The good news is:
• The market is due for a bounce and seasonally next week has been very strong.
The negatives
New highs continued to deteriorate last week
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 has deteriorated rapidly since its high a month ago.
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.
NY NH began deteriorating in January and that deterioration has been accelerating this month.
The next chart covers the past month showing most of the major indices on log scales to illustrate their relative performance. What you see is the Dow Jones Industrial Average (the bluest of the blue) holding up pretty well, while the Russell 2000 (R2K), representing the small caps has been the weakest. Dashed vertical lines have been drawn on the 1st trading day of each week.
The secondaries lead both up and down and they have been leading the way downward for the past month.
The positives
New lows hit pretty high levels last week, peaking at 100 on the NYSE and 79 on the NASDAQ Wednesday. New lows declined on Thursday in spite of a down day for the major indices so we could see some strength in the next few days.
The chart below covers the past 6 months showing the OTC in blue and a 40% trend (4 day EMA) of NASDAQ new highs / (new highs + new lows) (OTC HL Ratio) in red. Dashed horizontal lines have been drawn at 10% levels for the indicator; the line is solid at the neutral 50% level.
OTC HL Ratio declined sharply last week and is sitting at the neutral level.
The chart below is similar to the one above except it shows SPX in red and NY HL Ratio, in blue, has been calculated from NYSE data.
NY HL Ratio managed to hold above the neutral level.
Seasonality
Next week includes the 5 trading days prior to the 4th Friday of April during the 1st year of the Presidential Cycle. Good Friday usually falls in April so the market is not often open 4 Fridays in April.
The tables below show the daily return on a percentage basis for the 5 trading days prior to the 4th Friday of April during the 1st year of the Presidential Cycle.
OTC data covers the period from 1963 - 2012 and SPX data covers the period from 1953 - 2012. There are summaries for both the 1st 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.
During the 1st year of the Presidential Cycle when there have been 4 trading Friday's in April, the weeks preceding those Fridays have usually been up. Other years, not so much.
Report for the week before the 4th Friday of April.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday through the 4th Friday.
| OTC Presidential Year 1 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1965-1 | 0.35% | 0.33% | 0.37% | 0.56% | -0.31% | 1.31% |
| 1969-1 | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| 1973-1 | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| 1977-1 | -0.90% | -0.15% | 0.71% | 0.28% | 0.44% | 0.39% |
| 1981-1 | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| 1985-1 | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| 1989-1 | -0.14% | -0.11% | 0.16% | 0.66% | 0.32% | 0.89% |
| Avg | -0.52% | -0.13% | 0.44% | 0.47% | 0.38% | 0.64% |
| 1993-1 | -1.90% | 1.03% | 0.86% | 0.04% | 0.45% | 0.48% |
| 1997-1 | -1.52% | 0.72% | 1.19% | 0.08% | -1.53% | -1.06% |
| 2001-1 | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| 2005-1 | 0.25% | 1.02% | -0.96% | 2.54% | -1.54% | 1.31% |
| 2009-1 | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| Avg | -1.06% | 0.92% | 0.36% | 0.89% | -0.87% | 0.24% |
| OTC summary for Presidential Year 1 1965 - 2009 | ||||||
| Avg | -0.64% | 0.47% | 0.39% | 0.70% | -0.36% | 0.55% |
| Win% | 33% | 67% | 83% | 100% | 50% | 83% |
| OTC summary for all yearrs 1963 - 2012 | ||||||
| Avg | -0.11% | -0.14% | 0.00% | 0.10% | -0.32% | -0.48% |
| Win% | 56% | 48% | 73% | 65% | 52% | 63% |
| SPX Presidential Year 1 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1953-1 | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| 1957-1 | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| 1961-1 | -2.08% | 1.40% | 0.38% | -0.14% | -0.23% | -0.67% |
| 1965-1 | 0.01% | 0.17% | -0.04% | -0.08% | 0.20% | 0.26% |
| 1969-1 | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| Avg | -1.04% | 0.78% | 0.17% | -0.11% | -0.01% | -0.21% |
| 1973-1 | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| 1977-1 | -1.31% | -0.04% | 0.88% | 0.24% | 0.24% | 0.01% |
| 1981-1 | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| 1985-1 | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| 1989-1 | -0.30% | -0.63% | 0.06% | 0.86% | 0.02% | 0.02% |
| Avg | -0.80% | -0.33% | 0.47% | 0.55% | 0.13% | 0.01% |
| 1993-1 | -0.80% | 1.03% | 0.00% | 0.20% | 0.30% | 0.73% |
| 1997-1 | -0.78% | 1.87% | -0.13% | -0.32% | -0.75% | -0.10% |
| 2001-1 | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| 2005-1 | 0.29% | 0.59% | -1.33% | 1.97% | -0.68% | 0.86% |
| 2009-1 | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| Avg | -0.43% | 1.17% | -0.48% | 0.62% | -0.38% | 0.50% |
| SPX summary for Presidential Year 1 1953 - 2009 | ||||||
| Avg | -0.71% | 0.63% | -0.03% | 0.39% | -0.13% | 0.16% |
| Win% | 29% | 71% | 57% | 57% | 57% | 71% |
| SPX summary for all years 1953 - 2009 | ||||||
| Avg | -0.07% | 0.00% | -0.21% | -0.02% | -0.02% | -0.30% |
| Win% | 47% | 52% | 37% | 41% | 55% | 48% |
Money supply (M2)
The money supply chart was provided by Gordon Harms. Money supply growth has leveled off again which seems odd with the Fed pumping out 85 Billion a month.
Conclusion
The market has been deteriorating and is oversold, seasonally next week has been strong, so a bounce is likely.
I expect the major averages to be higher on Friday April 26 than they were on Friday April 19.
Last weeks positive forecast was a miss. This report is free to anyone who wants it, so please tell your friends. They can sign up at: http://alphaim.net/signup.html. If it is not for you, reply with REMOVE in the subject line.
In his latest newsletter, Jerry Minton points out that we are entering the "dead zone" for stocks, a six month period over which average returns have been minimal for the past 60 years. You can sign up at: http://www.alphaim.net/
Good Luck,
YTD W 7/L 5/T 4
