The good news is:
• Most of the major indices closed at all time or multi year highs Friday.
The negatives
The market is overbought. All of the major indices were up around 5% over the past 2 weeks.
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.
The index closed at a multi year high while OTC NH is well off its recent high.
The next chart is similar to the one above except it covers the past year.
The deterioration in OTC NH has been going on for a long time.
The positives
New highs increased while new lows remained benign levels.
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 finished the week at a very strong 75%.
The next chart is similar to the one above except is shows the S&P 500 (SPX) in red and NY HL Ratio, in blue, has been calculated from NYSE data.
NY HL Ratio finished the week at a very strong 90%.
Seasonality
Next week includes the 4 trading days prior to the 3rd Friday of February during the 3rd year of the Presidential Cycle. The market will be closed Monday in observance of Presidents day.
The tables below show the daily change, on a percentage basis for the 5 trading days prior to the 3rd Friday of February during the 3rd year of the Presidential Cycle.
OTC data covers the period from 1963 to 2014 while SPX data runs from 1953 through 2014. There are summaries for both the 3rd 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 great during the 3rd year of the Presidential Cycle and mediocre in the other years.
Report for the week before the 3rd Friday of February.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday through 3rd Friday.
| OTC Presidential Year 3 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1963-3 | 0.13% | -0.23% | 0.26% | 0.68% | 0.65% | 1.49% |
| 1967-3 | 0.08% | -0.20% | 0.60% | 0.33% | -0.08% | 0.73% |
| 1971-3 | 0.00% | 0.14% | -0.44% | -0.31% | -0.71% | -1.33% |
| 1975-3 | 0.00% | -1.08% | 0.55% | 0.97% | 0.29% | 0.73% |
| 1979-3 | 0.23% | 0.68% | -0.22% | 0.26% | 0.51% | 1.46% |
| 1983-3 | 0.79% | 0.15% | 0.00% | -0.03% | 0.88% | 1.80% |
| 1987-3 | 0.00% | 1.38% | -0.26% | -0.01% | 0.05% | 1.16% |
| 1991-3 | 1.67% | -0.03% | 0.90% | -0.82% | 0.99% | 2.72% |
| Avg | 0.90% | 0.22% | 0.19% | 0.07% | 0.54% | 1.57% |
| 1995-3 | -0.13% | 0.15% | 0.63% | -0.29% | -0.80% | -0.43% |
| 1999-3 | 0.00% | -0.34% | -2.80% | 0.52% | 1.02% | -1.62% |
| 2003-3 | 0.00% | 2.78% | -0.91% | -0.23% | 1.34% | 2.97% |
| 2007-3 | -0.38% | 0.39% | 1.16% | 0.35% | -0.03% | 1.48% |
| 2011-3 | 0.28% | -0.46% | 0.76% | 0.21% | 0.08% | 0.87% |
| Avg | -0.08% | 0.50% | -0.23% | 0.11% | 0.32% | 0.66% |
| OTC summary for Presidential Year 3 1963 - 2011 | ||||||
| Avg | 0.33% | 0.26% | 0.02% | 0.13% | 0.32% | 0.93% |
| Win% | 75% | 54% | 62% | 54% | 69% | 77% |
| OTC summary for all years 1963 - 2014 | ||||||
| Avg | 0.08% | -0.13% | 0.05% | 0.18% | -0.16% | -0.01% |
| Win% | 58% | 47% | 56% | 63% | 46% | 58% |
| SPX Presidential Year 3 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1955-3 | 4.68% | -5.14% | -0.33% | 0.19% | 0.14% | -0.46% |
| 1959-3 | 0.15% | -0.39% | 0.39% | 0.95% | 0.91% | 2.01% |
| 1963-3 | -0.62% | 0.11% | 0.49% | 0.30% | 0.09% | 0.37% |
| 1967-3 | 0.10% | 0.67% | 0.11% | -0.46% | 0.03% | 0.46% |
| 1971-3 | 0.00% | 0.23% | -0.47% | -0.65% | -0.84% | -1.72% |
| Avg | 1.08% | -0.90% | 0.04% | 0.07% | 0.07% | 0.13% |
| 1975-3 | 0.00% | -0.70% | 0.63% | 0.95% | 0.50% | 1.37% |
| 1979-3 | 0.34% | 0.74% | -0.06% | -0.14% | -0.06% | 0.82% |
| 1983-3 | 0.87% | -0.42% | -0.59% | 0.01% | 0.38% | 0.26% |
| 1987-3 | 0.00% | 2.07% | -0.02% | 0.05% | -0.03% | 2.07% |
| 1991-3 | 2.57% | -0.84% | 0.96% | -1.30% | 1.33% | 2.72% |
| Avg | 1.26% | 0.17% | 0.18% | -0.09% | 0.42% | 1.45% |
| 1995-3 | 0.04% | 0.19% | 0.41% | 0.14% | -0.67% | 0.11% |
| 1999-3 | 0.00% | 0.96% | -1.44% | 1.09% | 0.15% | 0.76% |
| 2003-3 | 0.00% | 1.95% | -0.71% | -0.95% | 1.32% | 1.61% |
| 2007-3 | -0.33% | 0.76% | 0.76% | 0.10% | -0.09% | 1.21% |
| 2011-3 | 0.24% | -0.32% | 0.63% | 0.31% | 0.19% | 1.04% |
| Avg | -0.02% | 0.71% | -0.07% | 0.14% | 0.18% | 0.95% |
| SPX summary for Presidential Year 3 1955 - 2011 | ||||||
| Avg | 0.80% | -0.01% | 0.05% | 0.04% | 0.22% | 0.84% |
| Win% | 80% | 60% | 53% | 67% | 67% | 87% |
| SPX summary for all years 1953 - 2014 | ||||||
| Avg | 0.06% | -0.05% | 0.17% | 0.00% | -0.01% | 0.15% |
| Win% | 47% | 54% | 58% | 52% | 47% | 58% |
Money Supply (M2)
The money supply chart was provided by Gordon Harms. M2 growth accelerated sharply last week.
Conclusion
The market appears to have gotten over its weak January. Most of the major indices are up around 5% so far in February which makes them, short term, overbought. The breadth indicators are looking good so there should be more records ahead.
I expect the major averages to be higher on Friday February 20 than they were on Friday February 13.
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Good Luck,
YTD W 3 / L 3 / T 0
