The good news is:
• During this recent period of weakness, the secondaries have held up better than the blue chips.
The negatives
There were 401 new lows on the NYSE Wednesday, the largest number since March of 2009. Most of the issues on the new low list have been preferred's and exchange traded bond funds.
The chart below covers the past 6 months showing the S&P 500 (SPX) in red and a 40% trend (4 day EMA) of NYSE new highs / (new highs + new lows) (NY HL Ratio) in blue. Dashed vertical lines have been drawn on the 1st trading day of each month. Dashed horizontal lines have been drawn at 10% levels for the indicator; the line is solid at the neutral 50% level.
The value of the indicator fell to 22% on Thursday, its lowest level since last November.
The next chart shows the SPX in red and a 10% trend (19 day EMA) of NYSE new highs (NY NH) in green.
In less than a month, the value of NY NH has fallen from 394 to 135. There were 83 new highs on Friday, up from a low of 39 last Tuesday.
It will take more than 135 to turn this indicator upward.
The next chart shows the NASDAQ composite (OTC) in blue and a 10% trend 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).
Since late January there has been a pattern of declining tops which is bad. On the other hand, the actual numbers are, not yet, at worrisome levels.
The positives
During the recent period of weakness the small caps have held up well as have the NASDAQ breadth indicators. This is a positive because the small caps lead the trend both up and down.
The chart below is similar to the 1st chart except it shows the OTC in blue and OTC HL Ratio in red has been calculated from NASDQ data.
OTC HL Ratio closed at 73% still well above the neutral level.
Advance - Decline lines (ADL) are a running total of declining issues subtracted from advancing issues. ADL's, have different characteristics depending on their makeup. An ADL calculated from NASDAQ data has had a modest, but consistently negative bias so it deteriorates quickly when the market is developing a top.
The chart below shows the OTC in blue and an ADL calculated from NASDAQ data. The ADL has been following the index closely suggesting the market is NOT in a topping pattern.
The next chart is similar to the one above except it covers the past 2 years to show the negative bias.
Seasonality
Next week includes 5 trading days prior to the 3rd 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 3rd 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.
Next week has been weak by all measures.
Report for the week before the 3rd Friday of June.
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 | 0.38% | -1.96% | 1.05% | 0.72% | 0.65% | 0.85% |
| 1969-1 | -0.11% | -0.65% | -0.86% | -0.70% | -0.60% | -2.91% |
| 1973-1 | -0.66% | 1.70% | -0.44% | -0.74% | -1.26% | -1.39% |
| 1977-1 | 0.22% | 0.43% | -0.03% | 0.56% | 0.40% | 1.58% |
| 1981-1 | 0.09% | -1.07% | 0.01% | -0.86% | 0.39% | -1.44% |
| 1985-1 | -0.20% | 0.19% | 0.08% | -0.27% | 0.47% | 0.27% |
| 1989-1 | -0.06% | -0.59% | -0.02% | -0.79% | 0.02% | -1.42% |
| Avg | -0.12% | 0.13% | -0.08% | -0.42% | 0.00% | -0.48% |
| 1993-1 | 0.46% | 0.13% | -0.16% | -0.04% | -0.91% | -0.52% |
| 1997-1 | 0.63% | 0.78% | -0.74% | 1.03% | 0.00% | 1.69% |
| 2001-1 | -2.00% | -0.04% | -2.23% | -3.66% | -0.77% | -8.69% |
| 2005-1 | 0.29% | 0.00% | 0.28% | 0.69% | 0.05% | 1.31% |
| 2009-1 | -2.28% | -1.11% | 0.66% | -0.02% | 1.09% | -1.66% |
| Avg | -0.58% | -0.05% | -0.44% | -0.40% | -0.14% | -1.57% |
| OTC summary for Presidential Year 1 1965 - 2009 | ||||||
| Avg | -0.27% | -0.18% | -0.20% | -0.34% | -0.04% | -1.03% |
| Win% | 50% | 50% | 42% | 33% | 64% | 42% |
| OTC summary for all years 1963 - 2012 | ||||||
| Avg | -0.20% | 0.10% | 0.03% | -0.02% | 0.02% | -0.08% |
| Win% | 42% | 58% | 63% | 47% | 59% | 52% |
| SPX Presidential Year 1 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1953-1 | -0.84% | -0.30% | 1.27% | -0.04% | 0.00% | 0.10% |
| 1957-1 | 0.19% | -0.41% | -0.67% | -0.61% | -0.59% | -2.09% |
| 1961-1 | -0.77% | -0.53% | 0.27% | -0.44% | -0.78% | -2.24% |
| 1965-1 | -1.30% | 0.57% | 0.84% | 0.63% | -0.47% | 0.27% |
| 1969-1 | -0.33% | -0.38% | -0.14% | -0.58% | -0.59% | -2.02% |
| Avg | -0.61% | -0.21% | 0.32% | -0.21% | -0.60% | -1.20% |
| 1973-1 | -0.31% | 1.49% | -0.64% | -1.12% | -1.22% | -1.79% |
| 1977-1 | 0.28% | 1.13% | -0.25% | 0.24% | 0.12% | 1.53% |
| 1981-1 | 0.09% | -1.09% | 0.89% | -1.26% | 0.48% | -0.90% |
| 1985-1 | -0.30% | 0.43% | -0.38% | 0.05% | 1.54% | 1.35% |
| 1989-1 | -0.14% | -0.71% | -0.02% | -1.16% | 0.40% | -1.64% |
| Avg | -0.08% | 0.25% | -0.08% | -0.65% | 0.26% | -0.29% |
| 1993-1 | 0.10% | -0.32% | 0.26% | 0.25% | -1.08% | -0.80% |
| 1997-1 | 0.07% | 0.06% | -0.59% | 1.00% | 0.08% | 0.61% |
| 2001-1 | -0.84% | 0.12% | -1.13% | -1.75% | -0.45% | -4.06% |
| 2005-1 | 0.23% | 0.26% | 0.22% | 0.36% | 0.50% | 1.56% |
| 2009-1 | -2.38% | -1.27% | -0.14% | 0.84% | 0.31% | -2.63% |
| Avg | -0.56% | -0.23% | -0.28% | 0.14% | -0.13% | -1.06% |
| SPX summary for Presidential Year 1 1953 - 2009 | ||||||
| Avg | -0.42% | -0.06% | -0.01% | -0.24% | -0.13% | -0.85% |
| Win% | 40% | 47% | 40% | 47% | 50% | 40% |
| SPX summary for all years 1953 - 2012 | ||||||
| Avg | -0.08% | 0.14% | 0.01% | -0.13% | 0.00% | -0.07% |
| Win% | 57% | 55% | 47% | 47% | 59% | 53% |
Money Supply (M2)
The money supply chart was provided by Gordon Harms. M2 growth has been flat.
Conclusion
The market resumed its recent weakness last week, but the secondaries have been stronger than the blue chips and NASDAQ new lows have been dormant. The recent weakness has been consistent with seasonal patterns and historically next week has been the weakest of the month.
I expect the major averages to be lower on Friday June 21 than they were on Friday June 14.
Last weeks positive forecast was a miss.
Gordon Harms produces a Power Point for our local timing group meetings. You can get a copy of that at: http://www.stockmarket-ta.com/
In his latest newsletter, Jerry Minton discusses market psychology and the long term (10yr) Shiller PE ratio. You can sign up for Jerry's free, periodic newsletter at: http://www.alphaim.net/
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 8/T 4
