The good news is:
• The secondaries have been outperforming the blue chips.
The negatives
New lows reached uncomfortably high levels last week, high enough to trigger a Hindenburg Omen. A Hindenburg Omen was NOT triggered because there were not enough new highs.
The breadth indicators on the NYSE have been much weaker than those on the NASDAQ. Fixed income related issues have been doing poorly because of the assumption the FED will be raising interest rates soon. Fixed income issues account for about half of the issues traded on the NYSE.
The chart below covers the past 6 months showing the S&P 500 (SPX) in red and a 10% trend (19 day EMA) of NYSE new highs (NY NH) in green. Dashed vertical lines have been drawn on the 1st trading day of each month.
NY NH has been falling for the past 6 weeks and failed to confirm the all time high in the SPX about 2 weeks ago.
The next chart 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 remained in modestly negative territory last week.
The positives
The secondaries handily outperformed the blue chips last week.
The chart below covers the past 6 months showing the NASDAQ composite (OTC) in blue and a 40% trend of NASDAQ new highs divided by (new highs + new lows), OTC HL Ratio, in red.
OTC HL Ratio recovered last week to a modestly positive 57%.
The next chart covers the past 6 months showing the OTC in blue and a 10% trend of NASDAQ new highs (OTC NH) in green.
OTC NH has been holding up pretty well.
Seasonality
Next week includes the first 5 trading days prior to the 3rd Friday of March during the 3rd year of the Presidential Cycle.
The tables below show the daily change, on a percentage basis for the 5 trading days prior to the 3rd Friday of March 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 mixed, but mostly positive.
Report for the week before the 3rd Friday of March.
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 | 0.19% | 0.10% | 0.10% | 0.13% | -0.26% | 0.26% |
| 1967-3 | 0.28% | -0.48% | 0.28% | 0.31% | 0.61% | 1.01% |
| 1971-3 | 0.60% | 0.41% | -0.06% | 0.36% | -0.10% | 1.21% |
| 1975-3 | 0.26% | -0.12% | -0.67% | 0.15% | 0.18% | -0.19% |
| 1979-3 | -0.05% | 0.39% | -0.08% | 0.20% | 0.55% | 1.02% |
| 1983-3 | -0.69% | -0.03% | 0.16% | -0.25% | 0.38% | -0.44% |
| 1987-3 | -0.26% | 0.91% | 0.09% | 0.42% | 0.60% | 1.77% |
| 1991-3 | -1.68% | -1.23% | 1.47% | -0.08% | -0.32% | -1.84% |
| Avg | -0.48% | -0.02% | 0.19% | 0.09% | 0.28% | 0.06% |
| 1995-3 | 0.01% | 0.74% | -0.11% | 0.24% | -0.12% | 0.76% |
| 1999-3 | 2.10% | 0.29% | -0.39% | 1.40% | -1.68% | 1.71% |
| 2003-3 | 3.88% | 0.59% | -0.25% | 0.41% | 1.36% | 5.99% |
| 2007-3 | 0.62% | -2.15% | 0.90% | 0.29% | -0.25% | -0.60% |
| 2011-3 | -0.54% | -1.25% | -1.89% | 0.73% | 0.29% | -2.65% |
| Avg | 1.21% | -0.35% | -0.35% | 0.62% | -0.08% | 1.04% |
| OTC summary for Presidential Year 3 1963 - 2011 | ||||||
| Avg | 0.36% | -0.14% | -0.04% | 0.33% | 0.09% | 0.62% |
| Win% | 62% | 54% | 46% | 85% | 54% | 62 |
| OTC summary for all years 1963 - 2014 | ||||||
| Avg | -0.17% | 0.09% | -0.01% | 0.18% | -0.12% | -0.03% |
| Win% | 50% | 56% | 63% | 73% | 48% | 58% |
| SPX Presidential Year 3 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1955-3 | -2.40% | 2.15% | 0.76% | 0.39% | 0.17% | 1.06% |
| 1959-3 | -1.08% | 0.82% | -0.23% | -0.09% | 0.09% | -0.49% |
| 1963-3 | 0.28% | 0.24% | 0.37% | -0.02% | 0.05% | 0.92% |
| 1967-3 | -0.52% | -0.09% | 0.95% | 1.01% | 0.18% | 1.53% |
| 1971-3 | 1.14% | 0.50% | -0.09% | 0.07% | -0.18% | 1.44% |
| Avg | -0.51% | 0.72% | 0.35% | 0.27% | 0.06% | 0.89% |
| 1975-3 | 1.47% | -1.02% | -0.93% | -0.87% | -0.26% | -1.61% |
| 1979-3 | 0.13% | 0.17% | -0.13% | 0.15% | 0.83% | 1.15% |
| 1983-3 | -0.27% | 0.35% | -1.03% | -0.14% | 0.21% | -0.88% |
| 1987-3 | -0.57% | 1.47% | 0.11% | 0.44% | 1.39% | 2.84% |
| 1991-3 | -0.53% | -0.79% | 1.23% | -0.29% | 0.02% | -0.35% |
| Avg | 0.05% | 0.04% | -0.15% | -0.14% | 0.44% | 0.23% |
| 1995-3 | 0.10% | 0.58% | -0.20% | 0.72% | 0.02% | 1.21% |
| 1999-3 | 0.98% | -0.07% | -0.66% | 1.45% | -1.31% | 0.39% |
| 2003-3 | 3.54% | 0.46% | 0.84% | 0.19% | 2.30% | 7.33% |
| 2007-3 | 0.27% | -2.04% | 0.67% | 0.37% | -0.38% | -1.11% |
| 2011-3 | -0.60% | -1.12% | -1.95% | 1.34% | 0.43% | -1.90% |
| Avg | 0.86% | -0.44% | -0.26% | 0.81% | 0.21% | 1.18% |
| SPX summary for Presidential Year 3 1955 - 2011 | ||||||
| Avg | 0.13% | 0.11% | -0.02% | 0.32% | 0.24% | 0.77% |
| Win% | 53% | 60% | 47% | 67% | 73% | 60% |
| SPX summary for all years 1953 - 2014 | ||||||
| Avg | 0.03% | 0.22% | 0.12% | 0.22% | -0.01% | 0.57% |
| Win% | 64% | 58% | 58% | 60% | 56% | 63% |
Money Supply (M2)
The money supply chart was provided by Gordon Harms. M2 growth is holding above trend.
Conclusion
The market is split the secondaries are stronger than the blue chips and the breadth indicators are all close to neutral.
I expect the major averages to be higher on Friday March 20 than they were on Friday March 13.
Last week the secondaries were up and the blue chips down so I am calling last weeks positive forecast a tie.
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Good Luck,
YTD W 4 / L 4 / T 2
