The good news is:

• New lows declined significantly last week.

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 continued its decline.

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

OTC NH OTC NH also continued its decline.

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 (equal numbers of new highs and new lows).

NY HL ratio moved upward, but remained in deeply negative territory. 

The Positives

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.

OTC HL Ratio moved into positive territory last week.

The next chart covers the past 6 months showing the Nasdaq composite (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 continued moving sharply upward.  This upward move may have seasonal causes.

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 moved upward, but the cause may be seasonal.

Seasonality

Next week includes the 5 trading days prior to the 2^nd Friday of January during  the 1^st 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 2024 while SPX data runs from 1953 to 2024.  There are summaries for both the 1^st 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. 

Seasonally next week has been mixed.

Report for the week before the 2nd Friday of January.

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

Daily returns from Monday to 2nd Friday.

OTC Presidential Year 1 (PY1)

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1965-1   0.31%   0.65%   0.55%   0.55%   0.31%   2.37%

 1969-1   0.21%  -1.10%  -0.93%  -1.97%  -0.25%  -4.04%

 1973-1   0.35%   0.08%  -0.02%   0.05%   0.57%   1.03%

 1977-1  -0.23%  -0.92%  -0.40%   0.85%   0.37%  -0.33%

 1981-1   0.30%  -0.05%  -3.29%  -0.74%   0.90%  -2.87%


 Avg      0.19%  -0.27%  -0.82%  -0.25%   0.38%  -0.77%


 1985-1  -0.06%  -0.02%   0.54%   1.34%   0.60%   2.41%

 1989-1   0.14%  -0.18%   0.19%   0.44%   0.02%   0.61%

 1993-1   0.77%  -0.43%   1.08%   1.30%   0.21%   2.92%

 1997-1   0.43%   0.86%  -0.55%   0.44%   0.44%   1.62%

 2001-1  -0.49%   1.89%   3.40%   4.61%  -0.53%   8.88%


 Avg      0.16%   0.43%   0.93%   1.63%   0.15%   3.29%


 2005-1   0.40%  -0.83%   0.62%  -1.05%   0.84%  -0.02%

 2009-1  -0.26%   1.50%  -3.23%   1.12%  -2.81%  -3.67%

 2013-1  -0.09%  -0.23%   0.45%   0.51%   0.12%   0.77%

 2017-1   0.20%   0.36%   0.21%  -0.29%   0.48%   0.96%

 2021-1  -1.25%   0.28%   0.43%  -0.12%  -0.87%  -1.54%


 Avg     -0.20%   0.22%  -0.30%   0.03%  -0.45%  -0.70%


OTC summary for PY1 1965 - 2021

 Avg      0.05%   0.12%  -0.06%   0.47%   0.03%   0.61%

 Win%       60%     47%     60%     67%     73%     60%


OTC summary for all years 1963 - 2023

 Avg      0.34%   0.00%   0.02%   0.45%   0.13%   0.93%

 Win%       66%     58%     56%     73%     66%     65%


SPX PY1

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1953-1   0.45%  -0.68%  -0.42%  -0.15%  -0.95%  -1.74%

