% | 0.60% | -0.32% | 0.51% | -0.14% | 1.60% |
| % Winners | 50% | 58% | 50% | 67% | 67% | 75% |
| MDD 11/30/2000 10.55% -- 11/30/1964 1.26% -- 11/30/1984 1.19% | ||||||
| OTC summary for all years 1963 - 2011 | ||||||
| Averages | 0.30% | 0.25% | 0.12% | 0.36% | -0.02% | 1.01% |
| % Winners | 55% | 57% | 65% | 67% | 65% | 69% |
| MDD 11/30/2000 10.55% -- 11/30/1987 3.97% -- 11/30/1973 3.91% | ||||||
| SPX Presidential Year 4 | ||||||
| Day5 | Day4 | Day3 | Day2 | Day1 | Totals | |
| 1928-4 | 0.77% 5 | 0.42% 1 | 0.46% 2 | 1.17% 3 | 0.37% 5 | 3.19% |
| 1932-4 | -1.02% 5 | 0.44% 6 | -0.15% 1 | -0.29% 2 | -3.39% 3 | -4.41% |
| 1936-4 | 1.72% 2 | -0.52% 3 | 1.46% 5 | 0.17% 6 | -0.52% 1 | 2.31% |
| 1940-4 | -0.28% 2 | -1.86% 3 | 0.00% 4 | 0.09% 5 | 0.38% 6 | -1.66% |
| 1944-4 | 0.08% 6 | 0.24% 1 | -0.08% 2 | 0.55% 3 | -0.16% 4 | 0.63% |
| 1948-4 | -1.84% 3 | 0.00% 5 | 0.00% 6 | -0.80% 1 | -0.27% 2 | -2.92% |
| Avg | -0.27% | -0.34% | 0.25% | -0.06% | -0.79% | -1.21% |
| 1952-4 | -0.04% 5 | 0.59% 1 | -0.24% 2 | 0.63% 3 | 0.55% 5 | 1.50% |
| 1956-4 | -0.60% 1 | 0.09% 2 | -1.07% 3 | -0.11% 4 | 1.58% 5 | -0.11% |
| 1960-4 | 0.14% 3 | 0.59% 5 | -0.18% 1 | -0.36% 2 | -0.52% 3 | -0.32% |
| 1964-4 | -0.32% 1 | -0.31% 2 | -0.34% 3 | -0.33% 5 | -0.87% 1 | -2.17% |
| 1968-4 | 0.31% 5 | 0.17% 1 | 0.73% 2 | 0.47% 3 | 0.57% 5 | 2.25% |
| Avg | -0.10% | 0.23% | -0.22% | 0.06% | 0.26% | 0.23% |
| 1972-4 | 0.32% 5 | -0.47% 1 | -0.21% 2 | 0.04% 3 | 0.13% 4 | -0.20% |
| 1976-4 | -0.61% 2 | 0.44% 3 | 0.72% 5 | -0.69% 1 | -0.33% 2 | -0.47% |
| 1980-4 | -0.92% 5 | -0.58% 1 | 0.74% 2 | 0.60% 3 | 0.25% 5 | 0.10% |
| 1984-4 | -0.82% 1 | 0.45% 2 | -0.76% 3 | -0.67% 4 | -0.20% 5 | -2.01% |
| 1988-4 | 0.67% 3 | -0.66% 5 | 0.53% 1 | 0.84% 2 | 1.03% 3 | 2.41% |
| Avg | -0.27% | -0.16% | 0.20% | 0.03% | 0.18% | -0.03% |
| 1992-4 | -0.36% 1 | 0.58% 2 | 0.37% 3 | 0.23% 5 | 0.28% 1 | 1.10% |
| 1996-4 | 0.80% 5 | 1.11% 1 | -0.14% 2 | -0.12% 3 | 0.27% 5 | 1.91% |
| 2000-4 | 1.47% 5 | 0.54% 1 | -0.95% 2 | 0.44% 3 | -2.01% 4 | -0.52% |
| 2004-4 | -0.03% 2 | 0.41% 3 | 0.08% 5 | -0.34% 1 | -0.40% 2 | -0.29% |
| 2008-4 | 6.32% 5 | 6.47% 1 | 0.66% 2 | 3.53% 3 | 0.96% 5 | 17.95% |
| Avg | 1.64% | 1.82% | 0.00% | 0.75% | -0.18% | 4.03% |
| SPX summary for Presidential Year 4 1928 - 2008 | ||||||
| Averages | 0.27% | 0.39% | 0.08% | 0.24% | -0.11% | 0.87% |
| % Winners | 48% | 67% | 43% | 57% | 52% | 48% |
| MDD 11/30/1932 4.38% -- 11/30/1948 2.90% -- 11/30/2000 2.52% | ||||||
| SPX summary for all years 1928 - 2011 | ||||||
| Averages | 0.09% | 0.15% | 0.02% | 0.03% | 0.20% | 0.50% |
| % Winners | 55% | 63% | 51% | 54% | 57% | 52% |
| MDD 11/28/1931 7.09% -- 11/30/1987 6.53% -- 11/29/1950 4.68% | ||||||
Money Supply (M2)
The money supply chart was provided by Gordon Harms. Money supply growth is holding above the elevated trend.
Conclusion
The market is a bit overbought so we are likely to see a few days of weakness, but the seasonal pattern calls for another 2 weeks of strength.
I expect the major averages to be higher on Friday November 30 than they were on Friday November 23.
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In his latest newsletter, Jerry Minton looks at Alpha's seasonal strategies and the upcoming switch to equities. You can read it and sign up for his free newsletter at Alpha's homepage: http://alphaim.net/
Good Luck,
YTD W 17 /L 16/T 14
