The good news is:
• Last week the market had its best week in a while.
The negatives
In spite of a sensationally strong week for the major indices, new lows exceed new highs every day last week on both the NYSE and NASDAQ.
The secondaries underperformed the blue chips and the AD lines were flat.
The chart below covers the past 6 months showing the S&P 500 (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 vertical lines have been drawn on the 1st trading day of each month. Dashed horizontal lines have been drawn at 10% levels for the indicator, the line is solid at the 50%, neutral level.
In spite of a strong rally in prices, NY HL Ratio remained in deeply negative territory.
The next chart is similar to the one above except it shows the NASDAQ composite (OTC) in blue and OTC HL Ratio, in red, has been calculated from NASDAQ data.
OTC HL Ratio has been slightly stronger than NY HL Ratio, but also remained well into negative territory.
Advance - Decline lines (ADL) are running totals of declining issues subtracted from advancing issues. Their character varies between data sets and over time. It is short term variations over time often give hints as to where the market is headed.
The chart below covers the past year showing the SPX in red and an ADL calculated from NYSE data in blue. The NYSE ADL was very strong until April of this year when it began weakening. Prices held up for several months before catching up with the ADL to the downside. The NYSE ADL has been failing to keep up with prices for the past month.
The next chart is similar to the one above except it shows the OTC in blue and the OTC ADL, in green, has been calculated from NASDAQ data.
The OTC ADL has never been as strong as the NYSE ADL, but the patterns are similar. The OTC ADL also peaked last April and remained very weak during the rally off the late September low.
The positives
The breadth indicators have been weak, but Seasonality the remainder of the year is pretty strong.
Seasonality
Next week includes the week of Thanksgiving during the 3rd year of the Presidential Cycle. The tables below show the daily change, on a percentage basis for that period.
OTC data covers the period from 1963 to 2014 while SPX data runs from 1953 to 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 week of Thanksgiving have been modestly positive, but weaker during the 3rd year of the Presidential Cycle than other years and weaker in recent years than the historical average.
Report for the 3 days before Thanksgiving and 1 day after.
Day1 = the day after
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 | |||||
| Day4 | Day3 | Day2 | Day1 | Totals | |
| 1963-3 | -1.20% 5 | -1.48% 2 | 0.97% 3 | 0.09% 5 | -1.62% |
| 1967-3 | -1.99% 1 | 1.11% 2 | 1.62% 3 | 1.02% 5 | 1.76% |
| 1971-3 | -1.13% 1 | -1.45% 2 | 0.09% 3 | 1.24% 5 | -1.26% |
| 1975-3 | 0.23% 1 | 0.33% 2 | 0.49% 3 | 0.31% 5 | 1.36% |
| 1979-3 | 0.65% 1 | -0.34% 2 | -0.44% 3 | 0.70% 5 | 0.57% |
