The good news is:
• During this recent period of weakness, the secondaries have held up better than the blue chips.
The negatives
There has been a long standing rule of thumb that says the market is not in trouble until there have been several days of more than 40 new lows on the NYSE and 70 on the NASDAQ. Recently we have seen huge and widely fluctuating numbers of new lows on the NYSE, but relatively few on the NASDAQ. Thursday and Friday there were 75 and 77 new lows on the NASDAQ, exceeding the 70 threshold for the first time since last November. On the NYSE there were 373 and 281 new lows on Thursday and Friday.
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.
NY HL Ratio rose above the neutral level then fell below it again. An optimist might point out the indicator is in an uptrend with higher highs and higher lows during the past few weeks.
The next chart shows the SPX in red and a 10% trend (19 day EMA) of NYSE new highs (NY NH) in green.
NY NH continued its fall.
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).
The only thing good about this chart is OTC NL has not exceeded its mid April low.
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 covers the past month showing the major indices plotted on log scales to illustrate their relative performance. Their movements have been pretty close, but, since the May high, the Russell 2000 has been the strongest while the SPX has been the weakest.
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 56% still above the neutral level.
Seasonality
Next week includes last 5 trading days of June during the 1st year of the Presidential Cycle.
The tables below show the daily return on a percentage basis for the last 5 trading days of June during the 1st year of the Presidential Cycle.
OTC data covers the period from 1963 - 2012 while SPX data runs from 1928 - 2012. There are summaries for both the 1st year of the Presidential Cycle and all years combined.
Over all years next week has been flat, but, on average, there have been modest gains during the 1st year of the Presidential Cycle.
Report for the Last 5 days of June.
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 | ||||||
| Day5 | Day4 | Day3 | Day2 | Day1 | Totals | |
| 1965-1 | -0.78% 4 | -1.51% 5 | -0.45% 1 | -2.13% 2 | 0.80% 3 | -4.07% |
| 1969-1 | 0.09% 2 | -0.03% 3 | 0.09% 4 | 0.23% 5 | 1.20% 1 | 1.58% |
| 1973-1 | -1.54% 1 | 0.53% 2 | 0.26% 3 | 0.94% 4 | -0.18% 5 | 0.01% |
| 1977-1 | 0.49% 5 | -0.03% 1 | -0.35% 2 | 0.06% 3 | 0.39% 4 | 0.57% |
| 1981-1 | -0.21% 3 | 0.25% 4 | 0.21% 5 | -0.70% 1 | -1.13% 2 | -1.59% |
| 1985-1 | 0.44% 1 | 0.80% 2 | 0.38% 3 | 0.66% 4 | 0.29% 5 | 2.57% |
| 1989-1 | -0.24% 1 | 0.28% 2 | -0.81% 3 | -1.57% 4 | -0.60% 5 | -2.94% |
| Avg | -0.21% | 0.37% | -0.06% | -0.12% | -0.24% | -0.28% |
| 1993-1 | 0.57% 4 | 0.88% 5 | 1.16% 1 | -0.25% 2 | 0.41% 3 | 2.77% |
| 1997-1 | 1.26% 2 | -0.43% 3 | -0.68% 4 | 0.13% 5 | 0.26% 1 | 0.55% |
| 2001-1 | 0.79% 1 | 0.67% 2 | 0.49% 3 | 2.44% 4 | 1.65% 5 | 6.05% |
| 2005-1 | -0.84% 5 | -0.39% 1 | 1.21% 2 | -0.05% 3 | -0.58% 4 | -0.65% |
| 2009-1 | 1.55% 3 | 2.08% 4 | 0.47% 5 | 0.32% 1 | -0.49% 2 | 3.93% |
| Avg | 0.67% | 0.56% | 0.53% | 0.52% | 0.25% | 2.53% |
| OTC summary for Presidential Year 1 1965 - 2009 | ||||||
