The good news is:
• New lows on the NYSE declined from 244 on Monday to 20 on Friday. A dramatic drop like this suggests the recent period of weakness is over.
The negatives
The serious negative, NYSE new lows, went away last week, but new highs have yet to recover.
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.
The value of the indicator was 147 last Friday so it will take more than 147 NASDAQ new highs to turn the indicator upward. There were 128 NASDAQ new highs last Friday.
The next chart is similar to the one above except it shows the S&P 500 in red and NY NH has been calculated from NYSE data.
The value of NY NH was 181 on Friday and there were 93 new highs on the NYSE.
The positives
During the recent period of weakness the small caps held up well as did the NASDAQ breadth indicators. This is a positive because the small caps lead both up and down.
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 fell below the 80% level last week and finished the week at 79%. 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 SPX in red and NY HL Ratio, in blue, has been calculated from NYSE data.
NY HL Ratio fell below the 50% level last week, but moved sharply upward Thursday and Friday.
Seasonality
Next week includes 5 trading days prior to the 2nd Friday of June 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 2nd Friday of June during the 1st year of the Presidential Cycle.
OTC data covers the period from 1963 - 2012 while SPX data runs 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 OTC has been modestly negative during the coming week, while the SPX has been modestly positive.
Report for the week before the 2nd Friday of June.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday to the 2nd Friday.
| OTC Presidential Year 1 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1965-1 | 0.14% | -0.55% | -1.55% | -1.45% | -0.55% | -3.95% |
| 1969-1 | -0.85% | -0.83% | -0.53% | -0.89% | -1.79% | -4.89% |
| 1973-1 | -1.50% | 0.93% | -0.01% | 0.86% | 1.12% | 1.40% |
| 1977-1 | -0.08% | 0.06% | 0.44% | 0.04% | 0.46% | 0.91% |
| 1981-1 | -0.21% | -0.38% | 0.18% | 0.88% | 0.19% | 0.66% |
| 1985-1 | -0.11% | -0.06% | -0.30% | -0.94% | 0.36% | -1.06% |
| 1989-1 | -0.84% | 0.03% | 0.95% | 0.40% | -0.07% | 0.46% |
| Avg | -0.55% | 0.12% | 0.25% | 0.25% | 0.41% | 0.48% |
| 1993-1 | -1.05% | -0.99% | 0.22% | -0.17% | 0.75% | -1.25% |
| 1997-1 | 0.51% | -0.73% | 0.44% | 0.24% | 0.83% | 1.30% |
| 2001-1 | 0.30% | 3.61% | -0.72% | 2.09% | -2.16% | 3.12% |
| 2005-1 | 0.21% | -0.41% | -0.34% | 0.81% | -0.67% | -0.40% |
| 2009-1 | -0.38% | 0.96% | -0.38% | 0.50% | -0.19% | 0.51% |
| Avg | -0.08% | 0.49% | -0.15% | 0.69% | -0.29% | 0.66% |
| OTC summary for Presidential Year 1 1965 - 2009 | ||||||
| Avg | -0.32% | 0.14% | -0.13% | 0.20% | -0.14% | -0.27% |
| Win% | 33% | 42% | 42% | 67% | 50% | 58% |
| OTC summary for all years 1963 - 2012 | ||||||
| Avg | -0.23% | -0.17% | 0.03% | 0.05% | 0.11% | -0.20% |
| Win% | 48% | 30% | 53% | 65% | 62% | 40% |
| SPX Presidential Year 1 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1953-1 | -0.33% | -1.71% | -0.25% | 0.89% | 0.29% | -1.11% |
| 1957-1 | -0.52% | 1.14% | 0.23% | 0.19% | 0.02% | 1.05% |
| 1961-1 | 0.52% | -0.28% | -0.37% | 0.05% | -0.01% | -0.10% |
| 1965-1 | -0.26% | -1.09% | -1.04% | -0.36% | 0.46% | -2.30% |
| 1969-1 | -0.90% | -0.77% | -0.87% | -1.30% | 0.40% | -3.44% |
| Avg | -0.30% | -0.54% | -0.46% | -0.11% | 0.23% | -1.18% |
| 1973-1 | -0.92% | 1.60% | -0.30% | 1.47% | 1.12% | 2.97% |
| 1977-1 | -0.47% | 0.51% | 0.48% | -0.06% | 0.33% | 0.79% |
| 1981-1 | 0.02% | -0.20% | 0.27% | 1.08% | -0.19% | 0.96% |
| 1985-1 | -0.09% | -0.25% | -0.76% | -1.22% | 0.96% | -1.35% |
| 1989-1 | -1.07% | 0.69% | 0.84% | -0.06% | -0.02% | 0.37% |
| Avg | -0.51% | 0.47% | 0.11% | 0.24% | 0.44% | 0.75% |
| 1993-1 | -0.53% | -0.67% | 0.24% | -0.09% | 0.42% | -0.62% |
| 1997-1 | 0.57% | 0.27% | 0.50% | 1.59% | 1.11% | 4.05% |
| 2001-1 | 0.51% | 1.30% | -1.05% | 0.55% | -0.94% | 0.36% |
| 2005-1 | 0.12% | -0.02% | -0.22% | 0.52% | -0.23% | 0.18% |
| 2009-1 | -0.10% | 0.35% | -0.35% | 0.61% | 0.14% | 0.65% |
| Avg | 0.12% | 0.25% | -0.18% | 0.64% | 0.10% | 0.92% |
| SPX summary for Presidential Year 1 1953 - 2009 | ||||||
| Avg | -0.23% | 0.06% | -0.18% | 0.26% | 0.26% | 0.16% |
| Win% | 33% | 47% | 40% | 60% | 67% | 60% |
| SPX summary for all years 1953 - 2012 | ||||||
| Avg | -0.23% | -0.05% | 0.04% | 0.08% | 0.17% | 0.01% |
| Win% | 45% | 43% | 47% | 58% | 62% | 47% |
Money Supply (M2)
The money supply chart was provided by Gordon Harms. M2 growth continued its decline below the trend rate.
A second opinion
In his latest "Trend in Focus" Tom McClellan takes issue with my calling NYSE breadth data "contaminated" with fixed income issues. He writes, "This presumption is an unfortunate piece of analytical bigotry."
Time will tell.
You can read it all in Tom's free weekly newsletter at: Hindenburg and Titanic, OH MY!
Conclusion
The market began a recovery last week that, from the big drop in NYSE new lows, looks like a bottom.
I expect the major averages to be higher on Friday June 14 than they were on Friday June 7.
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.
Good Luck,
YTD W 12/L 7/T 4
