The good news is:
• The major indices recovered most of their losses of the previous week.
The negatives
The new high indicators continue to reveal a pattern of declining highs.
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 recovered a little last week, if the index makes a new high anytime soon it will be accompanied by another in the series of declining 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 a pattern similar to OTC NH.
The positives
The number of new lows remains minimal.
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 recovered to 87% last week. 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 recovered to 84%.
Seasonality
Next week includes the 5 trading days prior to the 4th Friday of March during the 2nd year of the Presidential Cycle.
Good Friday messes up the Friday count so the report this week covers the last 6 trading days of March.
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 positive most of the time, but a few really bad years have made average returns mostly negative.
Report for the last 6 days of March.
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 | |||||||
| Day6 | Day5 | Day4 | Day3 | Day2 | Day1 | Totals | |
| 1966-2 | -0.03% 4 | 0.53% 5 | 0.49% 1 | 0.24% 2 | -0.27% 3 | -0.83% 4 | 0.13% |
| 1970-2 | -0.56% 1 | 0.24% 2 | 0.46% 3 | 1.66% 4 | 0.15% 1 | -0.03% 2 | 1.92% |
| 1974-2 | 0.09% 5 | -0.10% 1 | -0.08% 2 | -1.11% 3 | -1.42% 4 | -0.65% 5 | -3.28% |
| 1978-2 | 0.22% 4 | -0.09% 1 | 0.36% 2 | 0.38% 3 | 0.09% 4 | 0.02% 5 | 0.99% |
| 1982-2 | -0.06% 3 | 0.57% 4 | -0.36% 5 | 0.17% 1 | -0.05% 2 | 0.13% 3 | 0.40% |
| 1986-2 | -0.03% 5 | -0.52% 1 | -0.38% 2 | 0.36% 3 | 0.73% 4 | 0.38% 1 | 0.54% |
| 1990-2 | 0.63% 5 | 0.36% 1 | 0.15% 2 | -0.64% 3 | -0.29% 4 | 0.03% 5 | 0.24% |
| Avg | 0.17% | 0.04% | -0.06% | -0.17% | -0.19% | -0.02% | -0.22% |
| 1994-2 | -1.36% 4 | -0.41% 5 | -1.40% 1 | -2.23% 2 | -1.37% 3 | -0.19% 4 | -6.96% |
| 1998-2 | 1.12% 2 | 0.63% 3 | 0.25% 4 | -0.27% 5 | -0.27% 1 | 0.93% 2 | 2.40% |
| 2002-2 | 1.96% 4 | -0.93% 5 | -2.10% 1 | 0.64% 2 | 0.14% 3 | 1.02% 4 | 0.73% |
| 2006-2 | 0.55% 5 | 0.12% 1 | -0.48% 2 | 1.45% 3 | 0.13% 4 | -0.04% 5 | 1.72% |
| 2010-2 | -0.68% 3 | -0.06% 4 | -0.10% 5 | 0.39% 1 | 0.26% 2 | -0.53% 3 | -0.71% |
| Avg | 0.32% | -0.13% | -0.77% | 0.00% | -0.22% | 0.24% | -0.57% |
| OTC summary for Presidential Year 2 1966 - 2010 | |||||||
| Averages | 0.15% | 0.03% | -0.26% | 0.09% | -0.18% | 0.02% | -0.16% |
| % Winners | 50% | 50% | 42% | 67% | 50% | 50% | 75% |
| MDD 3/31/1994 6.78% -- 3/29/1974 3.33% -- 3/25/2002 3.01% | |||||||
| OTC summary for all years 1966 - 2010 | |||||||
| Averages | 0.02% | 0.13% | 0.01% | -0.19% | -0.08% | 0.15% | 0.04% |
| % Winners | 53% | 55% | 47% | 57% | 57% | 64% | 67% |
| MDD 3/27/1980 10.60% -- 3/30/2000 10.18% -- 3/29/2001 7.69% | |||||||
| SPX Presidential Year 2 | |||||||
| Day6 | Day5 | Day4 | Day3 | Day2 | Day1 | Totals | |
