The good news is:
• The NASDAQ composite (OTC) closed at a multi year high on Tuesday and, last week, the secondaries were stronger than the blue chips.
The negatives
New highs increased last week, but remain below their levels of a month ago when the major indices were all 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 S&P 500 (SPX) in red and NY NH, in green, 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 finished the week at 90%.
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 finished the week at 90%.
Seasonality
Next week includes the last 5 trading days of February during the 2nd year of the Presidential Cycle.
The tables show the daily percentage return for the last 5 trading days of February during the 2nd year of the Presidential Cycle.
OTC data covers the period from 1963 - 2013 while SPX data runs from 1928 - 2013. There are summaries for both the 2nd year of the Presidential Cycle and all years combined.
Returns for the coming week have been modestly negative over all years, but modestly positive during the 2nd week of the Presidential Cycle.
Report for the last 5 days of February.
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 2 | ||||||
| Day5 | Day4 | Day3 | Day2 | Day1 | Totals | |
| 1966-2 | 0.97%1 | 0.03%3 | -0.35%4 | -0.40%5 | 0.35%1 | 0.60% |
| 1970-2 | 0.02%5 | -0.31%2 | -0.05%3 | 0.82%4 | -0.16%5 | 0.32% |
| 1974-2 | 0.82%5 | -0.23%1 | 0.42%2 | 1.02%3 | 0.31%4 | 2.35% |
| 1978-2 | 0.14%3 | 0.03%4 | 0.53%5 | -0.47%1 | -0.73%2 | -0.51% |
| 1982-2 | -0.87%1 | -0.88%2 | 0.61%3 | 0.48%4 | -0.01%5 | -0.67% |
| 1986-2 | -0.04%1 | -0.17%2 | 0.11%3 | 0.94%4 | 0.26%5 | 1.09% |
| 1990-2 | 0.29%4 | -0.76%5 | 0.34%1 | 0.39%2 | 0.76%3 | 1.02% |
| Avg | 0.07% | -0.40% | 0.40% | 0.47% | 0.12% | 0.66% |
| 1994-2 | 0.29%2 | -0.26%3 | -1.23%4 | 0.56%5 | 1.11%1 | 0.48% |
| 1998-2 | 1.37%1 | -0.75%2 | 1.60%3 | 0.60%4 | -0.37%5 | 2.45% |
| 2002-2 | 0.48%5 | 2.63%1 | -0.17%2 | -0.85%3 | -1.16%4 | 0.93% |
| 2006-2 | 0.89%3 | -0.17%4 | 0.34%5 | 0.88%1 | -1.12%2 | 0.83% |
| 2010-2 | -0.08%1 | -1.28%2 | 1.01%3 | -0.08%4 | 0.18%5 | -0.24% |
| Avg | 0.59% | 0.04% | 0.31% | 0.22% | -0.27% | 0.89% |
| OTC summary for Presidential Year 2 1966 - 2010 | ||||||
| Averages | 0.36% | -0.18% | 0.26% | 0.33% | -0.05% | 0.72% |
| % Winners | 75% | 25% | 67% | 67% | 50% | 75% |
| MDD 2/28/2002 2.17% -- 2/23/1982 1.75% -- 2/24/1994 1.48% | ||||||
| OTC summary for all years 1963 - 2013 | ||||||
| Averages | -0.11% | 0.11% | 0.13% | -0.09% | -0.09% | -0.06% |
| % Winners | 53% | 55% | 57% | 59% | 49% | 53% |
| MDD 2/28/2001 6.79% -- 2/27/2007 4.64% -- 2/27/2009 4.44% | ||||||
| SPX Presidential Year 2 | ||||||
| Day5 | Day4 | Day3 | Day2 | Day1 | Totals | |
