The good news is:
• In spite of a rough week for the indices, new lows remain at benign levels.
The negatives
All of the major indices were down last week and the secondaries were much weaker than the blue chips. The Russell 2000 (R2K) was down 3.99% while the S&P 500 (SPX) was down 0.90%. The secondaries lead and they have been weaker than the blue chips for the past several months.
Advance decline lines (ADL) are a running total of the number of declining issues subtracted from advancing issues. Their characteristics vary widely and change over time so it is difficult to make blanket statements about them.
The chart below covers the past 6 months showing the R2K in red and an ADL calculated from the component issues of the R2K in black. Dashed vertical lines have been drawn on the 1st trading day of each month.
You can see how the ADL followed the R2K until mid May (about 2 months ago). Since mid May the ADL has been essentially flat while the R2K rose about 6% to a new all time high. Last Friday the ADL hit a new low for the period.
The next chart 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.
OTC NH fell sharply last week.
The next chart is similar to the one above except it covers the past year to offer a longer term perspective on how this indicator has been deteriorating. A week ago, when the OTC hit a multi year high, OTC NH was closer to its low of the year than its high.
The next chart is similar to the first chart except it shows the SPX in red and NY NH has been calculated from NYSE data.
NY NH has been stronger than OTC NH, but it fell sharply last week.
The positives
New lows picked up a little last week, but remain an non threatening levels.
The chart below covers the past 6 months showing the SPX in red and a 40% trend (4 day EMA) of NYSE new highs divided by new highs + new lows (NY HL Ratio), in blue. Dashed horizontal lines have been drawn at 10% levels for the indicator, the line is solid at the neutral 50% level.
NY HL Ratio fell last week, but remains very strong at 83%.
The next chart is similar to the one above except it shows the OTC in blue and OTC HL Ratio, in red, has been calculated from NASDAQ data.
OTC HL Ratio fell sharply last week to a neutral level.
Seasonality
Next week includes the 5 trading days prior to the 3rd Friday of July during the 2nd year of the Presidential Cycle.
The tables below show the change, on a percentage basis, of the OTC and SPX for the 5 trading days prior to the 3rd Friday of July during the 2nd year of the Presidential Cycle.
OTC data covers the period from 1963 to 2013 while SPX data runs from 1953 through 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.
Average returns for the coming week have been negative by all measures.
Report for the week before the 3rd Friday of July.
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 | 0.67% | -0.49% | -0.12% | -0.09% | 0.87% | 0.84% |
| 1970-2 | 0.33% | -0.68% | -0.80% | 0.24% | 0.83% | -0.08% |
| 1974-2 | 0.49% | -0.49% | 1.51% | 0.14% | 0.81% | 2.46% |
| 1978-2 | 0.64% | -0.22% | 0.58% | 0.77% | -0.12% | 1.65% |
| 1982-2 | 0.46% | 0.30% | -0.08% | 0.24% | 0.34% | 1.25% |
| 1986-2 | -0.42% | 0.11% | -0.01% | -0.29% | 0.29% | -0.32% |
| 1990-2 | 0.25% | -1.09% | -0.79% | -0.58% | -0.63% | -2.84% |
| Avg | 0.28% | -0.28% | 0.24% | 0.06% | 0.14% | 0.44% |
| 1994-2 | -0.09% | 0.39% | 1.38% | 0.31% | -0.03% | 1.96% |
| 1998-2 | 0.27% | -1.75% | -0.47% | -1.76% | -0.22% | -3.92% |
| 2002-2 | 0.66% | -0.53% | 1.60% | -2.88% | -2.79% | -3.94% |
| 2006-2 | 0.02% | 0.27% | 1.83% | -1.98% | -0.93% | -0.79% |
| 2010-2 | 0.09% | 1.99% | 0.35% | -0.03% | -3.11% | -0.73% |
| Avg | 0.19% | 0.07% | 0.94% | -1.27% | -1.42% | -1.48% |
| OTC summary for Presidential Year 2 1966 - 2010 | ||||||
| Avg | 0.28% | -0.18% | 0.42% | -0.49% | -0.39% | -0.37% |
| Win% | 83% | 42% | 50% | 42% | 42% | 42% |
| OTC summary for all years 1963 - 2013 | ||||||
| Avg | -0.12% | -0.14% | 0.04% | 0.04% | -0.17% | -0.34% |
| Win% | 56% | 37% | 52% | 58% | 47% | 43% |
| SPX Presidential Year 2 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1954-2 | -0.07% | -0.33% | 0.23% | 0.33% | -0.43% | -0.26% |
| 1958-2 | 1.22% | 0.17% | -0.02% | 0.54% | 0.69% | 2.60% |
| 1962-2 | 0.00% | -1.82% | -1.02% | 0.39% | 0.69% | -1.75% |
| 1966-2 | -0.18% | -0.65% | -0.67% | 0.60% | 0.30% | -0.60% |
| 1970-2 | 0.04% | -0.95% | 0.06% | 1.26% | -0.23% | 0.18% |
| Avg | 0.25% | -0.72% | -0.28% | 0.62% | 0.20% | 0.03% |
| 1974-2 | 0.76% | -1.16% | 1.07% | 0.10% | -0.29% | 0.48% |
| 1978-2 | 0.20% | -0.93% | 1.29% | -0.09% | -0.29% | 0.19% |
| 1982-2 | 0.68% | -0.11% | 0.90% | 0.03% | 0.54% | 2.05% |
| 1986-2 | -0.05% | 0.82% | 0.21% | -0.30% | 0.95% | 1.63% |
| 1990-2 | 0.45% | -0.39% | -0.90% | 0.30% | -1.02% | -1.55% |
| Avg | 0.41% | -0.35% | 0.52% | 0.01% | -0.02% | 0.56% |
| 1994-2 | -0.33% | -0.02% | 0.17% | 1.04% | 0.17% | 1.03% |
| 1998-2 | -0.22% | -1.60% | -0.09% | -2.10% | 0.10% | -3.91% |
| 2002-2 | -0.38% | -1.84% | 0.55% | -2.70% | -3.83% | -8.20% |
| 2006-2 | -0.14% | 0.19% | 1.86% | -0.85% | -0.71% | 0.35% |
| 2010-2 | 0.07% | 1.54% | -0.02% | 0.12% | -2.88% | -1.17% |
| Avg | -0.20% | -0.35% | 0.50% | -0.90% | -1.43% | -2.38% |
| SPX summary for Presidential Year 2 1954 - 2010 | ||||||
| Avg | 0.15% | -0.47% | 0.24% | -0.09% | -0.42% | -0.60% |
| Win% | 50% | 27% | 60% | 67% | 47% | 53% |
| SPX summary for all years 1953 - 2013 | ||||||
| Avg | -0.12% | -0.21% | 0.03% | 0.00% | -0.11% | -0.40% |
| Win% | 47% | 32% | 52% | 58% | 51% | 39% |
Money Supply (M2)
The money supply chart was provided by Gordon Harms. M2 growth has been declining, but still holding close to its trend line.
Conclusion
The breadth indicators are weak and seasonality is weak. The only positive I see is the market is, short term, oversold and may bounce.
I expect the major averages to be lower on Friday July 18 than they were on Friday July 11.
Last weeks positive forecast was a miss.
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Good Luck,
YTD W 8/L 11/T 9
