The good news is:
• New lows disappeared last week.
The negatives
All of the major indices closed within 1% of their all time or multi year highs on Friday. The breadth indicators, most importantly new highs, did not keep up.
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 failed to keep up with the abrupt increase in prices.
The next chart is similar to the one above except is covers the past year.
Longer term OTC_NH looks worse.
The next chart is similar to the first chart covering the past 6 months except is shows the SPX in red and NY NH has been calculated from NYSE data.
NY NH is also lagging prices.
The next chart is similar to the one above except it covers the past year.
With the SPX only 0.2% off its all time high NY NH is a long way from its high of the past year.
The positives
New lows disappeared last week, falling from 434 Tuesday to 22 Friday on the NYSE and 228 Tuesday to 51 Friday on the NASDAQ. That move was enough to push the high/low ratios on both exchanges into positive territory.
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 of the indicator, the line is solid at the neutral 50% level.
OTC HL ratio rose to a positive 57% on Friday.
The next chart is similar to the one above except is shows the SPX in red and NY HL Ratio, in blue, has been calculated from NYSE data.
NY HL Ratio also rose sharply, finishing the week at 66%.
Seasonality
Next week includes 3 trading days prior to Christmas and one day after during the 2nd year of the Presidential Cycle.
The tables below show the daily change, on a percentage basis, of the OTC and SPX for the 3 trading days prior to Christmas during the 2nd year of the Presidential Cycle. The program that generates these reports is unable to account for the day after Christmas; a day which could easily be the slowest trading day of the year.
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 positive by all measures.
Report for the 3 days before Christmas.
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 | ||||
| Day3 | Day2 | Day1 | Totals | |
| 1966-2 | 0.47% 3 | 0.84% 4 | 0.34% 5 | 1.65% |
| 1970-2 | 0.12% 2 | -0.17% 3 | 0.13% 4 | 0.08% |
| 1974-2 | -1.33% 5 | -1.38% 1 | 0.76% 2 | -1.95% |
| 1978-2 | 0.52% 3 | 0.45% 4 | 0.93% 5 | 1.91% |
| 1982-2 | 0.28% 2 | 1.10% 3 | 0.56% 4 | 1.94% |
| 1986-2 | -0.27% 1 | -0.72% 2 | 0.25% 3 | -0.74% |
| 1990-2 | 0.29% 4 | 0.35% 5 | -0.32% 1 | 0.32% |
| Avg | -0.10% | -0.04% | 0.44% | 0.30% |
| 1994-2 | 1.22% 3 | 0.26% 4 | 0.39% 5 | 1.87% |
| 1998-2 | -0.80% 2 | 2.00% 3 | -0.44% 4 | 0.76% |
| 2002-2 | 0.66% 5 | 1.37% 1 | -0.67% 2 | 1.36% |
| 2006-2 | -0.08% 3 | -0.48% 4 | -0.61% 5 | -1.17% |
| 2010-2 | 0.68% 2 | 0.15% 3 | -0.22% 4 | 0.61% |
| Avg | 0.34% | 0.66% | -0.31% | 0.69% |
| OTC summary for Presidential Year 2 1966 - 2010 | ||||
| Averags | 0.15% | 0.31% | 0.09% | 0.55% |
| %Winners | 67% | 67% | 58% | 75% |
| MDD 12/23/1974 2.69% -- 12/22/2006 1.17% -- 12/23/1986 .99% | ||||
| OTC summary for all years 1963 - 2013 | ||||
| Averags | 0.04% | 0.26% | 0.20% | 0.50% |
| %Winners | 57% | 67% | 65% | 65% |
| SPX Presidential Year 2 | ||||
| Day3 | Day2 | Day1 | Totals | |
| 1954-2 | 0.14% 2 | -0.11% 3 | 0.08% 4 | 0.11% |
| 1958-2 | -0.67% 1 | -0.54% 2 | 1.29% 3 | 0.09% |
| 1962-2 | 0.38% 4 | -0.29% 5 | -0.02% 1 | 0.08% |
| 1966-2 | 0.52% 3 | 0.38% 4 | -0.27% 5 | 0.63% |
| 1970-2 | 0.11% 2 | 0.07% 3 | 0.57% 4 | 0.74% |
| Avg | 0.10% | -0.10% | 0.33% | 0.33% |
| 1974-2 | -1.09% 5 | -1.42% 1 | 1.39% 2 | -1.12% |
| 1978-2 | 0.47% 3 | 0.03% 4 | 1.69% 5 | 2.19% |
| 1982-2 | 1.72% 2 | 0.16% 3 | 0.64% 4 | 2.52% |
| 1986-2 | -0.39% 1 | -0.97% 2 | 0.17% 3 | -1.19% |
| 1990-2 | -0.02% 4 | 0.49% 5 | -0.56% 1 | -0.09% |
| Avg | 0.14% | -0.34% | 0.67% | 0.46% |
| 1994-2 | 0.55% 3 | 0.02% 4 | 0.03% 5 | 0.60% |
| 1998-2 | 0.07% 2 | 2.00% 3 | -0.18% 4 | 1.89% |
| 2002-2 | 1.30% 5 | 0.18% 1 | -0.55% 2 | 0.94% |
| 2006-2 | -0.14% 3 | -0.37% 4 | -0.53% 5 | -1.04% |
| 2010-2 | 0.60% 2 | 0.34% 3 | -0.16% 4 | 0.78% |
| Avg | 0.48% | 0.43% | -0.28% | 0.63% |
| SPX summary for Presidential Year 2 1964 - 2010 | ||||
| Averags | 0.24% | 0.00% | 0.24% | 0.47% |
| %Winners | 67% | 60% | 53% | 73% |
| MDD 12/23/1974 2.50% -- 12/23/1986 1.36% -- 12/23/1958 1.20% | ||||
| SPX summary for all years 1953 - 2013 | ||||
| Averags | 0.11% | -0.02% | 0.26% | 0.35% |
| %Winners | 58% | 49% | 69% | 60% |
Money Supply (M2)
The money supply chart was provided by Gordon Harms. M2 growth slowed down again remaining below its long term trend.
Conclusion
The next 2 weeks are seasonally strong with very low volume.
I expect the major averages to be higher on Friday December 26 than they were on Friday December 19.
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Good Luck,
YTD W 18 / L 16 / T 17