| 1930-2 | -1.05%1 | 0.04%2 | 1.85%3 | -0.13%4 | 0.87%5 | 1.58% |
| 1934-2 | -2.62%5 | -1.71%6 | -2.29%1 | 1.12%2 | -0.46%3 | -5.96% |
| 1938-2 | 2.64%3 | -1.46%4 | 0.52%5 | -0.26%6 | -1.73%1 | -0.29% |
| 1942-2 | 0.24%2 | -0.70%3 | 0.71%4 | 0.82%5 | 0.00%6 | 1.06% |
| 1946-2 | 2.01%4 | -4.57%1 | -0.59%2 | 2.02%3 | 0.76%4 | -0.37% |
| 1950-2 | 0.23%4 | 0.41%5 | -0.12%6 | 0.12%1 | -0.35%2 | 0.29% |
| Avg | 0.50% | -1.61% | -0.35% | 0.76% | -0.36% | -1.05% |
| 1954-2 | -0.15%5 | -0.35%2 | 0.00%3 | 0.31%4 | 0.93%5 | 0.73% |
| 1958-2 | -0.56%1 | -0.10%2 | 0.76%3 | -0.59%4 | 0.39%5 | -0.09% |
| 1962-2 | -0.48%3 | -0.23%5 | -0.57%1 | 0.19%2 | 0.10%3 | -0.99% |
| 1966-2 | -0.58%1 | -0.42%3 | -0.64%4 | 0.28%5 | 0.09%1 | -1.29% |
| 1970-2 | 0.31%5 | -0.05%2 | 1.55%3 | -0.50%4 | 0.67%5 | 1.98% |
| Avg | -0.29% | -0.23% | 0.22% | -0.06% | 0.44% | 0.07% |
| 1974-2 | 0.72%5 | -0.38%1 | 1.02%2 | 0.42%3 | -0.19%4 | 1.59% |
| 1978-2 | -0.03%3 | 0.09%4 | 0.97%5 | -0.87%1 | -0.78%2 | -0.62% |
| 1982-2 | -1.44%1 | -0.07%2 | 1.76%3 | -0.23%4 | -0.09%5 | -0.07% |
| 1986-2 | -0.12%1 | -0.25%2 | 0.11%3 | 1.22%4 | 0.07%5 | 1.03% |
| 1990-2 | -0.60%4 | -0.48%5 | 1.39%1 | 0.48%2 | 0.49%3 | 1.29% |
| Avg | -0.30% | -0.22% | 1.05% | 0.20% | -0.10% | 0.64% |
| 1994-2 | 0.81%2 | -0.16%3 | -1.37%4 | 0.39%5 | 0.23%1 | -0.10% |
| 1998-2 | 0.38%1 | -0.72%2 | 1.19%3 | 0.56%4 | 0.06%5 | 1.46% |
| 2002-2 | 0.82%5 | 1.80%1 | 0.00%2 | 0.05%3 | -0.28%4 | 2.38% |
| 2006-2 | 0.75%3 | -0.38%4 | 0.13%5 | 0.36%1 | -1.04%2 | -0.18% |
| 2010-2 | -0.10%1 | -1.21%2 | 0.97%3 | -0.21%4 | 0.14%5 | -0.41% |
| Avg | 0.53% | -0.14% | 0.18% | 0.23% | -0.18% | 0.63% |
| SPX summary for Presidential Year 2 1930 - 2010 | ||||||
| Averages | 0.05% | -0.52% | 0.35% | 0.26% | -0.01% | 0.14% |
| % Winners | 48% | 19% | 62% | 67% | 57% | 48% |
| MDD 2/26/1934 6.47% -- 2/26/1946 5.14% -- 2/28/1938 2.91% | ||||||
| SPX summary for all years 1928 - 2013 | ||||||
| Averages | -0.19% | -0.08% | 0.06% | -0.02% | 0.05% | -0.17% |
| % Winners | 47% | 42% | 54% | 55% | 56% | 48% |
| MDD 2/27/1933 7.21% -- 2/26/1934 6.47% -- 2/26/1946 5.14% | ||||||
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 was mixed last week, the secondaries were strong while the blue chips were weak. The breadth indicators were ok. New highs came up a little short while new lows remained dormant.
I expect the major averages to be higher on Friday February 28 than they were on Friday February 21.
Last week the Dow Jones Industrial Average and the SPX were down a little while the OTC and Russell 2000 were up so I am calling last weeks positive forecast a tie.
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Good Luck,
YTD W 1/L 3/T 4
