The good news is:
• There was no significant increase in the number of new lows during the recent weakness.
The negatives
While the politicians are screaming about 85 Billion a year in spending cuts the Fed is pumping 85 Billion a month into the financial system. The Fed's actions have effectively dissolved the equity market negatives.
The positives
Most of the major indices were down last week, but the breadth indicators confirmed the recent index highs implying higher highs ahead.
The chart below covers the past 6 months showing the NASDAQ composite (OTC) in blue and a 40% trend (4 day EMA) of NASDAQ new highs / (new highs + new lows) (OTC HL Ratio) in red. Dashed vertical lines have been drawn on the 1st. trading day of each month and dashed horizontal lines have been drawn at 10% levels for the indicator; the line is solid at the neutral 50% level.
OTC HL Ratio dropped to, a still very high, 78% last week.
The chart below is similar to the one above except it shows the S&P 500 (SPX) in red and NY HL Ratio, in blue, has been calculated from NYSE data.
NY HL Ratio also declined last week, but remains very high at 81%.
Seasonality
Next week includes the last 4 trading days of February and the 1st trading day of March during the 1st year of the Presidential Cycle.
The tables below show the daily return on a percentage basis for the last 4 trading days of February and the 1st trading day of March during the 1st year of the Presidential Cycle.
OTC data covers the period from 1963 - 2012 and SPX data covers the period from 1928 - 2012. There are summaries for both the 1st year of the Presidential Cycle and all years combined.
Average returns have been modestly positive by most measures.
Report for the last 4 days of February and first day of March.
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 1 | ||||||
| Day4 | Day3 | Day2 | Day1 | Day1 | Totals | |
| 1965-1 | 0.61% 2 | 0.93% 3 | 0.54% 4 | -0.15% 5 | 0.25% 1 | 2.18% |
| 1969-1 | -0.74% 2 | -0.90% 3 | 0.53% 4 | -0.82% 5 | -0.13% 1 | -2.07% |
| 1973-1 | -1.08% 5 | -0.87% 1 | -1.21% 2 | 0.51% 3 | -0.73% 4 | -3.39% |
| 1977-1 | -0.40% 3 | -0.96% 4 | 0.06% 5 | -0.35% 1 | 0.60% 2 | -1.04% |
| 1981-1 | 0.46% 2 | 0.03% 3 | 1.10% 4 | 0.96% 5 | 0.53% 1 | 3.07% |
| 1985-1 | -0.78% 1 | 0.37% 2 | -0.31% 3 | 0.02% 4 | 1.05% 5 | 0.35% |
| 1989-1 | 0.14% 4 | -0.77% 5 | -0.26% 1 | 0.19% 2 | 0.02% 3 | -0.67% |
| Avg | -0.33% | -0.44% | -0.12% | 0.27% | 0.30% | -0.33% |
| 1993-1 | -0.16% 2 | 1.70% 3 | 0.70% 4 | 0.55% 5 | -0.19% 1 | 2.60% |
| 1997-1 | 0.19% 2 | -0.53% 3 | -2.08% 4 | -0.28% 5 | 0.17% 1 | -2.53% |
| 2001-1 | 0.78% 5 | 2.03% 1 | -4.36% 2 | -2.54% 3 | 1.47% 4 | -2.62% |
| 2005-1 | 0.05% 3 | 1.01% 4 | 0.67% 5 | -0.66% 1 | 0.95% 2 | 2.01% |
| 2009-1 | 3.90% 2 | -1.14% 3 | -2.38% 4 | -0.98% 5 | -3.99% 1 | -4.59% |
| Avg | 0.95% | 0.61% | -1.49% | -0.78% | -0.32% | -1.02% |
| OTC summary for Presidential Year 1 1965 - 2009 | ||||||
| Averages | 0.25% | 0.07% | -0.58% | -0.29% | 0.00% | -0.56% |
