The good news is:
• The Santa Claus rally is scheduled to begin around the middle of next week.
The negatives
New highs deteriorated on both the NYSE and NASDAQ last week while new lows were pretty steady on the NASDAQ and rose significantly on the NYSE. Most of the new lows on the NYSE were fixed income issues.
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 divided by (new highs + new lows), (NY HL Ratio) in blue. 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.
NY HL Ratio continued its fall finishing the week at a solidly negative 31%.
The next chart covers the past 6 months showing the SPX in red and a 10% trend (19 day EMA) of NYSE new highs (NY NH) in green.
NY NH fell sharply last week.
The next chart is similar to the one above except it shows the NASDAQ composite (OTC) in blue and OTC NH, in green, has been calculated from NASDAQ data.
OTC NH also fell sharply last week.
The positives
The market is oversold and due for a bounce.
NASDAQ breadth data has held up better than NYSE breadth data.
The next chart is similar to the first one above except it shows the OTC in blue and OTC HL Ratio, in red, has been calculated from NASDAQ data.
OTC HL Ratio fell sharply last week closing at, a still positive, 61%. Near its low of the past 5 months.
Seasonality
Next week includes the 5 trading days prior to the 3rd Friday of December during the 1st year of the Presidential Cycle.
The tables show the daily percentage return for the 5 trading days prior to the 3rd Friday of December 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, on average been modestly negative for the OTC and modestly positive for the SPX during the 1st year of the Presidential Cycle.
Report for the week before the 3rd Friday of December.
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 | 0.81% | 0.12% | 0.27% | 0.14% | -0.07% | 1.27% |
| 1969-1 | 0.04% | 0.14% | -0.54% | -0.66% | 1.28% | 0.26% |
| 1973-1 | -0.56% | 1.60% | -0.35% | 0.03% | -0.83% | -0.10% |
| 1977-1 | 0.31% | 0.20% | -0.13% | -0.07% | 0.15% | 0.46% |
| 1981-1 | -1.50% | -0.26% | -0.04% | 0.31% | 0.67% | -0.81% |
| 1985-1 | 0.36% | -0.59% | -0.24% | 0.06% | 0.14% | -0.27% |
| 1989-1 | -0.83% | -0.44% | 0.16% | -0.81% | -0.81% | -2.74% |
| Avg | -0.44% | 0.10% | -0.12% | -0.09% | -0.14% | -0.69% |
| 1993-1 | -0.13% | -1.09% | 0.20% | 0.34% | 0.49% | -0.19% |
| 1997-1 | 0.00% | 1.07% | -0.36% | -1.56% | 0.10% | -0.76% |
| 2001-1 | 1.76% | 0.87% | -1.09% | -3.25% | 1.42% | -0.29% |
| 2005-1 | 0.19% | 0.18% | -0.11% | -0.09% | -0.36% | -0.19% |
| 2009-1 | 0.99% | -0.50% | 0.27% | -1.22% | 1.45% | 1.00% |
| Avg | 0.70% | 0.11% | -0.22% | -1.15% | 0.62% | -0.09% |
| OTC summary for Presidential Year 1 1965 - 2009 | ||||||
| Avg | 0.13% | 0.11% | -0.16% | -0.56% | 0.30% | -0.20% |
| Win% | 64% | 58% | 33% | 42% | 67% | 33% |
| OTC summary for all years 1963 - 2012 | ||||||
| Avg | -0.02% | 0.11% | -0.09% | -0.02% | 0.18% | 0.17% |
| Win% | 50% | 52% | 47% | 60% | 60% | 60% |
| SPX Presidential Year 1 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1953-1 | -0.28% | 0.08% | 1.01% | -0.08% | 0.20% | 0.93% |
| 1957-1 | -1.50% | -1.74% | -0.10% | 1.07% | -0.80% | -3.08% |
| 1961-1 | 0.49% | 0.35% | -0.15% | -0.76% | 0.04% | -0.04% |
| 1965-1 | 0.03% | 0.05% | 0.15% | 0.11% | -0.04% | 0.30% |
| 1969-1 | -0.30% | -0.91% | -0.58% | 1.58% | 0.85% | 0.65% |
| Avg | -0.31% | -0.43% | 0.07% | 0.38% | 0.05% | -0.25% |
| 1973-1 | -0.58% | 2.15% | 0.08% | -0.28% | -1.07% | 0.30% |
| 1977-1 | -0.02% | -0.07% | 0.50% | -0.51% | -0.16% | -0.26% |
| 1981-1 | -1.72% | 0.17% | -0.46% | 0.57% | 0.71% | -0.73% |
| 1985-1 | 0.99% | -0.65% | -0.40% | 0.10% | 0.44% | 0.48% |
| 1989-1 | -0.04% | 0.91% | 0.29% | -0.52% | -0.23% | 0.42% |
| Avg | -0.27% | 0.50% | 0.00% | -0.13% | -0.06% | 0.04% |
| 1993-1 | 0.38% | -0.57% | -0.26% | 0.32% | 0.66% | 0.53% |
| 1997-1 | 1.05% | 0.48% | -0.26% | -1.06% | -0.89% | -0.68% |
| 2001-1 | 1.00% | 0.75% | 0.58% | -0.84% | 0.44% | 1.94% |
| 2005-1 | 0.08% | 0.56% | 0.42% | -0.14% | -0.28% | 0.63% |
| 2009-1 | 0.70% | -0.55% | 0.11% | -1.18% | 0.58% | -0.34% |
| Avg | 0.64% | 0.13% | 0.12% | -0.58% | 0.10% | 0.42% |
| SPX summary for Presidential Year 1 1953 - 2009 | ||||||
| Avg | 0.02% | 0.07% | 0.06% | -0.11% | 0.03% | 0.07% |
| Win% | 53% | 60% | 53% | 40% | 53% | 60% |
| SPX summary for all years 1953 - 2012 | ||||||
| Avg | 0.04% | 0.18% | 0.01% | -0.02% | 0.17% | 0.38% |
| Win% | 56% | 51% | 51% | 48% | 60% | 62% |
Money Supply (M2)
The money supply chart was provided by Gordon Harms. Money supply growth leveled off at the trend last week.
Conclusion
The market is oversold and the annual Santa Claus rally is scheduled to begin mid to late next week.
I expect the major averages to be higher on Friday December 20 than they were on Friday December 13.
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Good Luck,
YTD W 23/L 14/T 13
