The good news is new lows did not increase significantly on Thursday when the market tumbled.

The Negatives

The Plunge Protection Team (PPT) AKA President's Working Group on Financial Markets fell asleep at the wheel last Thursday.

The first 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.Dashed vertical lines have been drawn of the 1st trading day of each month.

The weakness of OTC NH indicates minimal broad market support.

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.

Ditto the NYSE.

The Positives

On Thursday when the major indices fell 6% - 7% there were only four new lows on the NYSE and 11 on the Nasdaq.

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.

It is remarkable that with a nearly 7% drop in the index this indicator remained above 80%. 

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.

The OTC had the smallest decline of the major indices while the Russell 2000, which is made up of mostly Nasdaq issues had the largest decline.Yet OTC HL Ratio also remained above 80%.

Seasonality

Next week includes the five trading days prior to the third Friday of June during the fourth 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 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.

Average returns for the coming week have been modestly negative by all measures.

Report for the week before the third Friday of June.

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

Daily returns from Monday through 3rd Friday.

OTC Presidential Year 4 (PY4)

 Year Mon Tue Wed Thur Fri Totals

 1964-4-0.13% 0.18% 0.46% 0.69% 0.05% 1.25%

 1968-4-0.34%-1.15% 0.00%-0.76%-0.14%-2.40%

 1972-4-0.15% 0.31% 0.51%-0.12%-0.01% 0.54%

 1976-4 0.79% 0.06% 0.54% 0.89% 0.37% 2.64%

 1980-4 0.13% 0.12% 0.13%-0.29%-0.14%-0.05%

 1984-4-0.93%-0.45% 0.31%-0.91% 0.01%-1.97%

 1988-4 0.14% 0.44% 0.14%-0.51%-0.05% 0.18%

 1992-4-0.09%-0.87%-1.92%-0.74% 0.92%-2.70%

 1996-4-0.42%-2.07%-0.51%-0.83% 0.69%-3.14%

 Avg -0.23%-0.57%-0.37%-0.66% 0.29%-1.54%

 2000-4-2.76% 2.21%-1.39% 1.27% 0.39%-0.29%

 2004-4-0.62% 1.00% 1.35%-0.27% 0.49% 1.95%

 2008-4 0.83%-0.69%-1.14% 1.33%-2.27%-1.94%

 2012-4-1.70% 1.19%-0.86% 0.63% 1.29% 0.54%

 2016-4-0.94%-0.10%-0.18% 0.21%-0.92%-1.93%

 Avg -1.04% 0.72%-0.45% 0.63%-0.21%-0.34%

OTC summary for PY4 1964 - 2016 

 Avg -0.44% 0.01%-0.20% 0.04% 0.05%-0.52%

 Win% 29% 57% 54% 43% 57% 43%

OTC summary for all years 1963 - 2019

 Avg -0.18% 0.17% 0.01% 0.00%-0.02%-0.02%

 Win% 44% 61% 61% 49% 54% 53%

SPX PY4

 Year Mon Tue Wed Thur Fri Totals

 1956-4 1.26% 1.42% 0.13%-0.24% 0.13% 2.71%

 1960-4 0.03%-0.14%-0.59%-0.12%-0.10%-0.92%

 1964-4 0.46% 0.54% 0.51%-0.02% 0.12% 1.61%

 1968-4-0.99%-0.14% 0.00% 0.52% 0.15%-0.46%

 1972-4 0.14% 0.50% 0.78% 0.05%-0.07% 1.40%

 1976-4 1.02%-0.48% 0.54% 1.57% 0.14% 2.80%

 Avg0.13% 0.06% 0.31% 0.40% 0.05% 0.89%

 1980-4 0.24%-0.05% 0.20%-1.38%-0.52%-1.51%

 1984-4-1.36%-0.57%-0.04%-1.14%-0.90%-4.02%

 1988-4 0.06% 1.06% 0.05%-1.71% 0.34%-0.19%

 1992-4 0.13%-0.48%-1.48%-0.32% 0.68%-1.48%

 1996-4-0.10%-0.47%-0.02% 0.02% 0.72% 0.15%

 Avg -0.21%-0.10%-0.26%-0.91% 0.06%-1.41%

 2000-4-0.75% 1.62% 0.07% 0.55%-0.95% 0.54%

 2004-4-0.42% 0.36% 0.85%-0.30%-0.55%-0.04%

 2008-4 0.01%-0.68%-0.97% 0.38%-1.85%-3.12%

 2012-4-1.26% 1.17%-0.70% 1.08% 1.03% 1.32%

 2016-4-0.81%-0.18%-0.18% 0.31%-0.33%-1.19%

 Avg -0.65% 0.46%-0.19% 0.40%-0.53%-0.50%

SPX summary for PY4 1956 - 2016 

 Avg -0.15% 0.22%-0.06%-0.05%-0.12%-0.15%

 Win% 56% 44% 53% 50% 50% 44%

SPX summary for all years 1953 - 2019

 Avg -0.08% 0.17%-0.01%-0.12%-0.01%-0.05%

 Win% 57% 58% 47% 49% 57% 55%

Money supply (M2) and Interest Rates

The following charts were supplied by Gordon Harms.

M2 appears to be leveling off at its substantially elevated level.

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

2yr yield 0.205% up from 0.149%

5yr yield 0.337% up from 0.310%

10yr yield 0.704% up from 0.646%

30yr yield 1.458% up from 1.330%

The PPT is being careful to not let the yield curve invert.

The next chart is a close up showing just the past year from the chart above.

Conclusion

The PPT slipped up Thursday, but new lows did not rise significantly so the market is likely to be OK for a little while. Big tech is the sector that is holding the market up similar to 1999 – 2000.

The strongest sectors last week were Energy Services and Finance; the weakest were Health Care and Utilities. During the shut down the government put a knee to the throat of Health Care. It will be interesting to see how it survives.

I expect the major averages to be higher on Friday June 19 than they were on Friday June 12.In the PPT I trust.

Last weeks positive forecast was a miss.