The good news is:

• There has been no buildup of new lows on the NYSE.  

The Negatives

New highs continued their decline.

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 the month.

OTC NH continued falling last week.

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.

The Positives

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 remained in positive territory. 

The next chart is similar to the previous one except it shows the SPX in red and NY HL ratio, in blue, has been calculated with NYSE data.

NY HL ratio rose slightly finishing the week at 87%, very strong.  

Seasonality

Next week includes the 5 trading days prior to the 4th Friday of February 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 2021 while SPX data runs from 1953 to 2021.  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 coming week have been mixed. 

Report for the week before the 4th Friday of February.

The number following the year is the position in the Presidential Cycle.

Daily returns from Monday through the 4th Friday.


OTC Presidential Year 3 (PY3)

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1963-3   0.00%   0.00%   0.00%   0.00%   0.00%   0.00%

 1967-3  -0.05%   0.19%   0.00%   0.50%   0.76%   1.40%

 1971-3  -1.01%   0.04%   0.92%   0.59%   0.11%   0.64%

 1975-3  -0.88%  -1.46%   0.24%   0.40%   0.65%  -1.06%

 1979-3   0.00%   0.21%  -0.26%  -0.04%  -0.33%  -0.42%


 Avg     -0.65%  -0.26%   0.30%   0.36%   0.30%   0.14%


 1983-3   0.00%  -0.81%   0.31%   0.89%   0.05%   0.45%

 1987-3  -0.48%   0.52%   0.87%   0.24%   0.70%   1.84%

 1991-3   0.00%   0.36%  -0.95%   0.08%   0.58%   0.06%

 1995-3   0.00%  -0.30%   0.42%   0.43%  -0.03%   0.52%

 1999-3   2.56%   1.43%  -1.52%  -0.54%  -1.67%   0.26%


 Avg      1.04%   0.24%  -0.17%   0.22%  -0.07%   0.63%


 2003-3  -1.97%   0.50%  -1.90%   1.55%   1.03%  -0.80%

 2007-3   0.00%   0.67%   0.21%   0.26%  -0.39%   0.75%

 2011-3   0.00%  -2.74%  -1.21%   0.55%   1.58%  -1.82%

 2015-3   0.10%   0.14%  -0.02%   0.42%  -0.49%   0.15%

 2019-3   0.00%   0.19%   0.03%  -0.39%   0.91%   0.74%


 Avg     -0.94%  -0.25%  -0.58%   0.48%   0.53%  -0.20%


OTC summary for PY3 1963 - 2019 

 Avg     -0.25%  -0.08%  -0.22%   0.35%   0.25%   0.19%

 Win%       29%     71%     54%     79%     64%     71%


OTC summary for all years 1963 - 2022

 Avg     -0.38%  -0.34%   0.14%  -0.04%   0.17%  -0.24%

 Win%       44%     38%     63%     59%     60%     60%


SPX PY3

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1955-3  -0.11%   0.00%  -0.08%  -0.54%  -0.14%  -0.87%

 1959-3   0.00%  -0.07%  -0.43%   0.18%   0.13%  -0.20%


 1963-3   0.00%   0.00%   0.00%   0.00%   0.00%   0.00%

 1967-3  -0.56%  -0.07%   0.00%   0.13%  -0.05%  -0.55%

 1971-3  -1.05%   0.39%   0.67%   0.20%  -0.18%   0.02%

 1975-3  -1.43%  -2.35%   1.06%   0.50%   1.02%  -1.20%

 1979-3   0.00%   0.76%  -0.35%  -0.75%  -0.56%  -0.90%


 Avg     -1.01%  -0.32%   0.46%   0.02%   0.06%  -0.66%


 1983-3   0.00%  -1.70%   0.90%   1.91%   0.09%   1.21%

 1987-3  -1.09%   0.18%   0.40%  -0.37%   0.44%  -0.44%

 1991-3   0.00%   0.09%  -1.15%  -0.05%   0.19%  -0.92%

 1995-3   0.00%   0.16%   0.49%   0.38%   0.28%   1.30%

 1999-3   2.65%  -0.07%  -1.40%  -0.67%  -0.54%  -0.02%


 Avg      0.78%  -0.27%  -0.15%   0.24%   0.09%   0.22%


 2003-3  -1.84%   0.72%  -1.31%   1.17%   0.46%  -0.79%

 2007-3   0.00%   0.28%  -0.14%  -0.09%  -0.36%  -0.30%

 2011-3   0.00%  -2.05%  -0.61%  -0.10%   1.06%  -1.71%

 2015-3  -0.03%   0.28%  -0.08%  -0.15%  -0.30%  -0.27%

 2019-3   0.00%   0.15%   0.18%  -0.35%   0.64%   0.62%


 Avg     -0.93%  -0.12%  -0.39%   0.10%   0.30%  -0.49%


SPX summary for PY3 1955 - 2019 

 Avg     -0.43%  -0.22%  -0.12%   0.09%   0.14%  -0.31%

 Win%       13%     60%     40%     44%     56%     25%


SPX summary for all years 1953 - 2022

 Avg     -0.27%  -0.22%   0.11%  -0.14%   0.14%  -0.23%

 Win%       37%     43%     50%     47%     61%     48%

Money supply (M2) and Interest Rates

The following charts were supplied by Gordon Harms.

The first chart, made with FastTrack, covers the past 5 years showing the SPX in red and M2 money supply in green.

Money supply has been declining slowely since late 2021.

Treasury rates at their close last Friday and their changes from last month:

• 2yr yield 4.630% up from 4.20%
• 5yr yield 4.034% up from 3.611%
• 10yr yield 3.822% up from 3.505% 
• 30yr yield 3.871% up from 3.614%

Everything is inverted (shorter term maturities yield more than longer term maturities) except the 30 year to the 10 year and 5 year.

The next chart covers the past 15 months showing the 30 year yield over the 5 year yield on top, The 1, 2, 5, 10 & 30 year treasury rates in the middle group and the SPX with a 50 day simple moving average on the bottom.

Conclusion

The markets' mixed performance last week during what has seasonally been one of the strongest weeks of the year, I take as a bad sign.

The strongest sectors last week were Telecomm and Utilities while the weakest were Energy and Precious metals (for the 3rd week).

I expect the major averages to be higher on Friday, February 24, than they were on Friday, February 17.

Last week the Dow Jones Industrial Average and the SPX were down while the OTC and Russell 2000 were up.  So I am calling last week's positive forecast a tie.

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