The good news is:
• The European Central Bank promised a massive injection of liquidity that will last nearly 2 years.
The negatives
One of the breadth patterns we look for in a bull market is expanding new highs and diminishing new lows. The market is split on that score. The NYSE is looking pretty good while the NASDAQ is not.
The first 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. Dashed vertical lines have been drawn on the 1st trading day of each month.
OTC NH did not respond during last weeks rally.
The longer term picture is even worse.
The next chart is similar to the one above except it covers the past year.
OTC NH has been weakening for quite a while.
The positives
Last week new lows declined significantly from the week before.
The numbers of new lows are still a bit discomforting, however their direction is positive.
The chart below covers the past 6 months showing the SPX in red and a 40% trend 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 rose to a comfortable 81% on Friday.
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 issues.
OTC HL Ratio at 47% is still a little below the neutral level, but it turned sharply upward last week.
Seasonality
Next week includes the last 5 trading days of January during the 3rd year of the Presidential Cycle.
The tables below show the daily change, on a percentage basis for the last 5 trading days of January during the 3rd year of the Presidential Cycle.
OTC data covers the period from 1963 to 2014 while SPX data runs from 1928 through 2014. There are summaries for both the 3rd year of the Presidential Cycle and all years combined.
Average returns for the coming week have been positive by all measures and stronger during the 3rd year of the Presidential Cycle than other years.
Report for the last 5 days of January.
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 3 | ||||||
| Day5 | Day4 | Day3 | Day2 | Day1 | Totals | |
| 1963-3 | -0.03% 3 | -0.48% 4 | 0.00% 0 | 0.00% 0 | 0.00% 0 | -0.52% |
| 1967-3 | -0.11% 3 | -0.10% 4 | 0.02% 5 | 0.49% 1 | 0.37% 2 | 0.67% |
| 1971-3 | 0.50% 1 | 0.09% 2 | -0.29% 3 | -0.47% 4 | 0.91% 5 | 0.75% |
| 1975-3 | 2.54% 1 | 1.31% 2 | 1.71% 3 | -0.13% 4 | 1.15% 5 | 6.57% |
| 1979-3 | 0.86% 4 | 0.49% 5 | -0.21% 1 | -0.21% 2 | -0.55% 3 | 0.39% |
| 1983-3 | 1.04% 2 | 0.94% 3 | 1.66% 4 | 0.61% 5 | 0.58% 1 | 4.82% |
| 1987-3 | -1.07% 1 | 0.71% 2 | 0.33% 3 | -0.27% 4 | 1.04% 5 | 0.74% |
| 1991-3 | 0.75% 5 | 0.64% 1 | 0.96% 2 | 1.98% 3 | 1.39% 4 | 5.72% |
| Avg | 0.82% | 0.82% | 0.89% | 0.40% | 0.72% | 3.65% |
| 1995-3 | -0.29% 3 | -0.45% 4 | 0.18% 5 | -0.93% 1 | 0.45% 2 | -1.05% |
| 1999-3 | 1.30% 1 | 2.71% 2 | -1.10% 3 | 2.93% 4 | 1.15% 5 | 7.00% |
| 2003-3 | -1.26% 1 | 1.28% 2 | 1.18% 3 | -2.63% 4 | -0.11% 5 | -1.54% |
| 2007-3 | -1.30% 4 | 0.05% 5 | 0.23% 1 | 0.31% 2 | 0.62% 3 | -0.08% |
| 2011-3 | 0.06% 2 | 0.74% 3 | 0.58% 4 | -2.48% 5 | 0.49% 1 | -0.61% |
| Avg | -0.30% | 0.87% | 0.21% | -0.56% | 0.52% | 0.74% |
| OTC summary for Presidential Year 3 1963 - 2011 | ||||||
| Averages | 0.23% | 0.61% | 0.40% | -0.06% | 0.58% | 1.76% |
| % Winners | 54% | 77% | 69% | 38% | 77% | 62% |
