The good news is:
• The small cap indices led the way up last week.
The negatives
There are not any serious negatives.
New highs have not been great, but, they have not been terrible.
The secondaries have been lagging, but, they picked up last week.
The market is overbought with the small cap indices up for the past 6 consecutive days, but, in the slightly longer term that is a positive.
The positives
New highs have been increasing while new lows have remained at non threatening levels.
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 divided by (new highs + new lows), (OTC HL Ratio) in red. Dashed vertical lines have been drawn on the 1st trading day of each month and dashed horizontal lines have been drawn at 10% levels for the indicator, the line is solid at the neutral 50% level.
OTC HL Ratio rose to an extremely high 92% last week.
There are trading systems that impose a No Sell Filter when variations of this indicator are above 80%.
The next chart is similar to the one above except it shows the S&P 500 (SPX) in red and NY HL Ratio, in blue, has been calculated from NYSE data.
NY HL Ratio also had a good week, rising above 80%.
Seasonality
Next week includes the first 5 trading days of December during the 1st year of the Presidential Cycle.
The tables show the daily percentage return for the first 5 trading days of December 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.
The first 5 days of December during the 1st year of the Presidential Cycle have not been down since 1981.
Report for the first 5 days of December.
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 | ||||||
| Day1 | Day2 | Day3 | Day4 | Day5 | Totals | |
| 1965-1 | 0.52% 3 | 0.21% 4 | 0.43% 5 | -0.30% 1 | 0.14% 2 | 1.00% |
| 1969-1 | 0.16% 1 | -0.55% 2 | -0.23% 3 | -0.97% 4 | -0.07% 5 | -1.65% |
| 1973-1 | -1.65% 1 | -0.45% 2 | -2.00% 3 | 1.72% 4 | 1.15% 5 | -1.22% |
| 1977-1 | 0.51% 4 | 0.41% 5 | 0.05% 1 | -1.13% 2 | -0.12% 3 | -0.28% |
| 1981-1 | -0.12% 2 | -0.39% 3 | -0.22% 4 | 0.49% 5 | -0.58% 1 | -0.82% |
| 1985-1 | -0.32% 1 | 0.06% 2 | 1.13% 3 | 0.48% 4 | -0.50% 5 | 0.85% |
| 1989-1 | 0.22% 5 | 0.26% 1 | 0.06% 2 | -0.41% 3 | -0.08% 4 | 0.05% |
| Avg | -0.27% | -0.02% | -0.20% | 0.23% | -0.03% | -0.29% |
| 1993-1 | 1.25% 3 | 0.38% 4 | 0.72% 5 | -0.15% 1 | -0.23% 2 | 1.98% |
| 1997-1 | 1.88% 1 | -1.49% 2 | 0.54% 3 | -0.11% 4 | 1.27% 5 | 2.10% |
| 2001-1 | -1.33% 1 | 3.06% 2 | 4.27% 3 | 0.36% 4 | -1.61% 5 | 4.75% |
| 2005-1 | 1.54% 4 | 0.27% 5 | -0.69% 1 | 0.14% 2 | -0.39% 3 | 0.87% |
| 2009-1 | 1.46% 2 | 0.42% 3 | -0.54% 4 | 0.98% 5 | -0.22% 1 | 2.09% |
| Avg | 0.96% | 0.53% | 0.86% | 0.25% | -0.23% | 2.36% |
| OTC summary for Presidential Year 1 1965 - 2009 | ||||||
| Averages | 0.34% | 0.18% | 0.29% | 0.09% | -0.10% | 0.81% |
| % Winners | 67% | 67% | 58% | 50% | 25% | 67% |
| MDD 12/5/1973 4.04% -- 12/5/1969 1.80% -- 12/7/2001 1.61% | ||||||
| OTC summary for all years 1963 - 2012 | ||||||
| Averages | 0.20% | 0.20% | 0.46% | -0.03% | 0.00% | 0.83% |
| % Winners | 64% | 64% | 68% | 56% | 46% | 60% |
| MDD 12/1/2008 8.95% -- 12/6/1974 7.53% -- 12/5/1975 5.18% | ||||||
| SPX Presidential Year 1 | ||||||
| Day1 | Day2 | Day3 | Day4 | Day5 | Totals | |
| 1929-1 | 0.14% 1 | 3.34% 2 | 1.85% 3 | -0.82% 4 | 2.65% 5 | 7.17% |
| 1933-1 | 0.30% 5 | 0.10% 6 | -0.20% 1 | 3.03% 2 | -0.69% 3 | 2.55% |
| 1937-1 | -1.26% 3 | 2.01% 4 | 1.34% 5 | 0.09% 6 | -1.94% 1 | 0.24% |
| 1941-1 | -0.33% 1 | 2.09% 2 | 1.08% 3 | 0.21% 4 | -0.64% 5 | 2.42% |
| 1945-1 | 0.58% 6 | 0.87% 1 | -0.11% 2 | -0.06% 3 | 0.52% 4 | 1.79% |
| 1949-1 | 0.56% 4 | 0.80% 5 | 0.80% 6 | 0.00% 1 | -0.12% 2 | 2.04% |
| Avg | -0.03% | 1.17% | 0.58% | 0.65% | -0.57% | 1.81% |
| 1953-1 | 0.08% 2 | 0.69% 3 | 0.08% 4 | 0.04% 5 | -0.12% 1 | 0.77% |
| 1957-1 | -0.86% 1 | 0.02% 2 | 0.41% 3 | -0.05% 4 | -0.51% 5 | -0.98% |
| 1961-1 | 0.64% 5 | 0.32% 1 | -0.11% 2 | 0.08% 3 | -0.40% 4 | 0.53% |
| 1965-1 | -0.12% 3 | -0.32% 4 | 0.07% 5 | -0.75% 1 | 0.88% 2 | -0.23% |
| 1969-1 | -0.63% 1 | -0.61% 2 | -1.08% 3 | 0.33% 4 | -0.24% 5 | -2.23% |
| Avg | -0.18% | 0.02% | -0.13% | -0.07% | -0.08% | -0.43% |
| 1973-1 | -2.15% 1 | -0.33% 2 | -1.53% 3 | 2.45% 4 | 2.21% 5 | 0.66% |
| 1977-1 | -0.15% 4 | -0.02% 5 | -0.42% 1 | -1.53% 2 | -0.05% 3 | -2.17% |
