The good news is:

The NASDAQ composite (OTC) closed at all time highs last Wednesday.

 

The Negatives

The first chart covers the last 6 months showing the S&P 500 (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 1^st trading day of each month.  

NY NH has declined sharply since the beginning of this month.

The next chart is similar to the 1^st one except it shows the OTC in blue and OTC NH in green has been calculated with NASDAQ data.  

OTC NH also declined last week failing to confirm the new index high.

The next chart covers the past 6 months showing the OTC in blue and a 10% trend (19 day EMA) of NASDAQ new lows (OTC NL) in brown.  OTC NL has been plotted on an inverted Y axis so decreasing numbers of new lows move the indicator upward (up is good).  

OTC NL also moved downward last week.

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

NY NL also headed sharply downward.

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 sharply finishing the week at a modestly negative 48%.

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 sharply finishing the week at a modestly negative 49%. 

 

The Positives

By some measures the market is oversold.

Next week seasonality turns positive.

 

Seasonality

Next week includes the 5 trading days prior to the 3^rd Friday of December during the 4^th 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 2023 while SPX data runs from 1953 to 2023.  There are summaries for both the 4^th 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 modestly positive by all measures. 

 

Report for the week before the 3rd Friday of December.

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   0.41%  -0.05%  -0.21%   0.14%   0.11%   0.42%

 1968-4   0.03%   0.42%   0.00%  -0.29%  -0.08%   0.09%

 1972-4  -0.24%  -0.42%  -0.45%  -0.25%   0.15%  -1.20%

 1976-4   0.00%   0.03%   0.29%   0.01%  -0.31%   0.02%

 1980-4   0.32%   0.03%   1.12%   1.54%   0.46%   3.46%

 

 Avg      0.13%   0.00%   0.18%   0.23%   0.07%   0.56%

 

 1984-4  -0.24%   2.09%   0.59%  -0.16%  -0.09%   2.19%

 1988-4  -0.27%  -0.33%  -0.06%   0.06%   0.75%   0.16%

 1992-4  -0.16%  -0.61%  -0.17%   1.36%   0.43%   0.85%

 1996-4  -1.86%   0.42%   1.50%   0.82%  -0.56%   0.32%

 2000-4   3.35%  -2.76%  -3.72%  -3.34%  -2.76%  -9.23%

 

 Avg      0.16%  -0.24%  -0.37%  -0.25%  -0.45%  -1.14%

 

 2004-4   0.96%   0.53%   0.13%  -0.76%  -0.51%   0.34%

 2008-4  -2.10%   5.41%  -0.67%  -1.71%   0.77%   1.70%

 2012-4   1.32%   1.46%  -0.33%   0.20%  -0.96%   1.68%

 2016-4  -0.59%   0.95%  -0.50%   0.37%  -0.36%  -0.13%

 2020-4   0.50%   1.25%   0.50%   0.84%  -0.07%   3.02%

 

 Avg      0.02%   1.92%  -0.17%  -0.21%  -0.23%   1.32%

 

OTC summary for PY4 1964 - 2020 

 Avg      0.10%   0.56%  -0.14%  -0.08%  -0.20%   0.25%

 Win%       50%     67%     43%     60%     40%     80%

 

OTC summary for all years 1963 - 2023

 Avg     -0.03%   0.13%   0.02%  -0.09%   0.11%   0.14%

 Win%       53%     54%     52%     57%     57%     59%

 

SPX PY4

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1956-4   0.00%   0.00%  -0.24%  -0.78%   0.65%  -0.36%

 1960-4   0.35%   0.05%  -0.07%  -0.28%   0.92%   0.97%

 

 1964-4  -0.25%  -0.28%   0.40%   0.42%   0.46%   0.75%

 1968-4  -0.45%  -0.41%   0.00%   0.29%  -0.59%  -1.16%

 1972-4   0.22%  -0.39%  -0.08%  -0.27%   0.02%  -0.50%

 1976-4  -0.07%   0.42%   0.07%  -0.32%  -0.52%  -0.42%

 1980-4   0.17%   0.89%   1.75%   0.08%   0.53%   3.42%

 

 Avg     -0.08%   0.05%   0.53%   0.04%  -0.02%   0.42%

 

 1984-4   0.49%   2.83%  -0.57%  -0.47%  -0.52%   1.76%

 1988-4  -0.18%  -0.08%  -0.36%  -0.37%   0.73%  -0.26%

 1992-4  -0.21%  -0.06%  -0.24%   0.91%   1.34%   1.74%

 1996-4  -1.05%   0.70%   0.76%   1.94%   0.42%   2.77%

 2000-4   0.75%  -0.65%  -0.82%  -1.40%  -2.15%  -4.26%

 

 Avg     -0.04%   0.55%  -0.25%   0.12%  -0.03%   0.35%

 

 2004-4   0.90%   0.39%   0.19%  -0.21%  -0.75%   0.53%

 2008-4  -1.27%   5.14%  -0.96%  -2.12%   0.29%   1.09%

 2012-4   1.19%   1.15%  -0.76%   0.55%  -0.94%   1.19%

 2016-4  -0.11%   0.65%  -0.81%   0.39%  -0.18%  -0.06%

 2020-4  -0.44%   1.29%   0.18%   0.58%  -0.35%   1.26%

 

 Avg      0.05%   1.72%  -0.43%  -0.16%  -0.38%   0.80%

 

SPX summary for PY4 1956 - 2020 

 Avg      0.00%   0.73%  -0.10%  -0.06%  -0.04%   0.50%

 Win%       44%     63%     38%     47%     53%     59%

 

SPX summary for all years 1953 - 2023

 Avg      0.03%   0.19%   0.09%  -0.06%   0.08%   0.33%

 Win%       56%     54%     51%     48%     56%     61%

 

Money supply (M2) and Interest Rates

The following charts were supplied by Gordon Harms.

The first chart, made with FastTrack, covers the past 2 years showing the SPX in red and M2 money supply in green.

Money supply has remained constant for several months.

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

2yr yield 4.247% down from 4.264%

5yr yield 4.53% up from 4.197%

10yr yield 4.396% up from 4.310% 

30yr yield 4.460% down from 4.473%

The 5 yr and 10 yr rates are still inverted.  

All of the others remained uninverted.

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

Big tech took the OTC to a new all time high last Wednesday while all of the breadth indicators deteriorated.

Seasonality for the coming week has been positive.

The strongest sectors last week were Internet and Technology (both for the 2^nd week) while the weakest were Energy (for the 3^rd week) and Utilities (for the 2^nd week in a row).

I expect the major averages to be higher on Friday December 13 than they were on Friday December 6. 

Last week the OTC was up while the other of the major indices were down.  So I am calling last weeks positive forecast a tie.

 

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