 1957-1  -0.51%  -0.37%  -0.19%   0.24%  -0.19%  -1.03%

 1961-1   0.56%   0.27%   0.29%   0.30%   0.47%   1.90%


 1965-1   0.04%   0.25%   0.27%   0.00%   0.43%   0.98%

 1969-1  -1.46%  -1.22%  -0.41%   0.42%  -0.29%  -2.97%

 1973-1  -0.02%  -0.10%  -0.25%   0.68%  -0.78%  -0.47%

 1977-1   0.18%  -1.03%  -0.69%   0.77%  -0.18%  -0.95%

 1981-1   1.20%   0.11%  -2.20%  -1.50%   0.32%  -2.08%


 Avg     -0.01%  -0.40%  -0.66%   0.09%  -0.10%  -1.10%


 1985-1   0.34%  -0.15%   0.73%   1.89%  -0.24%   2.57%

 1989-1   0.11%  -0.21%   0.58%   0.41%   0.25%   1.14%

 1993-1   0.44%   0.02%   0.46%   0.67%   0.28%   1.87%

 1997-1  -0.05%   0.75%  -0.64%   0.86%   0.61%   1.53%

 2001-1  -0.19%   0.38%   0.96%   1.03%  -0.64%   1.54%


 Avg      0.13%   0.16%   0.42%   0.97%   0.05%   1.73%


 2005-1   0.34%  -0.61%   0.40%  -0.86%   0.60%  -0.13%

 2009-1  -0.47%   0.78%  -3.00%   0.34%  -2.13%  -4.48%

 2013-1  -0.31%  -0.32%   0.27%   0.76%   0.00%   0.38%

 2017-1  -0.35%   0.00%   0.28%  -0.21%   0.18%  -0.10%

 2021-1  -0.66%   0.04%   0.23%  -0.38%  -0.72%  -1.48%


 Avg     -0.29%  -0.03%  -0.37%  -0.07%  -0.41%  -1.16%


SPX summary for PY1 1953 - 2021 

 Avg     -0.02%  -0.12%  -0.19%   0.31%  -0.17%  -0.19%

 Win%       50%     47%     56%     71%     44%     44%


SPX summary for all years 1953 - 2023

 Avg      0.09%  -0.11%  -0.17%   0.27%   0.00%   0.08%

 Win%       56%     44%     49%     70%     53%     53%

Year 1 of the Presidential Cycle

The Presidential Cycle is made up of 4 years beginning with the year the President is inaugurated.

I identify the cycle as the Presidential Cycle because I believe it is politically motivated. Prior to 1933 gold and silver were the medium of exchange and government had little control over money supply. Gold coins were removed from circulation by executive order in 1933 and redeem ability was suspended. Shortly after the confiscation of gold, the currency was devalued to $35 an ounce from $20 (a 40% tax). US citizens could not redeem their gold certificates for gold, but foreigners could until 1971 when Nixon closed the gold window eliminating redeem ability entirely and removing any intrinsic value from the currency. With control of the currency politicians are able to manipulate the money supply to their advantage.  Assuming this hypothesis is correct, it is not surprising the Presidential Cycle has been changing over the past 90 years.  In 2020 the US government created 25% of all of the money it has ever been created triggering our currtent bout of inflation.

On average there are 21 trading days in a month.  In the charts that follow every month is defined as 21 trading days.  If a month has more than 21 trading days some of the days in the middle of the month are not counted.  If there are less than 21 trading days some of the days in the middle of the month are counted twice.  Dashed vertical lines have been drawn on the 1^st trading day of each month.

The charts below start with the shortest and most recent histories.  The last chart is of the Dow Jones Industrial Average (DJIA) with data beginning in 1885.

The first chart shows the Russell 2000 (R2K) with data beginning in 1979.  The average of all years is shown in magenta while the average of the 1^st year of the Presidential Cycle is shown in cyan.

The next chart shows the OTC with data beginning in 1963.  Until the early 1990’s the OTC was a small cap index and its performance was nearly identical to the R2K.  Now about 90% of its value is in just 7 issues out of its total of about 4,300.  In the chart below the average for all years is shown in blue while the average for the 1^st year of the Presidential Cycle is shown in cyan.

The next chart shows the SPX with data beginning in 1928.  In the chart below the average for all years is shown in red while the average for the 1^st year of the Presidential Cycle is shown in cyan.

The next chart shows the DJIA with data beginning in 1885.  In the chart below the average for all years is shown in grey while the average for the 1^st year of the Presidential Cycle is shown in cyan.

Conclusion

The breadth indicators have been distorted by light holiday trading.

Next week should be interesting as trading gets back to “normal”.

The strongest sectors last week were Energy and Electronics while the weakest were Biotech and Basic Materials (for the 3^rd week) .

I expect the major averages to be lower on Friday January 10 than they were on Friday January 3. 

Last week the R2K was up while the other major indices were down, so I am calling last weeks negative forecast a tie.

My forecasting record for the 4^th year in the past 3 Presidential Cycles has been  negative (more losses than wins).  My forecasting record for the current year is the last line of every report and 2024 ended with W 15 / L 16 / T 22.  My difficulties with 4^th years persist.

In scoring the forecasts I consider 4 averages, the DJIA, SPX, OTC and R2K.  If all 4 went in the direction of the forecast I consider it a win, if they all went in the other direction, a loss and if they did not all go in the same direction it is a tie.  The score will start over at:

YTD W 0 / L 0 / T 0.

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