The good news is: Seasonality has been strong for the next month.
The Negatives
New lows remained at threatening levels again last week. A Hindenburg Omen was triggered last Wednesday and Friday when new highs and new lows both exceeded 2.6% of issues traded on the NYSE. The secondaries continued to underperform the blue chips.
The first chart covers the past 6 months showing the NASDAQ composite (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 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.
OTC HL Ratio finished the week at 32%, its lowest level since January.
The Positives
The all time highs for both the OTC & S&P 500 (SPX) 3 weeks ago were confirmed by most of the breadth indicators so new higher highs for the blue chip indices are likely.
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 finished the week at a barely positive 52%.
The next chart covers the past 6 months showing the OTC in blue and a 10% trend (19 day EMA) of NASDAQ new highs (OTC NH) in green.
This one is not very pretty, OTC NH has been falling, but it does show the confirmation of the OTC high about a month ago.
The next chart is similar to the one above, except, it shows the SPX in red and NY NH, in green has been calculated with NYSE data.
NY NH has been holding up better than OTC NH.
Seasonality
Next week includes the last 4 trading days of May 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 2018 while SPX data runs from 1928 to 2018. There are summaries for both the 3rd year of the Presidential Cycle and all years combined.
Average returns for the coming week have been modestly positive by all measures.
Report for the last 4 days of May.
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 (PY3)
Day4 Day3 Day2 Day1 Totals
1963-3 0.27% 1 0.24% 2 0.09% 3 1.05% 5 1.65%
1967-3 -0.90% 4 0.87% 5 -0.16% 1 -0.63% 3 -0.82%
1971-3 -0.85% 2 0.03% 3 0.07% 4 0.60% 5 -0.15%
1975-3 -0.16% 2 -0.62% 3 -0.24% 4 1.61% 5 0.59%
1979-3 0.44% 5 -0.17% 2 -0.81% 3 0.02% 4 -0.51%
1983-3 0.59% 3 0.72% 4 0.21% 5 -1.06% 2 0.45%
1987-3 0.99% 2 0.28% 3 0.43% 4 0.53% 5 2.23%
1991-3 0.92% 2 0.37% 3 0.83% 4 0.58% 5 2.70%
1995-3 -0.08% 4 -0.62% 5 -1.51% 2 0.68% 3 -1.52%
Avg 0.57% 0.12% -0.17% 0.15% 0.67%
1999-3 -2.97% 2 1.81% 3 -0.20% 4 2.12% 5 0.77%
2003-3 3.09% 2 0.42% 3 0.75% 4 1.33% 5 5.59%
2007-3 0.76% 5 0.58% 2 0.80% 3 0.46% 4 2.60%
2011-3 0.55% 3 0.78% 4 0.50% 5 1.37% 2 3.21%
2015-3 -1.11% 2 1.47% 3 -0.17% 4 -0.55% 5 -0.36%
Avg 0.06% 1.01% 0.34% 0.95% 2.36%
OTC summary for PY3 1963 - 2015
Averages 0.11% 0.44% 0.04% 0.58% 1.17%
% Winners 57% 79% 57% 79% 64%
MDD 5/25/1999 2.97% -- 5/30/1995 2.20% -- 5/26/2015 1.11%
OTC summary for all years 1963 - 2018
Averages 0.11% 0.05% 0.26% 0.22% 0.64%
% Winners 55% 61% 59% 64% 63%
MDD 5/30/2001 8.65% -- 5/27/1970 3.17% -- 5/25/1999 2.97%
SPX PY3
Day4 Day3 Day2 Day1 Totals
1931-3 0.07% 2 -1.12% 3 0.38% 4 -2.18% 5 -2.85%
1935-3 0.70% 1 -1.79% 2 -1.62% 3 -1.14% 5 -3.85%
1939-3 0.35% 5 0.61% 6 0.78% 1 -0.43% 3 1.31%
1943-3 0.76% 3 0.25% 4 0.25% 5 0.50% 6 1.75%
1947-3 -0.49% 1 -0.14% 2 1.56% 3 0.77% 4 1.69%
1951-3 0.24% 6 0.62% 1 0.66% 2 0.80% 4 2.31%
1955-3 0.37% 3 0.66% 4 0.21% 5 -0.05% 2 1.20%
Avg 0.24% 0.40% 0.69% 0.32% 1.65%
1959-3 -0.15% 2 0.17% 3 0.34% 4 0.50% 5 0.86%
1963-3 -0.21% 1 0.20% 2 0.46% 3 0.67% 5 1.11%
1967-3 1.12% 4 -0.23% 5 -0.54% 1 -1.56% 3 -1.21%
1971-3 -0.66% 2 0.12% 3 -0.19% 4 0.23% 5 -0.50%
1975-3 -0.26% 2 -0.70% 3 -0.03% 4 1.64% 5 0.64%
Avg -0.03% -0.09% 0.01% 0.30% 0.18%
1979-3 0.29% 5 -0.17% 2 -0.94% 3 -0.03% 4 -0.85%
1983-3 0.40% 3 -0.44% 4 -0.62% 5 -1.26% 2 -1.91%
1987-3 2.46% 2 -0.13% 3 0.70% 4 -0.23% 5 2.81%
1991-3 1.18% 2 0.22% 3 1.09% 4 0.74% 5 3.23%
1995-3 0.00% 4 -0.93% 5 -0.01% 2 1.88% 3 0.92%
Avg 0.87% -0.29% 0.04% 0.22% 0.84%
1999-3 -1.71% 2 1.59% 3 -1.79% 4 1.59% 5 -0.32%
2003-3 1.96% 2 0.18% 3 -0.38% 4 1.47% 5 3.23%
2007-3 0.55% 5 0.16% 2 0.80% 3 0.03% 4 1.53%
2011-3 0.32% 3 0.40% 4 0.41% 5 1.06% 2 2.18%
2015-3 -1.03% 2 0.92% 3 -0.13% 4 -0.63% 5 -0.87%
Avg 0.02% 0.65% -0.22% 0.70% 1.15%
SPX summary for PY3 1931 - 2015
Averages 0.28% 0.02% 0.06% 0.20% 0.56%
% Winners 64% 59% 55% 59% 64%
MDD 5/31/1935 4.49% -- 5/29/1931 2.91% -- 5/31/1967 2.31%
SPX summary for all years 1928 - 2018
Averages 0.09% -0.05% 0.23% 0.02% 0.29%
% Winners 57% 48% 61% 56% 62%
MDD 5/31/1932 12.52% -- 5/28/1962 8.45% -- 5/31/1935 4.49%
Conclusion
Confirmations of the index highs 3 weeks ago imply higher prices ahead. If deterioration of the breadth indicators along with lagging secondaries continues, we will have a good setup for a cycle top when the blue-chip indices hit their likely new highs.
I expect the major averages to be higher on Friday, May 31 than they were on Friday, May 24.
Last weeks positive forecast was a miss.
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