| MDD 1/31/2003 2.74% -- 1/28/2011 2.48% -- 1/30/1995 1.49% | ||||||
| OTC summary for all years 1963 - 2014 | ||||||
| Averages | -0.04% | 0.19% | 0.15% | -0.04% | 0.23% | 0.47% |
| % Winners | 45% | 62% | 62% | 55% | 63% | 58% |
| MDD 1/28/2000 6.73% -- 1/30/2009 5.26% -- 1/30/1970 4.76% | ||||||
| SPX Presidential Year 3 | ||||||
| Day5 | Day4 | Day3 | Day2 | Day1 | Totals | |
| 1931-3 | -0.49% 2 | -1.84% 3 | 0.94% 4 | 0.12% 5 | -0.62% 6 | -1.88% |
| 1935-3 | -0.33% 6 | -1.41% 1 | -0.99% 2 | 0.56% 3 | 0.78% 4 | -1.40% |
| 1939-3 | -3.19% 4 | 2.86% 5 | -0.42% 6 | 2.96% 1 | 1.15% 2 | 3.36% |
| 1943-3 | 0.49% 2 | -0.10% 3 | 0.10% 4 | 0.87% 5 | 0.29% 6 | 1.64% |
| 1947-3 | 1.05% 1 | 0.85% 2 | 1.16% 3 | -0.32% 4 | 0.38% 5 | 3.13% |
| 1951-3 | 1.09% 5 | 1.27% 6 | 0.65% 1 | 0.32% 2 | -0.37% 3 | 2.97% |
| Avg | -0.18% | 0.69% | 0.10% | 0.88% | 0.45% | 1.94% |
| 1955-3 | -0.03% 2 | 1.24% 3 | 0.11% 4 | 0.56% 5 | 1.22% 1 | 3.09% |
| 1959-3 | -0.41% 1 | 0.02% 2 | -1.11% 3 | 0.07% 4 | 0.40% 5 | -1.03% |
| 1963-3 | 0.26% 5 | 0.49% 1 | -0.02% 2 | -0.57% 3 | 0.53% 4 | 0.69% |
| 1967-3 | -0.76% 3 | -0.05% 4 | 0.41% 5 | 0.58% 1 | -0.06% 2 | 0.12% |
| 1971-3 | 0.42% 1 | 0.33% 2 | -0.73% 3 | 0.34% 4 | 0.70% 5 | 1.06% |
| Avg | -0.10% | 0.40% | -0.27% | 0.19% | 0.56% | 0.78% |
| 1975-3 | 3.27% 1 | 0.88% 2 | 1.62% 3 | -1.36% 4 | 1.01% 5 | 5.42% |
| 1979-3 | 1.03% 4 | 0.66% 5 | -0.30% 1 | -0.49% 2 | -1.11% 3 | -0.21% |
| 1983-3 | 1.27% 2 | -0.15% 3 | 1.93% 4 | 0.17% 5 | 0.55% 1 | 3.77% |
| 1987-3 | -0.18% 1 | 1.54% 2 | 0.60% 3 | -0.42% 4 | -0.06% 5 | 1.48% |
| 1991-3 | 0.39% 5 | -0.01% 1 | -0.06% 2 | 1.51% 3 | 0.89% 4 | 2.71% |
| Avg | 1.16% | 0.58% | 0.76% | -0.12% | 0.26% | 2.63% |
| 1995-3 | 0.34% 3 | 0.19% 4 | 0.44% 5 | -0.40% 1 | 0.41% 2 | 0.98% |
| 1999-3 | 0.72% 1 | 1.48% 2 | -0.73% 3 | 1.79% 4 | 1.12% 5 | 4.38% |
| 2003-3 | -1.62% 1 | 1.31% 2 | 0.68% 3 | -2.28% 4 | 1.31% 5 | -0.60% |
| 2007-3 | -1.13% 4 | -0.12% 5 | -0.11% 1 | 0.58% 2 | 0.66% 3 | -0.12% |
| 2011-3 | 0.03% 2 | 0.42% 3 | 0.22% 4 | -1.79% 5 | 0.77% 1 | -0.35% |
| Avg | -0.33% | 0.66% | 0.10% | -0.42% | 0.85% | 0.86% |
| SPX summary for Presidential Year 3 1931 - 2011 | ||||||
| Averages | 0.11% | 0.47% | 0.21% | 0.13% | 0.47% | 1.39% |
| % Winners | 57% | 67% | 57% | 62% | 76% | 67% |
| MDD 1/26/1939 3.19% -- 1/29/1935 2.71% -- 1/28/1931 2.32% | ||||||
| SPX summary for all years 1928 - 2014 | ||||||
| Averages | -0.04% | 0.15% | 0.06% | 0.08% | 0.25% | 0.49% |
| % Winners | 51% | 52% | 49% | 59% | 62% | 57% |
| MDD 1/29/1938 6.33% -- 1/30/2009 5.52% -- 1/30/1932 5.05% | ||||||
Money Supply (M2)
The money supply chart was provided by Gordon Harms. M2 growth fell last week.
Conclusion
The ECB came to the rescue last week promising a gush of liquidity for the next 2 years. That action may allow our own FED to proceed with their announced intention of raising rates later this year. Liquidity no matter where it comes from is a positive for the market. Seasonally we have several strong weeks to look forward to.
I expect the major averages to be higher on Friday January 30 than they were on Friday January 23.
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Good Luck,
YTD W 2 / L 1 / T 0
