The good news is the small caps represented by the Russell 2000 (R2K) led the way up (18.5% in 4 days) last week.
The Negatives
The government is still demanding economic activity be kept to a minimum, but now the Fed is shoveling money out the door at a record level (actually not quite a record – 50 billion a day down from 75 billion a day). That money has nowhere to go but the market.
The Positives
Last week I wrote: “There will be nothing positive as long as all discretionary economic activity is forbidden.” I failed to consider the effect of a massive fiscal stimulus.
The first chart covers the past six months showing the NASDAQ composite (OTC) in blue and a 10% trend (19 day EMA) of NASDAQ new lows (OTC NL) in black. OTC NL has been plotted on an inverted Y axis so decreasing new lows move the indicator upward. Dashed vertical lines have been drawn on the 1st trading day of each month.
New lows have disappeared.
The next chart is similar to the 1st one except it shows the S&P 500 (SPX) in red and NY NL in blue, has been calculated with NYSE data.
No new lows here.
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 50%, neutral, level.
NY HL Ratio at 54% went positive 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 with NASDAQ data.
OTC HL Ratio has not gone positive, but probably will in a few days with the massive stimulus we are witnessing.
Seasonality
Next week includes the five trading days prior to the third Friday of April during the fourth year of the Presidential Cycle. The tables below show the daily change, on a percentage basis, for that period. The program that generates these tables counts Fridays that the market is open so there are many errors since Good Friday usually falls sometime in April.
OTC data covers the period from 1963 to 2019 while SPX data runs from 1953 to 2019. There are summaries for both the fourth year of the Presidential Cycle and all years combined. Prior to 1953 the market traded six days a week so that data has been ignored.
Historically, this has been a pretty good week. With everything else going on Seasonality does not have much relevance.
Report for the week before the 3rd Friday of April
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday through 3rd Friday.
Break down by Presidential Year
OTC Presidential Year 4 (PY4)
Year Mon Tue Wed Thur FriTotals
1964-4 0.00% 0.23% 0.26% 0.31% 0.39% 1.19%
1968-4 0.13% -0.17% 0.25% 0.95% 1.87% 3.05%
1972-4-0.10% 0.27%-1.06% 0.14% 0.11%-0.65%
1976-4 0.47% 1.14% 0.18% 0.21% -0.40% 1.60%
1980-4-1.17% 1.98% 0.89% 1.29% -0.56% 2.43%
1984-4-0.64% 0.05%-0.07% 0.83% 0.39% 0.57%
1988-4 0.32% 0.47%-0.70% -0.28% 0.23% 0.04%
1992-4-2.47% -0.37% 0.55% -0.38% -0.55%-3.21%
1996-4 1.30% 1.15% 0.86% 0.63% 0.23% 4.17%
Avg -0.53% 0.66% 0.31% 0.42% -0.05% 0.80%
2000-4-4.43% 6.57%-2.19% 3.96% 2.30% 6.21%
2004-4 1.24% -2.07% 0.86% 1.87% 0.83% 2.72%
2008-4-0.63% 0.45% 2.80% -0.35% 2.61% 4.88%
2012-4-1.00% -0.30% 2.30% 0.69% 0.61% 2.30%
2016-4-0.36% 0.80% 1.55% -0.03% -0.16% 1.80%
Avg -1.04% 1.09% 1.06% 1.23% 1.24% 3.58%
OTC summary for PY4 1964 - 2016
Avg -0.56% 0.73% 0.46% 0.70% 0.57% 1.94%
Win% 38% 71% 71% 71% 71% 86%
OTC summary for all years 1963 - 2019
Avg -0.33% 0.37% 0.26% 0.24% 0.12% 0.66%
Win% 48% 61% 68% 63% 61% 70%
SPX PY4
Year Mon Tue Wed Thur FriTotals
1956-4 0.02% -0.06%-0.40% -0.36% 0.40% -0.39%
1960-4 0.28% -0.81%-1.23% 0.27% -0.31%-1.79%
1964-4-0.10% 0.28% 0.13% 0.14% 0.44% 0.87%
1968-4-0.55% 1.22% 0.15% 0.31% 0.30% 1.42%
1972-4-0.30% 0.24%-0.52% -0.15% -0.14%-0.87%
1976-4 0.76% 1.41% 0.44% -0.33% -0.67% 1.61%
Avg0.02% 0.47%-0.21% 0.05% -0.08% 0.25%
1980-4-0.75% 3.64% 0.29% 0.65% 0.73% 4.56%
1984-4-0.77% 0.81% 0.37% 1.04% -0.26% 1.19%
1988-4-0.22% -0.50%-0.69% 0.11% 1.45% 0.16%
1992-4-1.42% 0.02%-0.11% 0.44% -0.63%-1.69%
1996-4 0.44% 0.57%-0.22% 0.42% 0.09% 1.30%
Avg -0.54% 0.91%-0.07% 0.53% 0.28% 1.10%
2000-4-0.32% 3.30%-1.09% 0.27% -0.85% 1.30%
2004-4 0.11% -1.56% 0.53% 1.41% 0.06% 0.55%
2008-4-0.34% 0.46% 2.27% 0.06% 1.81% 4.27%
2012-4-0.84% 0.37% 1.36% 0.67% 0.24% 1.80%
2016-4-0.27% 0.97% 1.00% 0.02% -0.10% 1.62%
Avg -0.33% 0.71% 0.82% 0.48% 0.23% 1.91%
SPX summary for PY4 1956 - 2016
Avg -0.27% 0.65% 0.14% 0.31% 0.16% 0.99%
Win% 31% 75% 56% 81% 56% 75%
SPX summary for all years 1953 - 2019
Avg -0.11% 0.33% 0.08% 0.10% -0.04% 0.37%
Win% 49% 57% 58% 63% 49% 67%
Conclusion
The government is indiscriminately shoveling money into the economy to make their destruction of the marginal economy appear inconsequential. It is difficult to imagine a good result in the longer run, however, for now money has nowhere to go but the market.
The strongest sectors last week were small caps, Precious metals and Utilities; the weakest were Leisure and Energy. I expect the major averages to be higher on April 17 than they were on April 9.
Last weeks negative forecast was a miss.
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