The good news is:
• All of the major indices closed at multi year or all time highs again on Friday.
The negatives
Not much has changed from last week. The market is still overbought, up 6% - 8.5%, in the last 3 weeks, depending on the index
The chart below covers the past 3 weeks showing the major indices. A dark dashed vertical line has been drawn on the 1st trading day of the month; lighter dashed vertical lines have been drawn on the 1st trading day of each week.
The negative is the indices have been up 4% - 8.5% in the past 3 weeks leaving the market overbought.
A positive is the secondaries are leading the way up.
The positives
New highs picked up last week while new lows remained dormant.
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 horizontal lines have been drawn at 10% levels for the indicator; the line is solid at the neutral 50% level.
OTC HL Ratio closed at a very strong 90% Friday. There are trading systems that impose a no sell filter when variations of this indicator are above 80%.
The chart below is similar to the one above except it shows S&P 500 (SPX) in red and NY HL Ratio, in blue, has been calculated from NYSE data.
NY HL Ratio closed at 96.6%.
Seasonality
Next week includes the 5 trading days prior to the 3rd Friday of May during the 1st year of the Presidential Cycle.
The tables below show the daily return on a percentage basis for the 5 trading days prior to the 3rd Friday of May 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.
The coming week, like last week, has been modestly positive during the 1st year of the Presidential Cycle and modestly negative over all years combined.
Report for the week before the 3rd Friday of May.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday through 3rd Friday.
| OTC Presidential Year 1 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1965-1 | -0.06% | -0.35% | -0.21% | -0.23% | -0.45% | -1.31% |
| 1969-1 | 0.18% | -0.67% | 0.36% | 0.78% | 0.36% | 1.01% |
| 1973-1 | -2.42% | -0.30% | -0.04% | -0.86% | -2.19% | -5.80% |
| 1977-1 | 0.39% | 0.11% | 0.58% | -0.11% | -0.37% | 0.61% |
| 1981-1 | -0.95% | 0.16% | 0.31% | 0.65% | 0.62% | 0.78% |
| 1985-1 | 0.24% | -0.15% | 0.21% | 0.49% | 0.67% | 1.47% |
| 1989-1 | 0.32% | -0.13% | 0.66% | 0.29% | 0.51% | 1.65% |
| Avg | -0.49% | -0.06% | 0.34% | 0.09% | -0.15% | -0.26% |
| 1993-1 | 0.24% | 0.42% | 1.42% | 1.01% | -0.45% | 2.63% |
| 1997-1 | 0.68% | -0.79% | 0.15% | 1.35% | -0.95% | 0.44% |
| 2001-1 | -1.21% | 0.18% | 3.87% | 1.26% | 0.24% | 4.34% |
| 2005-1 | 0.89% | 0.49% | 1.32% | 0.59% | 0.19% | 3.48% |
| 2009-1 | -0.45% | -0.88% | -3.01% | 1.50% | -0.54% | -3.38% |
| Avg | 0.03% | -0.12% | 0.75% | 1.14% | -0.30% | 1.50% |
| OTC summary for Presidential Year 1 1965 - 2009 | ||||||
| Avg | -0.18% | -0.16% | 0.47% | 0.56% | -0.20% | 0.49% |
| Win% | 58% | 42% | 75% | 75% | 50% | 75% |
| OTC summary for all years 1963 - 2012 | ||||||
| Avg | -0.06% | 0.01% | 0.03% | -0.03% | -0.25% | -0.30% |
| Win% | 46% | 46% | 58% | 52% | 41% | 46% |
| SPX Presidential Year 1 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1953-1 | -0.20% | -0.68% | -0.04% | 0.49% | -0.04% | -0.48% |
| 1957-1 | 0.62% | -0.45% | 0.34% | 0.41% | 0.28% | 1.20% |
| 1961-1 | 0.57% | 0.37% | 0.46% | -0.59% | 0.42% | 1.23% |
| 1965-1 | -0.62% | -0.09% | 0.23% | -0.55% | -0.48% | -1.50% |
| 1969-1 | -0.15% | 0.43% | 0.78% | -0.29% | 0.09% | 0.85% |
| Avg | 0.04% | -0.08% | 0.36% | -0.11% | 0.05% | 0.26% |
| 1973-1 | -2.10% | 0.63% | -0.13% | -0.82% | -1.61% | -4.03% |
| 1977-1 | 0.44% | 0.30% | 0.53% | -0.42% | -0.43% | 0.43% |
| 1981-1 | -1.48% | 0.78% | -0.13% | 0.56% | 0.68% | 0.40% |
| 1985-1 | 0.18% | -0.40% | 0.36% | 0.61% | 0.95% | 1.70% |
| 1989-1 | 0.74% | -0.28% | 0.70% | 0.15% | 1.03% | 2.34% |
| Avg | -0.44% | 0.21% | 0.27% | 0.02% | 0.12% | 0.17% |
| 1993-1 | 0.18% | -0.01% | 1.64% | 0.69% | -1.05% | 1.44% |
| 1997-1 | 1.56% | -0.54% | 0.35% | 0.70% | -1.44% | 0.63% |
| 2001-1 | 0.26% | 0.04% | 2.85% | 0.27% | 0.27% | 3.69% |
| 2005-1 | 1.01% | 0.70% | 1.00% | 0.47% | -0.15% | 3.02% |
| 2009-1 | -2.15% | -0.10% | -2.69% | 1.04% | -1.14% | -5.04% |
| Avg | 0.17% | 0.02% | 0.63% | 0.63% | -0.70% | 0.75% |
| SPX summary for Presidential Year 1 1953 - 2009 | ||||||
| Avg | -0.08% | 0.05% | 0.42% | 0.18% | -0.18% | 0.39% |
| Win% | 60% | 47% | 73% | 67% | 47% | 73% |
| SPX summary for all years 1953 - 2012 | ||||||
| Avg | -0.05% | 0.06% | 0.05% | -0.06% | -0.14% | -0.14% |
| Win% | 49% | 52% | 50% | 52% | 48% | 48% |
Money supply (M2)
The money supply chart was provided by Gordon Harms. Money supply growth appears to be leveling off.
Conclusion
The market is overbought, but the average performance of the coming week has been modestly positive during the 1st year of the Presidential Cycle. Oh, and the Fed is throwing $85 billion a month at the markets.
I expect the major averages to be higher on Friday May 17 than they were on Friday May 10.
This report is free to anyone who wants it, so please tell your friends. They can sign up at: http://www.alphaim.net/signup.html. If it is not for you, reply with REMOVE in the subject line.
Gordon Harms produces a Power Point for our local timing group meetings. You can get a copy of that at: http://stockmarket-ta.com/
Jerry Minton, in his latest newsletter discusses the 5 quarter period from Q4 mid term to Q4 pre election. A 5 quarter period that has not been down since 1931. You can sign up for his free letter at: http://www.alphaim.net/index.html
Good Luck,
YTD W 10/L 5/T 4
