The good news is:
• The Dow Jones Industrial Average closed at an all time high on Friday.
All of the patterns that I discussed last week are still in place or have accelerated so the charts in this weeks report will all be updates of what was in last weeks report.
The negatives
The chart below from FastTrack covers the past year showing the Russell 2000 (R2K) in red and the S&P 500 (SPX) in green and a relative strength indicator called Accutrack shown as a histogram, in yellow, at the bottom. Dashed vertical lines have been drawn on the 1st trading day of each month.
When Accutrack is above the neutral line, the R2K is outperforming the SPX. Accutrack extended its excursion into negative territory.
Volume has been increasing, which is good. But, it is all going to the down side which is bad.
The chart below covers the past 6 months showing OTC in blue and a 5% trend (39 day EMA) of NASDAQ total volume (OTC Tot Vol T) in red.
Volume continued to increase last week.
The next chart shows the OTC in blue and only the upside volume component (OTC UV), in green, of OTC Tot Vol.
OTC UV remained, for all practical purposes, flat last week.
The next chart shows the OTC in blue and the down side component of OTC Tot Vol, OTC DV, in red. OTC DV has been plotted on an inverted Y-axis so decreasing down side volume moves the indicator upward (up is good).
The chart below shows that nearly all of the increase in volume over the past 7 weeks has been going to the down side.
The next chart is similar to the one above except it covers the past year.
You have to go back to November a year ago to find OTC DV as low as it is now. Of course, last November was a bottom.
The positives
New highs continued to decline last week while new lows edged up slightly.
The chart below covers the past 6 months showing the OTC in blue and a 40% trend (4 day EMA) of NASDAQ new highs divided by (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 continued to fall, but remains in positive territory.
The next chart is similar to the one above except it shows the SPX in red and NY HL Ratio, in blue, has been calculated from NYSE data.
NY HL Ratio also fell last week, but remains well in positive territory at 75%.
Seasonality
Next week includes the 5 trading days prior to the 3rd Friday of November during the 1st year of the Presidential Cycle.
The tables below show the daily percentage return for the 5 trading days prior to the 3rd Friday of November 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 modestly positive during the 1st year of the Presidential Cycle and modestly negative over all years.
Report for the week before the 3rd Friday of November.
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 | 0.25% | 0.27% | -0.11% | 0.14% | -0.22% | 0.35% |
| 1969-1 | -0.07% | 0.05% | -0.23% | 0.26% | -0.88% | -0.88% |
| 1973-1 | -0.65% | -0.32% | -2.64% | -0.34% | -0.25% | -4.20% |
| 1977-1 | 0.04% | 0.53% | 0.04% | 0.30% | 0.35% | 1.26% |
| 1981-1 | -1.50% | 0.26% | -0.04% | -0.14% | 0.65% | -0.77% |
| 1985-1 | 0.76% | 0.69% | -0.18% | 0.45% | 0.31% | 2.04% |
| 1989-1 | -0.05% | -0.42% | 0.40% | -0.12% | 0.32% | 0.12% |
| Avg | -0.28% | 0.15% | -0.48% | 0.03% | 0.28% | -0.31% |
| 1993-1 | -0.88% | -0.10% | -1.21% | -1.05% | -0.37% | -3.61% |
| 1997-1 | 1.93% | -0.85% | 0.05% | 1.59% | -0.36% | 2.36% |
| 2001-1 | 0.64% | 2.82% | 0.59% | -0.14% | -0.10% | 3.81% |
| 2005-1 | -0.07% | -0.65% | 0.05% | 1.49% | 0.30% | 1.12% |
| 2009-1 | 1.38% | 0.27% | -0.48% | -1.66% | -0.50% | -0.99% |
| Avg | 0.60% | 0.30% | -0.20% | 0.05% | -0.21% | 0.54% |
| OTC summary for Presidential Year 1 1965 - 2009 | ||||||
| Avg | 0.15% | 0.21% | -0.31% | 0.06% | -0.06% | 0.05% |
| Win% | 50% | 58% | 42% | 50% | 42% | 58% |
| OTC summary for all years 1963 - 2012 | ||||||
| Avg | -0.13% | 0.10% | -0.12% | 0.00% | 0.03% | -0.12% |
| Win% | 45% | 52% | 56% | 54% | 54% | 54% |
| SPX Presidential Year 1 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1953-1 | -0.65% | -0.53% | 0.16% | 0.45% | 0.16% | -0.40% |
| 1957-1 | -0.02% | -1.44% | -0.13% | -0.28% | 2.36% | 0.49% |
| 1961-1 | 0.28% | 0.55% | 0.01% | -0.07% | 0.00% | 0.77% |
| 1965-1 | 0.09% | -0.24% | 0.21% | -0.41% | 0.02% | -0.33% |
| 1969-1 | -0.68% | -0.02% | -0.51% | -1.03% | -0.62% | -2.86% |
| Avg | -0.20% | -0.34% | -0.05% | -0.27% | 0.48% | -0.47% |
| 1973-1 | -0.82% | -0.08% | -1.83% | -0.02% | 1.42% | -1.33% |
| 1977-1 | -0.69% | 0.64% | -0.50% | -0.30% | 0.18% | -0.67% |
| 1981-1 | -1.18% | 0.76% | -0.73% | 0.37% | 0.83% | 0.05% |
| 1985-1 | 1.84% | 0.41% | -0.49% | 0.99% | -0.48% | 2.27% |
| 1989-1 | 0.13% | -0.46% | 0.75% | 0.01% | 0.30% | 0.74% |
| Avg | -0.14% | 0.25% | -0.56% | 0.21% | 0.45% | 0.21% |
| 1993-1 | -0.35% | 0.64% | -0.41% | -0.26% | -0.22% | -0.60% |
| 1997-1 | 1.92% | -0.84% | 0.68% | 1.52% | 0.43% | 3.71% |
| 2001-1 | -0.18% | 1.86% | 0.19% | 0.09% | -0.31% | 1.64% |
| 2005-1 | -0.08% | -0.39% | 0.18% | 0.94% | 0.44% | 1.10% |
| 2009-1 | 1.45% | 0.08% | -0.03% | -1.34% | -0.32% | -0.17% |
| Avg | 0.55% | 0.27% | 0.12% | 0.19% | 0.00% | 1.14% |
| SPX summary for Presidential Year 1 1953 - 2009 | ||||||
| Avg | 0.07% | 0.06% | -0.16% | 0.05% | 0.30% | 0.29% |
| Win% | 40% | 47% | 47% | 47% | 64% | 53% |
| SPX summary for all years 1953 - 2012 | ||||||
| Avg | -0.03% | 0.00% | -0.07% | -0.08% | 0.13% | -0.05% |
| Win% | 46% | 47% | 62% | 48% | 61% | 52% |
Money Supply (M2)
The money supply chart was provided by Gordon Harms. Money supply leveled off last week.
Conclusion
The breadth indicators continued to deteriorate last week, the secondaries continued to underperform the blue chips and the Fed continues to chip in $85B a month.
I expect the major averages to be lower on Friday November 15 than they were on Friday November 8.
Last week most of the major indices were up, but the OTC was down, so I am calling last weeks negative forecast a tie.
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Good Luck,
YTD W 20/L 13/T 12
