The good news is:
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The S&P 500 (SPX), NASDAQ composite (OTC) and Dow Jones Industrial Average all closed at all time highs on Friday. The Russell 2000 closed at an all time high last Thursday.
The Negatives
The market is overbought.
The Positives
Breadth is the strongest it has been in years.
The first chart covers the past 6 months showing the 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 finished the week at a 6 month high, confirming the index high.
The next chart is similar to the one above except it shows the OTC in blue and OTC NH, in green, has been calculated with NASDAQ data.
OTC NH also rose to confirm the index high.
The next chart 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 50%, neutral, level.
OTC HL Ratio rose 94.4%, its highest level since 2014.
The next chart is similar to the one above except it shows the SPX in red and NY HL Ratio, in blue, has been calculated with NYSE data.
NY HL Ratio rose to 97.1, its highest level since 2013.
The high levels of the HL ratios imply higher prices before this cycle is over.
Seasonality
Next week includes the 4 trading days prior to and including the 4th Friday of January during the 4th year of the Presidential Cycle. The market will be closed Monday in observance of the Martin Luther King holiday. The tables below show the daily change, on a percentage basis, for that period.
OTC data covers the period from 1963 to 2018 while SPX data runs from 1953 to 2018. There are summaries for both the 4th 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 mostly positive.
Report for the week before the 4th Friday of January.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday through the 4th Friday.
OTC Presidential Year 4 (PY4)
Year Mon Tue Wed Thur FriTotals
1964-4 0.00% -0.76% 0.14% -0.22% 0.36%-0.49%
1968-4 0.00% -0.94%-0.72% -0.08% -0.34%-2.08%
1972-4-0.61% -0.16% 0.08% 0.84% 0.91% 1.05%
1976-4 0.51% 0.20% 0.06% -0.39% 0.76% 1.14%
1980-4 0.77% -0.27% 1.01% 0.47% 0.29% 2.26%
1984-4-1.48% -0.49%-0.53% -0.63% -0.88%-4.01%
1988-4 0.86% -0.38% 0.17% 0.75% 0.67% 2.08%
1992-4-1.19% -2.36% 2.64% 0.35% 0.29%-0.28%
1996-4 1.07% -0.14% 1.51% -0.72% 0.48% 2.21%
Avg0.01% -0.73% 0.96% 0.05% 0.17% 0.45%
2000-4-3.29% 1.74%-2.34% -0.74% -3.78%-8.41%
2004-4 0.00% 0.35%-0.26% -1.09% 0.23% -0.77%
2008-4 0.00% -2.04% 1.05% 1.92% -1.47%-0.54%
2012-4-0.09% 0.09% 1.14% -0.46% 0.40% 1.07%
2016-4-1.58% 1.09%-2.18% 0.86% 2.38% 0.57%
Avg -1.65% 0.25%-0.52% 0.10% -0.45%-1.61%
OTC summary for PY4 1964 - 2016
Avg -0.50% -0.29% 0.13% 0.06% 0.02%-0.44%
Win% 40% 36% 64% 43% 71% 50%
OTC summary for all years 1963 - 2019
Avg -0.16% -0.06% 0.23% 0.11% 0.06% 0.21%
Win% 52% 52% 58% 47% 70% 61%
SPX PY4
Year Mon Tue Wed Thur FriTotals
1956-4-0.25% 1.25% 0.16% -0.59% -0.25% 0.31%
1960-4-1.05% 0.14%-0.25% -1.04% -0.93%-3.12%
1964-4-0.20% 0.27% 0.54% 0.08% 0.03% 0.72%
1968-4-1.27% -0.39%-0.52% 0.14% 0.16%-1.89%
1972-4-1.04% 0.20%-0.27% 0.98% 0.64% 0.50%
1976-4 1.36% 0.55%-0.63% -0.20% 1.19% 2.27%
Avg -0.44% 0.16%-0.23% -0.01% 0.22%-0.30%
1980-4 0.93% -0.53% 1.73% 0.23% -0.08% 2.28%
1984-4-0.81% 0.65%-0.66% -0.36% -0.18%-1.37%
1988-4 2.30% -1.03%-0.08% 1.57% 1.49% 4.25%
1992-4-0.60% -0.89% 1.33% -0.76% 0.13%-0.79%
1996-4 0.26% -0.10% 1.17% -0.47% 0.74% 1.60%
Avg0.42% -0.38% 0.70% 0.04% 0.42% 1.19%
2000-4-2.74% 0.58%-0.42% -0.39% -2.75%-5.72%
2004-4 0.00% -0.09% 0.78% -0.32% -0.21% 0.15%
2008-4 0.00% -1.11% 2.14% 1.01% -1.59% 0.45%
2012-4 0.05% -0.10% 0.87% -0.58% -0.16% 0.08%
2016-4-1.56% 1.41%-1.09% 0.55% 2.48% 1.79%
Avg -1.42% 0.14% 0.46% 0.05% -0.44%-0.65%
SPX summary for PY4 1956 - 2016
Avg -0.33% 0.05% 0.30% -0.01% 0.04% 0.10%
Win% 36% 50% 50% 44% 50% 69%
SPX summary for all years 1953 - 2019
Avg -0.12% 0.03% 0.20% 0.13% 0.03% 0.29%
Win% 51% 61% 58% 59% 55% 66%
Money supply (M2) and Interest Rates
The following charts were supplied by Gordon Harms.
M2 growth leveled off from its accelerated pace.
Interest rates at their close last Friday and their changes from last month:
2yr yield 1.563% down from 1.610%
5yr yield 1.621% down from 1.657%
10yr yield 1.823% down from 1.827%
30yr yield 2.283% up from 2.255%
The next chart is a close up showing just the past year from the chart above.
Conclusion
The market is overbought. Other than that there is not much to complain about. The worst performing sectors have been energy and precious metals, the best, Technology and Utilities.
I expect the major averages to be higher on Friday January 24 than they were on Friday January 17.
Comments
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