The good news is:
• The mid and small cap indices closed at all time highs on Friday
The negatives
Negatives are pretty hard to find.
The new high indicators failed to confirm the small cap highs, but they did turn up; setting up a pattern of higher lows.
The positives
Volume picked up and the secondaries outperformed the blue chips.
There have been very few new lows and, as long as that is the case, nothing very bad will happen.
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 continued at a very strong 93%.
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 held above 90% last week.
The next chart shows the OTC in blue and a 10% trend (19 day EMA) of NASDAQ new highs in green.
There is a mixed message in this chart, over the past 6 months there is a pattern of declining tops, however, over the past month we have rising bottoms.
The next chart is similar to the one above except it shows the SPX in red and NY NH has been calculated from NYSE data.
The patterns here are not as clear other than rising bottoms over the past month.
Seasonality
Next week includes the 5 trading days prior to the 3rd Friday of January during the 2nd year of the Presidential Cycle.
The tables show the daily percentage return for the 5 trading days prior to 3rd Friday of January during the 2nd year of the Presidential Cycle.
OTC data covers the period from 1963 - 2013 while SPX data runs from 1953 - 2013. There are summaries for both the 2nd 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.
The averages for the coming week have been nearly unchanged, however, there have been noticeable declines during the 2nd year of the Presidential Cycle since 2002.
Report for the week before the 3rd Friday of January.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday through 3rd Friday.
| OTC Presidential Year 2 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1966-2 | 0.56% | 0.31% | -0.03% | 0.41% | 0.41% | 1.65% |
| 1970-2 | 0.01% | 0.65% | 0.30% | -0.27% | -0.02% | 0.67% |
| 1974-2 | 0.18% | 0.73% | 1.53% | 1.55% | -0.66% | 3.32% |
| 1978-2 | -0.41% | 0.62% | 0.44% | 0.16% | 0.05% | 0.86% |
| 1982-2 | 0.00% | -0.62% | -0.24% | 0.37% | -0.31% | -0.80% |
| 1986-2 | 0.02% | 0.19% | 1.05% | 0.58% | 0.19% | 2.02% |
| 1990-2 | -0.70% | 0.81% | -0.34% | -0.26% | 0.77% | 0.27% |
| Avg | -0.23% | 0.34% | 0.49% | 0.48% | 0.01% | 1.14% |
| 1994-2 | -0.02% | 0.11% | -0.47% | 0.48% | 0.16% | 0.25% |
| 1998-2 | 0.29% | 2.26% | 0.43% | -0.07% | 1.02% | 3.93% |
| 2002-2 | -1.57% | 0.51% | -2.82% | 2.13% | -2.79% | -4.55% |
| 2006-2 | 0.00% | -0.62% | -1.00% | 0.97% | -2.35% | -3.00% |
| 2010-2 | 0.00% | 1.42% | -1.26% | -1.12% | -2.67% | -3.62% |
| Avg | -0.43% | 0.73% | -1.02% | 0.48% | -1.33% | -1.40% |
| OTC summary for Presidential Year 2 1966 - 2010 | ||||||
| Avg | -0.18% | 0.53% | -0.20% | 0.41% | -0.52% | 0.08% |
| Win% | 56% | 83% | 42% | 67% | 50% | 67% |
| OTC summary for all years 1963 - 2013 | ||||||
| Avg | 0.03% | 0.23% | 0.03% | 0.25% | -0.01% | 0.52% |
| Win% | 61% | 61% | 59% | 67% | 57% | 69% |
| SPX Presidential Year 2 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1954-2 | 0.00% | 0.98% | 0.27% | 0.16% | 0.23% | 1.64% |
| 1958-2 | 0.30% | 0.44% | 0.79% | 0.17% | 0.10% | 1.80% |
| 1962-2 | -0.20% | -0.58% | -1.09% | 0.10% | 0.53% | -1.23% |
| 1966-2 | 0.29% | 0.19% | -0.28% | -0.35% | 0.12% | -0.03% |
| 1970-2 | -0.76% | 0.10% | -0.15% | 0.03% | -0.83% | -1.61% |
| Avg | -0.09% | 0.23% | -0.09% | 0.02% | 0.03% | 0.11% |
| 1974-2 | -0.26% | 0.87% | 1.53% | 1.70% | -1.79% | 2.05% |
| 1978-2 | -0.29% | 0.50% | 0.76% | -0.52% | -0.22% | 0.23% |
| 1982-2 | 1.64% | -1.07% | -0.60% | 0.42% | -0.32% | 0.07% |
| 1986-2 | 0.37% | -0.04% | 0.78% | 0.44% | -0.35% | 1.20% |
| 1990-2 | -0.86% | 1.11% | -0.98% | 0.23% | 0.28% | -0.21% |
| Avg | 0.12% | 0.28% | 0.30% | 0.45% | -0.48% | 0.67% |
| 1994-2 | -0.34% | 0.20% | 0.01% | 0.14% | -0.05% | -0.04% |
| 1998-2 | 1.24% | 1.38% | 0.61% | -0.75% | 1.13% | 3.61% |
| 2002-2 | -0.63% | 0.68% | -1.62% | 1.00% | -0.99% | -1.56% |
| 2006-2 | 0.00% | -0.36% | -0.39% | 0.56% | -1.83% | -2.03% |
| 2010-2 | 0.00% | 1.25% | -1.06% | -1.89% | -2.21% | -3.92% |
| Avg | 0.09% | 0.63% | -0.49% | -0.19% | -0.79% | -0.79% |
| SPX summary for Presidential Year 2 1954 - 2010 | ||||||
| Avg | 0.04% | 0.38% | -0.10% | 0.10% | -0.41% | 0.00% |
| Win% | 42% | 73% | 47% | 73% | 40% | 47% |
| SPX summary for all years 1953 - 2013 | ||||||
| Avg | -0.05% | 0.11% | -0.05% | 0.06% | -0.11% | -0.04% |
| Win% | 45% | 61% | 54% | 60% | 54% | 51% |
Conclusion
Post holiday volume picked up, new highs picked up and the secondaries outperformed the blue chips. The market appears to be in pretty good shape.
I expect the major averages to be higher on Friday January 17 than they were on Friday January 10.
Last week the Dow Jones Industrial Average was down a little while the other major averages were up a little so I am calling last weeks negative forecast a tie.
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Gordon Harms produces a Power Point for our local timing group meetings, You can get a copy of that at: http://stockmarket-ta.com/
Good Luck,
YTD W 0/L 1/T 1
