The good news is:
• Many of the major indices closed at all time highs on Friday.
The negatives
The market is still overbought.
The chart below covers the past 6 months showing the S&P 500 (SPX) in red and a 10% trend (19 day EMA) of NYSE new highs (NY NH) in green. Dashed vertical lines have been drawn on the 1st trading day of each month.
The SPX closed at an all time high last Friday that was unconfirmed by NY NH.
The positives
The number of new lows has remained insignificant.
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 96% on 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 is shows the SPX in red and NY HL Ratio, in blue, has been calculated from NYSE data.
NY HL Ratio closed the week at a very solid 94%.
Seasonality
Next week includes the 5 trading days prior to the 4th Friday of July 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 4th Friday of July 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.
Average returns for the coming week have been stronger during the 1st year of the Presidential Cycle than other years.
Report for the week before the 4th Friday of July.
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 | -1.67% | 0.12% | -1.20% | -0.46% | -0.42% | -3.63% |
| 1969-1 | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| 1973-1 | 0.07% | 0.50% | 0.83% | -0.02% | 0.17% | 1.55% |
| 1977-1 | 0.59% | 0.36% | 0.05% | 0.26% | 0.40% | 1.67% |
| 1981-1 | 0.68% | -0.24% | 0.02% | 0.52% | 0.76% | 1.74% |
| 1985-1 | -0.30% | -0.20% | -0.82% | 0.24% | 0.06% | -1.02% |
| 1989-1 | -0.74% | 0.11% | 0.59% | 0.75% | 0.08% | 0.79% |
| Avg | 0.06% | 0.11% | 0.13% | 0.35% | 0.29% | 0.94% |
| 1993-1 | -0.56% | 0.87% | -0.26% | -0.65% | 0.68% | 0.08% |
| 1997-1 | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| 2001-1 | -2.01% | -1.47% | 1.28% | 1.95% | 0.30% | 0.04% |
| 2005-1 | -0.55% | 1.32% | 0.71% | -0.46% | 0.05% | 1.07% |
| 2009-1 | 0.10% | 0.39% | -0.39% | 0.84% | -0.29% | 0.64% |
| Avg | -0.76% | 0.28% | 0.33% | 0.42% | 0.19% | 0.46% |
| OTC summary for Presidential Year 1 1965 - 2009 | ||||||
| Avg | -0.44% | 0.18% | 0.08% | 0.30% | 0.18% | 0.29% |
| Win% | 40% | 70% | 60% | 60% | 80% | 80% |
| OTC summary for all years 1963 - 2012 | ||||||
| Avg | -0.34% | -0.12% | 0.11% | 0.09% | -0.02% | -0.28% |
| Win% | 40% | 57% | 52% | 64% | 62% | 52% |
| SPX Presidential Year 1 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1953-1 | -0.53% | -0.25% | 0.12% | 0.17% | 0.00% | -0.49% |
| 1957-1 | -0.23% | 0.19% | 0.10% | 0.00% | -0.33% | -0.27% |
| 1961-1 | 0.02% | 0.55% | 0.94% | 1.17% | 0.15% | 2.83% |
| 1965-1 | -0.07% | -1.26% | -0.57% | -0.26% | 0.26% | -1.90% |
| 1969-1 | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| Avg | -0.20% | -0.19% | 0.15% | 0.36% | 0.03% | 0.04% |
| 1973-1 | 0.35% | 0.58% | 1.39% | 0.19% | -0.24% | 2.27% |
| 1977-1 | 0.77% | 0.83% | -0.06% | -0.14% | 0.08% | 1.48% |
| 1981-1 | 1.12% | -0.59% | 0.02% | 0.66% | 0.70% | 1.91% |
| 1985-1 | -0.40% | -0.93% | -0.50% | 0.25% | 0.18% | -1.40% |
| 1989-1 | -0.66% | 0.06% | 1.25% | 1.17% | 0.05% | 1.86% |
| Avg | 0.24% | -0.01% | 0.42% | 0.43% | 0.15% | 1.22% |
| 1993-1 | 0.06% | 0.29% | -0.03% | -0.60% | 0.58% | 0.31% |
| 1997-1 | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| 2001-1 | -1.64% | -1.63% | 1.61% | 1.04% | 0.24% | -0.37% |
| 2005-1 | -0.55% | 0.67% | 0.48% | -0.66% | 0.54% | 0.48% |
| 2009-1 | 0.30% | -0.26% | -0.46% | 1.19% | 0.07% | 0.84% |
| Avg | -0.46% | -0.23% | 0.40% | 0.24% | 0.36% | 0.31% |
| SPX summary for Presidential Year 1 1953 - 2009 | ||||||
| Avg | -0.11% | -0.13% | 0.33% | 0.35% | 0.19% | 0.58% |
| Win% | 46% | 54% | 62% | 67% | 83% | 62% |
| SPX summary for all years 1953 - 2012 | ||||||
| Avg | -0.19% | -0.13% | 0.31% | 0.20% | -0.01% | 0.18% |
| Win% | 31% | 53% | 61% | 64% | 61% | 57% |
Money supply (M2)
The money supply chart was provided by Gordon Harms. Money supply growth declined slightly.
Conclusion
Most of the breadth indicators confirmed the index highs implying additional advances.
I expect the major averages to be higher on Friday July 26 than they were on Friday July 19.
Last week the OTC was down while the other indices were up so I am calling last weeks negative forecast a tie.
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In his latest newsletter titled "Summer Temptations" Jerry Minton discusses the prudence of investing in what he calls the "dead zone". You can sign up for his free newsletter at: http://www.alphaim.net/
Good Luck,
YTD W 16/L 8/T 5