| Averages | 0.13% | 0.26% | 0.16% | 0.01% | 0.17% | 0.73% |
| % Winners | 58% | 58% | 67% | 58% | 58% | 67% |
| MDD 6/29/1965 4.79% -- 6/30/1989 2.96% -- 6/30/1981 1.82% | ||||||
| OTC summary for all years 1963 - 2012 | ||||||
| Averages | -0.17% | -0.04% | 0.07% | 0.10% | 0.26% | 0.21% |
| % Winners | 44% | 46% | 56% | 62% | 62% | 64% |
| MDD 6/30/2010 6.43% -- 6/30/1970 6.40% -- 6/29/1965 4.79% | ||||||
| SPX Presidential Year 1 | ||||||
| Day5 | Day4 | Day3 | Day2 | Day1 | Totals | |
| 1929-1 | 1.05% 2 | 0.59% 3 | 0.18% 4 | 1.11% 5 | 0.77% 6 | 3.70% |
| 1933-1 | 2.64% 1 | 1.01% 2 | -1.28% 3 | -0.92% 4 | 1.58% 5 | 3.04% |
| 1937-1 | -0.64% 5 | -1.03% 6 | -1.56% 1 | 0.13% 2 | 1.72% 3 | -1.38% |
| 1941-1 | 0.20% 3 | 0.40% 4 | -0.50% 5 | -0.10% 6 | -0.30% 1 | -0.30% |
| 1945-1 | 0.13% 2 | -0.13% 3 | -2.02% 4 | -1.13% 5 | 0.61% 6 | -2.54% |
| 1949-1 | 0.14% 5 | -0.07% 1 | -0.85% 2 | 0.64% 3 | 0.50% 4 | 0.36% |
| Avg | 0.50% | 0.04% | -1.24% | -0.28% | 0.82% | -0.17% |
| 1953-1 | -0.12% 3 | 0.42% 4 | 0.08% 5 | -0.29% 1 | 0.00% 2 | 0.08% |
| 1957-1 | -0.78% 1 | 0.79% 2 | -0.13% 3 | 0.36% 4 | 0.23% 5 | 0.47% |
| 1961-1 | -1.06% 1 | 0.00% 2 | 0.19% 3 | -0.11% 4 | 0.19% 5 | -0.80% |
| 1965-1 | -1.31% 4 | -0.60% 5 | -1.76% 1 | 0.99% 2 | 2.07% 3 | -0.60% |
| 1969-1 | 1.13% 2 | -0.32% 3 | 0.25% 4 | 0.08% 5 | 0.39% 1 | 1.53% |
| Avg | -0.43% | 0.06% | -0.27% | 0.21% | 0.58% | 0.14% |
| 1973-1 | -1.40% 1 | 1.03% 2 | 0.31% 3 | 1.03% 4 | -0.41% 5 | 0.56% |
| 1977-1 | 0.57% 5 | -0.21% 1 | -0.83% 2 | -0.03% 3 | 0.37% 4 | -0.13% |
| 1981-1 | -0.52% 3 | 0.11% 4 | -0.19% 5 | -0.51% 1 | -0.52% 2 | -1.61% |
| 1985-1 | -0.24% 1 | 0.31% 2 | 0.17% 3 | 0.62% 4 | 0.32% 5 | 1.18% |
| 1989-1 | -0.43% 1 | 0.56% 2 | -0.80% 3 | -1.88% 4 | -0.53% 5 | -3.08% |
| Avg | -0.40% | 0.36% | -0.27% | -0.15% | -0.15% | -0.62% |
| 1993-1 | 0.77% 4 | 0.22% 5 | 0.95% 1 | -0.26% 2 | -0.04% 3 | 1.65% |
| 1997-1 | 2.02% 2 | -0.82% 3 | -0.60% 4 | 0.41% 5 | -0.24% 1 | 0.77% |
| 2001-1 | -0.55% 1 | -0.15% 2 | -0.47% 3 | 1.25% 4 | 0.00% 5 | 0.08% |
| 2005-1 | -0.76% 5 | -0.07% 1 | 0.91% 2 | -0.14% 3 | -0.71% 4 | -0.78% |
| 2009-1 | 0.65% 3 | 2.14% 4 | -0.15% 5 | 0.91% 1 | -0.85% 2 | 2.70% |
| Avg | 0.43% | 0.26% | 0.13% | 0.43% | -0.37% | 0.88% |
| SPX summary for Presidential Year 1 1929 - 2009 | ||||||
| Averages | 0.07% | 0.20% | -0.38% | 0.10% | 0.24% | 0.23% |
| % Winners | 48% | 52% | 38% | 52% | 52% | 57% |
| MDD 6/28/1965 3.63% -- 6/29/1945 3.25% -- 6/28/1937 3.20% | ||||||
| SPX summary for all years 1928 - 2012 | ||||||
| Averages | -0.19% | 0.00% | -0.07% | 0.12% | 0.15% | -0.01% |
| % Winners | 44% | 45% | 51% | 57% | 58% | 52% |
| MDD 6/29/1950 8.88% -- 6/29/1939 5.93% -- 6/30/2010 5.62% | ||||||
Money Supply (M2)
The money supply chart was provided by Gordon Harms. M2 growth has been flat.
Conclusion
Last week a seasonally weak period was aggravated by the Fed announcement that someday they might ease up their latest Quantitative Easing scheme. That has left the market oversold going into the modestly positive end of month period.
I expect the major averages to be higher on Friday June 28 than they were on Friday June 21.
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/
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Good Luck,
YTD W 13/L 8/T 4