| 1930-2 | -0.12% 2 | 1.53% 3 | -0.20% 4 | 1.14% 5 | 0.80% 6 | 0.36% 1 | 3.50% |
| 1934-2 | -1.14% 6 | 2.88% 1 | -2.71% 2 | 0.29% 3 | 1.63% 4 | 1.22% 6 | 2.17% |
| 1938-2 | -5.46% 5 | -1.60% 6 | 0.76% 1 | -5.83% 2 | -1.26% 3 | -1.39% 4 | -14.78% |
| 1942-2 | -0.73% 3 | -0.37% 4 | -0.98% 5 | 0.00% 6 | 0.12% 1 | -0.62% 2 | -2.58% |
| 1946-2 | 1.57% 1 | -0.06% 2 | -0.61% 3 | -0.11% 4 | 0.61% 5 | 0.22% 6 | 1.63% |
| 1950-2 | 0.28% 6 | -0.85% 1 | 0.40% 2 | -0.51% 3 | -0.80% 4 | -0.06% 5 | -1.54% |
| Avg | -1.09% | 0.00% | -0.63% | -1.23% | 0.06% | -0.12% | -3.02% |
| 1954-2 | -0.49% 3 | -0.19% 4 | 0.53% 5 | 0.38% 1 | 0.11% 2 | 0.94% 3 | 1.28% |
| 1958-2 | 0.38% 1 | -0.33% 2 | -0.33% 3 | -0.31% 4 | 0.07% 5 | -0.24% 1 | -0.75% |
| 1962-2 | 0.07% 5 | -0.79% 1 | -0.27% 2 | 0.49% 3 | -0.04% 4 | -0.66% 5 | -1.21% |
| 1966-2 | 0.18% 4 | 0.28% 5 | 0.09% 1 | -0.39% 2 | -0.55% 3 | 0.51% 4 | 0.12% |
| 1970-2 | -0.08% 1 | 1.14% 2 | 2.03% 3 | 0.17% 4 | -0.32% 1 | 0.00% 2 | 2.94% |
| Avg | 0.01% | 0.02% | 0.41% | 0.07% | -0.15% | 0.11% | 0.47% |
| 1974-2 | -0.07% 5 | 0.38% 1 | 0.32% 2 | -1.39% 3 | -1.83% 4 | -0.89% 5 | -3.48% |
| 1978-2 | -0.12% 4 | -0.55% 1 | 0.71% 2 | 0.16% 3 | -0.26% 4 | -0.22% 5 | -0.29% |
| 1982-2 | -0.51% 3 | 0.21% 4 | -1.12% 5 | 0.32% 1 | -0.03% 2 | -0.28% 3 | -1.40% |
| 1986-2 | -1.35% 5 | 0.85% 1 | -0.26% 2 | 1.10% 3 | 0.70% 4 | -0.03% 1 | 1.01% |
| 1990-2 | 0.46% 5 | 0.12% 1 | 1.15% 2 | 0.15% 3 | -0.35% 4 | -0.25% 5 | 1.27% |
| Avg | -0.32% | 0.20% | 0.16% | 0.07% | -0.35% | -0.33% | -0.58% |
| 1994-2 | -0.89% 4 | -0.81% 5 | -0.13% 1 | -1.63% 2 | -1.53% 3 | 0.05% 4 | -4.95% |
| 1998-2 | 0.92% 2 | -0.33% 3 | -0.10% 4 | -0.49% 5 | -0.17% 1 | 0.75% 2 | 0.57% |
| 2002-2 | 0.15% 4 | -0.42% 5 | -1.47% 1 | 0.58% 2 | 0.53% 3 | 0.25% 4 | -0.37% |
| 2006-2 | 0.10% 5 | -0.10% 1 | -0.64% 2 | 0.75% 3 | -0.20% 4 | -0.42% 5 | -0.52% |
| 2010-2 | -0.55% 3 | -0.17% 4 | 0.07% 5 | 0.57% 1 | 0.00% 2 | -0.33% 3 | -0.40% |
| Avg | -0.05% | -0.37% | -0.45% | -0.05% | -0.27% | 0.06% | -1.13% |
| SPX summary for Presidential Year 2 1930 - 2010 | |||||||
| Averages | -0.35% | 0.04% | -0.13% | -0.22% | -0.13% | -0.05% | -0.85% |
| % Winners | 43% | 38% | 43% | 57% | 43% | 38% | 43% |
| MDD 3/31/1938 14.05% -- 3/30/1994 4.91% -- 3/29/1974 4.05% | |||||||
| SPX summary for all years 1928 - 2013 | |||||||
| Averages | -0.18% | 0.00% | -0.02% | -0.05% | -0.04% | -0.13% | -0.43% |
| % Winners | 48% | 38% | 47% | 53% | 44% | 44% | 52% |
| MDD 3/31/1938 14.05% -- 3/31/1939 9.03% -- 3/31/1932 7.93% | |||||||
Money Supply (M2)
The money supply chart was provided by Gordon Harms. Money supply growth continued its decline last week.
Conclusion
There has been continued deterioration in the new high indicators suggesting the seasonal pattern of a top in the next few weeks is likely to materialize.
I expect the major averages to be lower on Friday March 28 than they were on Friday March 21.
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Good Luck,
YTD W 4/L 4/T 4
