The good news is:
The market is oversold and due for a bounce.
The Negatives
The first chart covers the last 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.
OTC NH continued to fall last week.
At a value of 32, it does not have much further it can go.
The next chart is similar to the one above except it shows the S&P 500 (SPX) in red and NY NH in green has been calculated with NYSE data.
NY NH also continued falling.
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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 (equal numbers of new highs and new lows).
OTC HL Ratio fell well into negative territory last week. The last time during this 6 month period OTC HL Ratio was near this level there was a big bounce.
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 also fell into negative territory.
The next chart covers the past 6 months showing the SPX in red and a 10% trend (19 day EMA) of NYSE new lows (NY NL) in blue. NY NL has been plotted on an inverted Y axis so decreasing numbers of new lows move the indicator upward (up is good).
NY NL turned downward last week.
The Positives
The next chart is similar to the one above except it shows the OTC in blue and OTC NL, in brown, has been calculated with NASDAQ data.
OTC NL fell last week, but, so far, it has remained in a positive trend.
Seasonality
Next week includes the 5 trading days prior to the 3rd Friday of March during the 2nd 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 2025 while SPX data runs from 1953 to 2025. There are summaries for both the 2nd 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.
Seasonality for the coming week has been positive by all measures and stronger during the 2nd year of the Presidential Cycle than other years.
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 Frida
OTC Presidential Year 2 (PY2)
Year Mon Tue Wed Thur Fri Totals
1966-2 -0.19% -0.92% -0.63% 0.23% 0.28% -1.22%
1970-2 -2.13% -0.76% 1.04% 0.17% 0.06% -1.62%
1974-2 0.74% -0.07% 0.55% 0.19% 0.02% 1.42%
1978-2 0.11% 0.13% 0.14% 0.56% 0.54% 1.46%
1982-2 -0.18% 0.21% -0.05% 1.15% 0.96% 2.09%
Avg -0.33% -0.28% 0.21% 0.46% 0.37% 0.43%
1986-2 -0.47% 0.38% 0.05% 0.27% -0.03% 0.21%
1990-2 -0.05% -0.45% 0.36% 0.44% 0.94% 1.24%
1994-2 0.46% 0.09% 0.69% 0.61% 0.01% 1.85%
1998-2 0.93% -0.50% 0.51% 0.65% -0.60% 0.99%
2002-2 -0.01% -1.68% -1.85% -0.42% 0.76% -3.20%
Avg 0.17% -0.43% -0.05% 0.31% 0.22% 0.22%
2006-2 0.22% 1.27% 0.69% -0.53% 0.30% 1.96%
2010-2 -0.23% 0.67% 0.47% 0.09% -0.71% 0.29%
2014-2 0.81% 1.25% -0.59% 0.27% -0.98% 0.75%
2018-2 0.36% -1.01% -0.19% -0.20% 0.00% -1.04%
2022-2 -2.04% 2.92% 3.77% 1.33% 2.05% 8.02%
Avg -0.18% 1.02% 0.83% 0.19% 0.13% 2.00%
OTC summary for PY2 1966 - 2022
Avg -0.11% 0.10% 0.33% 0.32% 0.24% 0.88%
Win% 47% 53% 67% 80% 73% 73%
OTC summary for all years 1963 - 2025
Avg -0.28% 0.24% 0.04% 0.19% -0.11% 0.08%
Win% 54% 57% 65% 70% 52% 59%
SPX PY2
Year Mon Tue Wed Thur Fri Totals
1954-2 -0.45% -0.04% 0.23% 0.41% 0.30% 0.45%
1958-2 -0.69% -0.36% 0.48% 0.05% 0.74% 0.22%
1962-2 -0.03% 0.28% 0.44% 0.21% -0.17% 0.74%
1966-2 -1.13% -0.57% 0.58% 0.35% 0.41% -0.35%
1970-2 -1.08% 0.44% 0.29% -0.14% -0.41% -0.91%
1974-2 1.12% 0.27% 0.60% -0.09% -0.37% 1.53%
1978-2 0.08% 0.45% -0.26% 0.44% 0.77% 1.48%
1982-2 0.77% -0.16% -0.18% 1.12% 0.28% 1.83%
Avg -0.05% 0.09% 0.20% 0.34% 0.14% 0.72%
1986-2 -0.79% 0.47% -0.08% 0.40% -1.35% -1.35%
1990-2 0.22% -0.79% 0.26% 0.36% 1.14% 1.18%
1994-2 0.20% -0.08% 0.52% 0.32% 0.03% 0.99%
1998-2 1.00% 0.11% 0.46% 0.39% 0.87% 2.83%
2002-2 0.34% -0.23% -0.99% -0.09% 1.14% 0.17%
Avg 0.19% -0.10% 0.04% 0.27% 0.37% 0.76%
2006-2 0.20% 1.04% 0.43% 0.18% 0.15% 1.99%
2010-2 0.05% 0.78% 0.58% -0.03% -0.51% 0.86%
2014-2 0.96% 0.72% -0.61% 0.60% -0.29% 1.38%
2018-2 -0.13% -0.64% -0.57% -0.08% 0.17% -1.24%
2022-2 -0.74% 2.14% 2.24% 1.23% 1.17% 6.04%
Avg 0.07% 0.81% 0.41% 0.38% 0.14% 1.81%
SPX summary for PY2 1954 - 2022
Avg 0.00% 0.21% 0.24% 0.31% 0.23% 0.99%
Win% 56% 56% 67% 72% 67% 78%
SPX summary for all years 1953 - 2025
Avg -0.10% 0.30% 0.10% 0.20% -0.05% 0.46%
Win% 61% 56% 59% 56% 56% 63%
Money supply (M2) and Interest Rates
The following charts were supplied by Gordon Harms. The charts were made with FastTrack.
The first chart covers the period from 1988 to the present showing the M2 money supply in red.
Treasury rates at their close last Friday and their changes from last month:
2yr yield 3.734% up from 3.482%
5yr yield 3.860% up from 3.646%
10yr yield 4.282% up from 4.091%
30yr yield 4.903% up from 4.726%
The next chart covers the past year showing a relative comparison of US treasuries. 2 year in red, 5 year in green, 10 year in yellow and 30 year in purple.
Conclusion
The market is oversold and ripe for a bounce. However, when looking for a bottom, there has been no capitulation, no volume spike and new lows have increased, but not dramatically.
Seasonality for next week has been positive.
There is no evidence of a cycle bottom.
The annual seasonal pattern calls for a rally sometime between now and late April when a cycle top is scheduled.
The strongest sectors last week were Energy (for the 2nd week in a row) and Utilities while the weakest were Transportation and Banks (for the 3rd week in a row).
I expect the major averages to be lower on Friday March 20 than they were on Friday March 13.
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