| % Winners | 58% | 50% | 50% | 42% | 67% | 42% |
| MDD 3/2/2009 8.25% -- 2/28/2001 6.79% -- 3/1/1973 3.36% | ||||||
| OTC summary for all years 1963 - 2012 | ||||||
| Averages | 0.14% | 0.12% | -0.12% | -0.09% | 0.19% | 0.24% |
| % Winners | 56% | 56% | 58% | 50% | 63% | 58% |
| MDD 3/2/2009 8.25% -- 2/28/2001 6.79% -- 3/1/2007 4.78% | ||||||
| SPX Presidential Year 1 | ||||||
| Day4 | Day3 | Day2 | Day1 | Day1 | Totals | |
| 1929-1 | 0.20% 1 | 0.16% 2 | 1.20% 3 | 1.35% 4 | 0.94% 5 | 3.85% |
| 1933-1 | 3.87% 5 | -5.25% 6 | -1.07% 1 | 2.35% 2 | 1.94% 3 | 1.84% |
| 1937-1 | 0.56% 3 | -0.39% 4 | 0.33% 5 | 0.17% 6 | 0.00% 1 | 0.67% |
| 1941-1 | 0.91% 2 | 0.20% 3 | -0.70% 4 | 0.40% 5 | -0.20% 6 | 0.62% |
| 1945-1 | -0.28% 6 | -0.21% 1 | 0.78% 2 | 0.70% 3 | 0.14% 4 | 1.13% |
| 1949-1 | -1.23% 4 | -0.28% 5 | 0.49% 6 | 1.18% 1 | 0.62% 2 | 0.77% |
| Avg | 0.77% | -1.19% | -0.04% | 0.96% | 0.50% | 1.00% |
| 1953-1 | 0.47% 2 | 0.62% 3 | 0.15% 4 | -0.19% 5 | 0.12% 1 | 1.17% |
| 1957-1 | -0.23% 1 | 0.16% 2 | -0.09% 3 | -0.35% 4 | 1.11% 5 | 0.60% |
| 1961-1 | 0.37% 4 | 0.40% 5 | 0.73% 1 | 0.22% 2 | -0.02% 3 | 1.71% |
| 1965-1 | 0.50% 2 | 0.61% 3 | 0.03% 4 | 0.26% 5 | -0.21% 1 | 1.20% |
| 1969-1 | -0.63% 2 | 0.48% 3 | -0.31% 4 | -0.01% 5 | 0.25% 1 | -0.22% |
| Avg | 0.10% | 0.45% | 0.10% | -0.01% | 0.25% | 0.89% |
| 1973-1 | -1.12% 5 | -0.86% 1 | -1.15% 2 | 0.70% 3 | -0.56% 4 | -2.99% |
| 1977-1 | -0.30% 3 | -0.59% 4 | -0.12% 5 | 0.34% 1 | 0.84% 2 | 0.18% |
| 1981-1 | 0.03% 2 | 0.89% 3 | 1.23% 4 | 0.90% 5 | 0.56% 1 | 3.61% |
| 1985-1 | -0.07% 1 | 1.08% 2 | -0.25% 3 | 0.26% 4 | 1.13% 5 | 2.15% |
| 1989-1 | 0.39% 4 | -1.68% 5 | 0.24% 1 | 0.36% 2 | -0.61% 3 | -1.30% |
| Avg | -0.21% | -0.23% | -0.01% | 0.51% | 0.27% | 0.33% |
| 1993-1 | -0.10% 2 | 1.40% 3 | 0.33% 4 | 0.24% 5 | -0.31% 1 | 1.55% |
| 1997-1 | 0.21% 2 | -0.78% 3 | -1.32% 4 | -0.54% 5 | 0.57% 1 | -1.85% |
| 2001-1 | -0.56% 5 | 1.75% 1 | -0.77% 2 | -1.43% 3 | 0.10% 4 | -0.90% |
| 2005-1 | 0.56% 3 | 0.79% 4 | 0.93% 5 | -0.64% 1 | 0.57% 2 | 2.21% |
| 2009-1 | 4.01% 2 | -1.07% 3 | -1.58% 4 | -2.36% 5 | -4.66% 1 | -5.65% |
| Avg | 0.83% | 0.42% | -0.48% | -0.95% | -0.75% | -0.93% |
| SPX summary for Presidential Year 1 1929 - 2009 | ||||||
| Averages | 0.36% | -0.12% | -0.04% | 0.19% | 0.11% | 0.49% |
| % Winners | 57% | 57% | 52% | 67% | 62% | 71% |
| MDD 3/2/2009 9.35% -- 2/27/1933 6.27% -- 2/27/1973 3.09% | ||||||
| SPX summary for all years 1928 - 2012 | ||||||
| Averages | -0.05% | 0.06% | -0.03% | 0.05% | 0.16% | 0.17% |
| % Winners | 43% | 53% | 55% | 57% | 64% | 61% |
| MDD 3/2/2009 9.35% -- 2/27/1933 6.27% -- 2/26/1946 5.14% | ||||||
Money supply (M2)
The money supply chart was provided by Gordon Harms. Money supply growth has leveled off at an elevated trend.
March
Since 1963, over all years, the OTC in March has been up 64% of the time with an average gain of 0.7%. During the 1st year of the Presidential Cycle March has been up only 42% time with an average loss of -0.4%. The best March ever for the OTC was 2009 (+15.6%), the worst 1980 (-16.5%).
