The good news is:
• Most of the major averages closed at all time or multi year highs during the past week.
The negatives
New highs have been picking up, but there have been fewer of them than at recent highs, indicating narrowing leadership.
The chart below covers the past 6 months showing the NASDAQ composite (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 has been rising sharply for the past month, but remains well below its earlier levels when the index was hitting new highs.
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 lower highs since last October.
The positives
New lows were in single digits most of last week.
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 a bit to 94.4% last week, its highest level in the past 6 months.
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 rose to 95.3%.
Seasonality
Next week includes the 5 trading days prior to the 2nd Friday of March during the 2nd year of the Presidential Cycle.
The tables show the daily percentage return for the 5 trading days prior to the 2nd Friday of March 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.
Returns for the coming week have been positive by all measures.
Report for the week before the 2nd Friday of March.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday to 2nd Friday.
| OTC Presidential Year 2 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1966-2 | -0.72% | -1.43% | -1.03% | 0.57% | -0.39% | -3.00% |
| 1970-2 | -0.22% | -0.50% | -0.02% | -0.35% | -0.93% | -2.02% |
| 1974-2 | -0.27% | 0.97% | 0.43% | -0.62% | 0.68% | 1.19% |
| 1978-2 | -0.21% | 0.28% | 0.38% | 0.40% | 0.58% | 1.44% |
| 1982-2 | -1.69% | -0.77% | 0.42% | -0.19% | -1.09% | -3.33% |
| 1986-2 | 0.47% | 0.94% | 0.63% | 0.18% | 0.40% | 2.62% |
| 1990-2 | -0.20% | 0.51% | 0.03% | 0.93% | 0.06% | 1.33% |
| Avg | -0.38% | 0.38% | 0.38% | 0.14% | 0.13% | 0.65% |
| 1994-2 | 0.57% | -0.37% | 0.12% | -0.50% | 0.01% | -0.17% |
| 1998-2 | -1.61% | 1.35% | 0.47% | 0.42% | 0.43% | 1.06% |
| 2002-2 | 3.14% | 0.37% | 1.29% | -0.46% | 2.55% | 6.89% |
| 2006-2 | -0.72% | -0.77% | -0.04% | -0.78% | 0.55% | -1.77% |
| 2010-2 | 0.25% | 0.36% | 0.78% | 0.40% | -0.03% | 1.76% |
| Avg | 0.33% | 0.19% | 0.52% | -0.19% | 0.70% | 1.56% |
| OTC summary for Presidential Year 2 1966 - 2010 | ||||||
| Avg | -0.10% | 0.08% | 0.29% | 0.00% | 0.23% | 0.50% |
| Win% | 33% | 58% | 75% | 50% | 67% | 58% |
| OTC summary for all years 1963 - 2013 | ||||||
| Avg | -0.06% | 0.41% | 0.02% | 0.34% | -0.07% | 0.64% |
| Win% | 47% | 60% | 61% | 67% | 53% | 71% |
| SPX Presidential Year 2 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1954-2 | -0.26% | 0.23% | 0.23% | 0.45% | 0.00% | 0.64% |
| 1958-2 | 0.33% | 0.71% | -0.24% | 0.12% | -0.31% | 0.62% |
| 1962-2 | -0.21% | -0.33% | -0.13% | 0.72% | 0.33% | 0.37% |
| 1966-2 | -1.34% | 0.16% | 0.88% | 0.00% | -0.12% | -0.42% |
| 1970-2 | -1.04% | 0.27% | -0.07% | -0.41% | -0.53% | -1.77% |
| Avg | -0.51% | 0.21% | 0.14% | 0.22% | -0.16% | -0.11% |
| 1974-2 | 0.00% | 1.87% | 0.68% | -1.06% | 0.87% | 2.36% |
| 1978-2 | -0.63% | 0.53% | 0.55% | 0.06% | 1.13% | 1.63% |
| 1982-2 | -1.83% | 1.39% | 0.53% | -0.05% | -0.69% | -0.64% |
| 1986-2 | 0.45% | 2.26% | 0.37% | 0.28% | 1.44% | 4.79% |
| 1990-2 | -0.54% | 1.26% | -0.29% | 0.99% | -0.69% | 0.73% |
| Avg | -0.64% | 1.46% | 0.37% | 0.04% | 0.41% | 1.77% |
| 1994-2 | 0.47% | -0.22% | 0.25% | -0.68% | 0.55% | 0.37% |
| 1998-2 | -0.32% | 1.13% | 0.40% | 0.13% | -0.12% | 1.22% |
| 2002-2 | 1.95% | -0.67% | 1.45% | -0.45% | 0.58% | 2.87% |
| 2006-2 | -0.70% | -0.19% | 0.20% | -0.49% | 0.73% | -0.43% |
| 2010-2 | -0.02% | 0.17% | 0.45% | 0.40% | -0.02% | 0.99% |
| Avg | 0.28% | 0.05% | 0.55% | -0.22% | 0.34% | 1.00% |
| SPX summary for Presidential Year 2 1954 - 2010 | ||||||
| Avg | -0.26% | 0.57% | 0.35% | 0.00% | 0.23% | 0.89% |
| Win% | 29% | 73% | 73% | 57% | 50% | 73% |
| SPX summary for all years 1953 - 2013 | ||||||
| Avg | -0.05% | 0.25% | 0.06% | 0.18% | -0.04% | 0.41% |
| Win% | 52% | 57% | 56% | 62% | 47% | 61% |
Money Supply (M2)
The money supply chart was provided by Gordon Harms. Money supply growth has declined a bit over the past few weeks.
Conclusion
The market has been following the average seasonal pattern pretty closely and that pattern calls for another month of new highs.
I expect the major averages to be higher on Friday March 14 than they were on Friday March 7.
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Good Luck,
YTD W 3/L 3/T 4