| 1983-3 | 0.63% 1 | 0.53% 2 | 0.05% 3 | 0.28% 5 | 1.49% |
| 1987-3 | 0.20% 1 | 1.13% 2 | 0.35% 3 | -0.41% 5 | 1.27% |
| 1991-3 | -0.68% 1 | -0.12% 2 | 0.11% 3 | 0.21% 5 | -0.48% |
| Avg | 0.21% | 0.31% | 0.11% | 0.22% | 0.84% |
| 1995-3 | -1.48% 1 | -0.44% 2 | -0.37% 3 | 0.88% 5 | -1.41% |
| 1999-3 | 0.69% 1 | -1.46% 2 | 2.32% 3 | 0.80% 5 | 2.35% |
| 2003-3 | 2.81% 1 | -0.21% 2 | 0.53% 3 | 0.36% 5 | 3.49% |
| 2007-3 | -1.66% 1 | 0.13% 2 | -1.33% 3 | 1.34% 5 | -1.52% |
| 2011-3 | -1.92% 1 | -0.07% 2 | -2.43% 3 | -0.75% 5 | -5.17% |
| Avg | -0.31% | -0.41% | -0.26% | 0.52% | -0.45% |
| OTC summary for Presidential Year 3 1963 - 2011 | |||||
| Averages | -0.37% | -0.18% | 0.15% | 0.47% | 0.06% |
| % Winners | 46% | 38% | 69% | 85% | 54% |
| MDD 11/25/2011 5.09% -- 11/21/2007 2.85% -- 11/26/1963 2.67% | |||||
| OTC summary for all years 1963 - 2014 | |||||
| Averages | -0.04% | -0.19% | 0.36% | 0.47% | 0.60% |
| % Winners | 50% | 53% | 77% | 81% | 65% |
| SPX Presidential Year 3 | |||||
| Day4 | Day3 | Day2 | Day1 | Totals | |
| 1955-3 | -0.70% 1 | 0.97% 2 | 0.13% 3 | -0.09% 5 | 0.31% |
| 1959-3 | 0.19% 1 | 0.47% 2 | 0.16% 3 | 0.45% 5 | 1.28% |
| 1963-3 | -2.81% 5 | 3.98% 2 | -0.18% 3 | 1.36% 5 | 2.35% |
| 1967-3 | -1.26% 1 | 1.58% 2 | 0.59% 3 | 0.27% 5 | 1.18% |
| 1971-3 | -0.90% 1 | -0.69% 2 | 0.19% 3 | 1.78% 5 | 0.38% |
| Avg | -1.09% | 1.26% | 0.18% | 0.75% | 1.10% |
| 1975-3 | 0.19% 1 | 1.13% 2 | 0.25% 3 | 0.33% 5 | 1.90% |
| 1979-3 | 0.42% 1 | -0.52% 2 | 0.19% 3 | 0.75% 5 | 0.85% |
| 1983-3 | 0.58% 1 | 0.48% 2 | 0.07% 3 | 0.13% 5 | 1.26% |
| 1987-3 | 0.41% 1 | 1.40% 2 | -0.93% 3 | -1.54% 5 | -0.66% |
| 1991-3 | -0.21% 1 | 0.70% 2 | -0.37% 3 | -0.35% 5 | -0.24% |
| Avg | 0.28% | 0.64% | -0.16% | -0.14% | 0.62% |
| 1995-3 | -0.54% 1 | 0.57% 2 | -0.31% 3 | 0.26% 5 | -0.01% |
| 1999-3 | -0.08% 1 | -1.14% 2 | 0.88% 3 | -0.04% 5 | -0.37% |
| 2003-3 | 1.62% 1 | 0.17% 2 | 0.43% 3 | -0.02% 5 | 2.20% |
| 2007-3 | -1.75% 1 | 0.45% 2 | -1.59% 3 | 1.69% 5 | -1.20% |
| 2011-3 | -1.86% 1 | -0.41% 2 | -2.21% 3 | -0.27% 5 | -4.76% |
| Avg | -0.52% | -0.07% | -0.56% | 0.32% | -0.83% |
| SPX summary for Presidential Year 3 1955 - 2011 | |||||
| Averages | -0.45% | 0.61% | -0.18% | 0.31% | 0.30% |
| % Winners | 40% | 73% | 60% | 60% | 60% |
| MDD 11/25/2011 4.69% -- 11/21/2007 2.88% -- 11/22/1963 2.81% | |||||
| SPX summary for all years 1953 - 2014 | |||||
| Averages | -0.11% | 0.08% | 0.35% | 0.36% | 0.69% |
| % Winners | 44% | 59% | 79% | 73% | 68% |
Money supply (M2)
The money supply chart was provided by Gordon Harms. Money supply growth weakened again last week.
Conclusion
Weakness in the breadth indicators leads me to think the rally off the late September low was not the beginning of a new up leg, but a countertrend rally.
I expect the major averages to be lower on Friday November 27 than they were on Friday November 20.
Last weeks negative forecast was a miss.
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Good Luck,
YTD W 18 / L 16 / T 12
