The good news is:
• In spite of a rough week for the major averages, new lows increased only modestly.
The negatives
The number of new highs declined sharply last week.
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 fell last week adding to its pattern of progressively lower 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 has a pattern of progressively lower highs over the past 5 months.
The positives
New highs outnumbered new lows every day 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 fell last week, but remains strong at 78%.
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 fell from 95% to 65% last week.
Seasonality
Next week includes the 5 trading days prior to the 3rd 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 3rd 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 strongest during the 2nd year of the Presidential Cycle. The SPX has not been down during the coming week since 1986.
Report for the week before the 3rd Friday of March.
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 | -0.19% | -0.92% | -0.63% | 0.23% | 0.28% | -1.22% |
| 1970-2 | -2.13% | -0.76% | 1.04% | 0.17% | 0.06% | -1.62% |
| 1974-2 | 0.74% | -0.07% | 0.55% | 0.19% | 0.02% | 1.42% |
| 1978-2 | 0.11% | 0.13% | 0.14% | 0.56% | 0.54% | 1.46% |
| 1982-2 | -0.18% | 0.21% | -0.05% | 1.15% | 0.96% | 2.09% |
| 1986-2 | -0.47% | 0.38% | 0.05% | 0.27% | -0.03% | 0.21% |
| 1990-2 | -0.05% | -0.45% | 0.36% | 0.44% | 0.94% | 1.24% |
| Avg | 0.03% | 0.04% | 0.21% | 0.52% | 0.48% | 1.28% |
| 1994-2 | 0.46% | 0.09% | 0.69% | 0.61% | 0.01% | 1.85% |
| 1998-2 | 0.93% | -0.50% | 0.51% | 0.65% | -0.60% | 0.99% |
| 2002-2 | -0.01% | -1.68% | -1.85% | -0.42% | 0.76% | -3.20% |
| 2006-2 | 0.22% | 1.27% | 0.69% | -0.53% | 0.30% | 1.96% |
| 2010-2 | -0.23% | 0.67% | 0.47% | 0.09% | -0.71% | 0.29% |
| Avg | 0.27% | -0.03% | 0.10% | 0.08% | -0.05% | 0.38% |
| OTC summary for Presidential Year 2 1966 - 2010 | ||||||
| Avg | -0.07% | -0.13% | 0.16% | 0.28% | 0.21% | 0.46% |
| Win% | 42% | 50% | 75% | 83% | 75% | 75% |
| OTC summary for all years 1963 - 2013 | ||||||
| Avg | -0.19% | 0.07% | 0.00% | 0.18% | -0.10% | -0.04% |
| Win% | 49% | 55% | 65% | 73% | 49% | 57% |
| SPX Presidential Year 2 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1954-2 | -0.45% | -0.04% | 0.23% | 0.41% | 0.30% | 0.45% |
| 1958-2 | -0.69% | -0.36% | 0.48% | 0.05% | 0.74% | 0.22% |
| 1962-2 | -0.03% | 0.28% | 0.44% | 0.21% | -0.17% | 0.74% |
| 1966-2 | -1.13% | -0.57% | 0.58% | 0.35% | 0.41% | -0.35% |
| 1970-2 | -1.08% | 0.44% | 0.29% | -0.14% | -0.41% | -0.91% |
| Avg | -0.67% | -0.05% | 0.40% | 0.18% | 0.17% | 0.03% |
| 1974-2 | 1.12% | 0.27% | 0.60% | -0.09% | -0.37% | 1.53% |
| 1978-2 | 0.08% | 0.45% | -0.26% | 0.44% | 0.77% | 1.48% |
| 1982-2 | 0.77% | -0.16% | -0.18% | 1.12% | 0.28% | 1.83% |
| 1986-2 | -0.79% | 0.47% | -0.08% | 0.40% | -1.35% | -1.35% |
| 1990-2 | 0.22% | -0.79% | 0.26% | 0.36% | 1.14% | 1.18% |
| Avg | 0.28% | 0.05% | 0.07% | 0.44% | 0.09% | 0.94% |
| 1994-2 | 0.20% | -0.08% | 0.52% | 0.32% | 0.03% | 0.99% |
| 1998-2 | 1.00% | 0.11% | 0.46% | 0.39% | 0.87% | 2.83% |
| 2002-2 | 0.34% | -0.23% | -0.99% | -0.09% | 1.14% | 0.17% |
| 2006-2 | 0.20% | 1.04% | 0.43% | 0.18% | 0.15% | 1.99% |
| 2010-2 | 0.05% | 0.78% | 0.58% | -0.03% | -0.51% | 0.86% |
| Avg | 0.36% | 0.32% | 0.20% | 0.15% | 0.34% | 1.37% |
| SPX summary for Presidential Year 2 1954 - 2010 | ||||||
| Avg | -0.01% | 0.11% | 0.22% | 0.26% | 0.20% | 0.78% |
| Win% | 60% | 53% | 73% | 73% | 67% | 80% |
| SPX summary for all years 1953 - 2013 | ||||||
| Avg | 0.01% | 0.21% | 0.13% | 0.21% | 0.00% | 0.56% |
| Win% | 63% | 57% | 59% | 59% | 57% | 62% |
Money Supply (M2)
The money supply chart was provided by Gordon Harms. Money supply growth continued its decline last week.
Conclusion
Some comfort can be taken from the low number of new lows, but there is no evidence the recent decline has ended. The seasonal pattern calls for a top around mid April.
I expect the major averages to be higher on Friday March 21 than they were on Friday March 14.
Last weeks positive forecast was a miss.
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Good Luck,
YTD W 3/L 4/T 4