The average month has 21 trading days. The chart below has been calculated by averaging the daily percentage change for each of the 1st 11 trading days and each of the last 10. In months when there were more than 21 trading days some of the days in the middle were not counted. In months when there were less than 21 trading days some of the days in the middle of the month were counted twice. Dashed vertical lines have been drawn after the 1st trading day and at 5 trading day intervals after that. The line is solid on the 11th trading day, the dividing point.
In the chart below the blue line shows the average daily performance of the OTC in March over all years since 1963 in blue, while the green line shows the average during the 1st year of the Presidential Cycle over the same period.
Since 1928 the SPX has been up 61% of the time in March with an average gain of 0.4%. During the 1st year of the Presidential Cycle the SPX has been up 52% of the time with an average gain of 0.2%. The best March ever for the SPX was 2009 (+13.8%) the worst 1938 (-12.5%).
The chart below is similar to the one above except it shows the average daily performance over all years since 1928 for the SPX in March in red and the average daily performance during the 1st year of the Presidential Cycle, over the same period, in green.
Since 1979 the Russell 2000 (R2K) has been up 68% of the time in March with an average gain of 1.1%. During the 1st year of the Presidential Cycle the R2K has been up 50% of the time with an average gain of 1.5% (helped considerably by a 14.9% gain in 2009). The best March for the R2K 2009 (+14.9%), the worst 1980 (-17.9%)
The chart below is similar to those above except it shows the average daily performance of the R2K, over all years since 1979, in March in magenta and the average daily performance during the 1st year of the Presidential Cycle in green.
Since 1885 the Dow Jones Industrial Average (DJIA) has been up 59% of the time in March with an average gain of 0.5%. During the 1st year of the Presidential Cycle the DJIA has been up 53% of the time in March with an average gain of 0.1%. The best March ever for the DJIA 2009 (+12.5%), the worst 1938 (-24.2%)
The chart below is similar to those above except it shows the average daily performance over all years for the DJIA in March in black and the average performance during the 1st year of the Presidential Cycle in green.
Conclusion
The market has held up remarkably well recently in spite of weak seasonality. In the next week the period of extremely weak seasonality will be ending.
I expect the major averages to be higher on Friday March 1 than they were on Friday February 22.
Last week the Dow Jones Industrial Average was up while everything else was down so I am calling last weeks negative forecast a tie.
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Good Luck,
YTD W 5/L 0/T 3