| 1981-1 | -0.20% 2 | -1.12% 3 | 0.34% 4 | 0.91% 5 | -0.85% 1 | -0.91% |
| 1985-1 | -0.85% 1 | 0.20% 2 | 1.68% 3 | -0.17% 4 | -0.44% 5 | 0.42% |
| 1989-1 | 1.34% 5 | 0.22% 1 | -0.52% 2 | -0.29% 3 | -0.28% 4 | 0.47% |
| Avg | -0.40% | -0.21% | -0.09% | 0.27% | 0.12% | -0.30% |
| 1993-1 | 0.02% 3 | 0.26% 4 | 0.38% 5 | 0.33% 1 | 0.07% 2 | 1.07% |
| 1997-1 | 2.03% 1 | -0.32% 2 | 0.52% 3 | -0.37% 4 | 1.10% 5 | 2.96% |
| 2001-1 | -0.84% 1 | 1.32% 2 | 2.23% 3 | -0.28% 4 | -0.75% 5 | 1.68% |
| 2005-1 | 1.22% 4 | 0.03% 5 | -0.24% 1 | 0.13% 2 | -0.50% 3 | 0.64% |
| 2009-1 | 1.21% 2 | 0.03% 3 | -0.84% 4 | 0.55% 5 | -0.25% 1 | 0.71% |
| Avg | 0.73% | 0.27% | 0.41% | 0.07% | -0.07% | 1.41% |
| SPX summary for Presidential Year 1 1929 - 2009 | ||||||
| Averages | 0.04% | 0.46% | 0.27% | 0.18% | -0.02% | 0.93% |
| % Winners | 52% | 71% | 57% | 52% | 29% | 76% |
| MDD 12/5/1973 3.96% -- 12/3/1969 2.30% -- 12/7/1977 2.16% | ||||||
| SPX summary for all years 1928 - 2012 | ||||||
| Averages | -0.02% | 0.15% | 0.26% | 0.07% | 0.11% | 0.56% |
| % Winners | 51% | 56% | 64% | 54% | 48% | 68% |
| MDD 12/1/2008 8.93% -- 12/6/1974 7.09% -- 12/6/1928 5.64% | ||||||
Money Supply (M2)
The money supply chart was provided by Gordon Harms. Money supply growth continued to decline last week.
December
Since 1963, over all years, the OTC in December has been up 62% of the time with an average gain of 2.0%. During the 1st year of the Presidential Cycle December has been up 50% time with an average gain of 0.7% The best December ever for the OTC was 1999 (+22.0%), the worst 2002 (-9.7%).
The average month has 21 trading days. The chart below has been calculated by averaging the daily percentage change of the OTC for each of the 1st 11 trading days and each of the last 10. In months when there were more than 21 trading days some of the days in the middle were not counted. In months when there were less than 21 trading days some of the days in the middle of the month were counted twice. Dashed vertical lines have been drawn after the 1st trading day and at 5 trading day intervals after that. The line is solid on the 11th trading day, the dividing point.
In the chart below the blue line shows the average of the OTC in December over all years since 1963 while the green line shows the average during the 1st year of the Presidential Cycle over the same period.
Since 1928 the SPX has been up 74% of the time in December with an average gain of 1.5%. During the 1st year of the Presidential Cycle the SPX has been up 71% of the time with an average gain of 0.3%. The best December ever for the SPX was 1991 (+11.2%) the worst 1931 (-14.5%).
The chart below is similar to the one above except it shows the average daily performance over all years for the SPX in December in red and the performance during the 1st year of the Presidential Cycle in green.
Since 1979 the Russell 2000 (R2K) has been up 79% of the time in December with an average gain of 2.8%. During the 1st year of the Presidential Cycle the R2K has been up 75% of the time in December with an average gain of 2.6%. The best December ever for the R2K, 1999 (+11.2%), the worst 2002 (-11.2%).
The chart below is similar to those above except it shows the daily performance over all years of the R2K in December in magenta and the performance during the 1st year of the Presidential Cycle in green.
Since 1885 the DJIA has been up 70% of the time in December with an average gain of 1.3%. During the 1st year of the Presidential Cycle the DJIA has been up 69% of the time in December with an average gain of 1.2%. The best December ever for the DJIA, 1903 (+10.8%), the worst 1931 (-17.0%).
The chart below is similar to those above except it shows the daily performance over all years of the DJIA in December in cyan and the performance during the 1st year of the Presidential Cycle in green.
Conclusion
Last week was one of the strongest we have seen in a while. The secondaries led the way up and the breadth indicators confirmed. Seasonally, next week has been very strong and the Fed continues to chip in $85B a month.
I expect the major averages to be higher on Friday December 6 than they were on Friday November 29.
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Good Luck,
YTD W 22/L 14/T 12
