The good news is:
• The NASDAQ composite (OTC) closed at a multi year high on Friday while the S&P 500 (SPX) missed its all time high by only 0.5%.
The negatives
The market is overbought.
The OTC has been up for 7 consecutive days and a Telecomm fund I watch has been up for 9 consecutive days.
New highs picked up last week, but remain well below their levels of a month ago when the major indices were making new highs.
The chart below covers the past 6 months showing the OTC in blue and a 10% trend (19 day EMA) of NASDAQ new highs (OTC NH) in green. Dashed vertical lines have been drawn on the 1st trading day of each month.
OTC NH is well below its level at the previous high for the OTC, a month ago.
The next chart is similar to the one above except is shows the SPX in red and NY NH has been calculated from NYSE data.
NY NH has also had progressively declining highs since last October.
The positives
New lows have disappeared and nothing really bad happens without new lows increasing.
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 rose sharply to 86% on Friday.
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 SPX in red and NY HL Ratio, in blue, has been calculated from NYSE data.
NY HL Ratio also rose to 86% on Friday.
Seasonality
Next week includes the 4 trading days prior to the 3rd Friday of February during the 2nd year of the Presidential Cycle.
The tables show the daily percentage return for the 5 trading days prior to the 3rd Friday of February during the 2nd year of the Presidential Cycle. The market is closed Monday in observance of Presidents day. Presidents day is defined as the 3rd Monday in February and precedes the 3rd Friday in February about half of the time.
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 market has had modestly positive returns for the coming week.
Report for the week before the 3rd Friday of February.
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 | 0.23% | -0.22% | -0.47% | 0.50% | 0.13% | 0.19% |
| 1970-2 | -0.17% | -0.10% | -0.17% | 0.67% | 0.02% | 0.26% |
| 1974-2 | -1.16% | -0.69% | -0.46% | 0.14% | 0.85% | -1.32% |
| 1978-2 | -0.23% | -0.54% | -0.21% | -0.38% | 0.08% | -1.29% |
| 1982-2 | 0.00% | -0.99% | 0.30% | 0.07% | -0.40% | -1.02% |
| 1986-2 | 0.00% | 0.61% | 0.15% | 0.06% | 0.72% | 1.54% |
| 1990-2 | -0.57% | -0.15% | 0.19% | 0.72% | -0.14% | 0.04% |
| Avg | -0.66% | -0.35% | -0.01% | 0.12% | 0.22% | -0.41% |
| 1994-2 | 0.52% | 0.59% | 0.32% | -0.30% | -0.18% | 0.95% |
| 1998-2 | 0.00% | -0.41% | 0.72% | 0.66% | 0.06% | 1.04% |
| 2002-2 | 1.53% | -0.67% | 1.36% | -0.85% | -2.07% | -0.71% |
| 2006-2 | -0.98% | 1.00% | 0.63% | 0.80% | -0.53% | 0.92% |
| 2010-2 | 0.00% | 1.40% | 0.55% | 0.69% | 0.10% | 2.74% |
| Avg | 0.36% | 0.38% | 0.72% | 0.20% | -0.52% | 0.99% |
| OTC summary for Presidential Year 2 1966 - 2010 | ||||||
| Avg | -0.10% | -0.01% | 0.24% | 0.23% | -0.11% | 0.28% |
| Win% | 38% | 33% | 67% | 75% | 58% | 67% |
| OTC summary for all years 1963 - 2013 | ||||||
| Avg | 0.08% | -0.15% | 0.07% | 0.17% | -0.16% | -0.02% |
| Win% | 58% | 46% | 57% | 63% | 47% | 57% |
| SPX Presidential Year 2 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1954-2 | -0.31% | -0.88% | 0.19% | 0.39% | -0.15% | -0.76% |
| 1958-2 | -0.53% | 0.15% | -0.05% | -0.58% | -0.07% | -1.09% |
| 1962-2 | -0.03% | -0.01% | -0.04% | 0.45% | -0.21% | 0.16% |
| 1966-2 | -0.17% | -0.51% | -0.01% | -0.54% | -0.27% | -1.50% |
| 1970-2 | -0.08% | -0.12% | 1.24% | 0.37% | 0.31% | 1.72% |
| Avg | -0.22% | -0.28% | 0.27% | 0.02% | -0.08% | -0.30% |
| 1974-2 | -1.81% | 0.31% | 0.04% | -0.03% | 1.45% | -0.04% |
| 1978-2 | -0.24% | -0.91% | -0.24% | -0.84% | -0.14% | -2.37% |
| 1982-2 | 0.00% | -0.28% | -0.32% | 0.11% | -0.53% | -1.02% |
| 1986-2 | 0.00% | 1.22% | -1.21% | 1.12% | 1.08% | 2.21% |
| 1990-2 | -1.06% | 0.28% | 0.30% | 0.87% | -0.65% | -0.26% |
| Avg | -1.04% | 0.13% | -0.29% | 0.24% | 0.24% | -0.29% |
| 1994-2 | 0.01% | 0.49% | 0.06% | -0.52% | -0.56% | -0.53% |
| 1998-2 | 0.00% | 0.26% | 0.91% | -0.37% | 0.57% | 1.38% |
| 2002-2 | 1.43% | -0.40% | 0.99% | -0.18% | -1.10% | 0.75% |
| 2006-2 | -0.33% | 1.00% | 0.35% | 0.73% | -0.17% | 1.59% |
| 2010-2 | 0.00% | 1.80% | 0.42% | 0.66% | 0.22% | 3.10% |
| Avg | 0.37% | 0.63% | 0.55% | 0.06% | -0.21% | 1.26% |
| SPX summary for Presidential Year 2 1954 - 2010 | ||||||
| Avg | -0.28% | 0.16% | 0.18% | 0.11% | -0.01% | 0.22% |
| Win% | 18% | 53% | 60% | 53% | 33% | 47% |
| SPX summary for all years 1953 - 2013 | ||||||
| Avg | 0.06% | -0.05% | 0.18% | -0.01% | -0.01% | 0.15% |
| Win% | 47% | 53% | 59% | 51% | 48% | 59% |
Money Supply (M2)
The money supply chart was provided by Gordon Harms. Money supply growth has been following its trend pretty closely.
Conclusion
The market rose sharply last week, but the breadth indicators did not keep up. Seasonality suggests the trend should flatten over the next 2 months prior to beginning a decline in mid to late April.
I expect the major averages to be higher on Friday February 21 than they were on Friday February 14.
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Good Luck,
YTD W 1/L 3/T 3
