The good news is:

• The Dow Jones Industrial Average closed at an all time high last Friday and the S&P 500 (SPX) and NASDAQ composite (OTC) both closed at all time highs last Wednesday.

 

The Negatives

The first chart covers the last 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 on the 1^st trading day of each month.  

OTC NH failed to confirm the new index high by a wide margin.  

(Click on image to enlarge)

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 also failed to confirm the all time index high.

(Click on image to enlarge)

The failure of the new high indicators to confirm the new index highs indicates a narrowing of leadership.

 

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 rose into comfortably positive territory last week.

(Click on image to enlarge)

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 very strong 90%.

(Click on image to enlarge)

 

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 continued moving upward last week.

(Click on image to enlarge)

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 is also moving steadily upward.

(Click on image to enlarge)

Summation indices are running totals of oscillator values.

Short term momentum indicators applied to summation indices make them nearly binary.

The next chart covers the past 6 months showing the SPX in red and momentum of summation indices of oscillators of advancing and declining issues, new highs and new lows and upside and downside volume on the NYSE.  

The NY SI Mom’s are all maxed out on the upside.

(Click on image to enlarge)

The next chart is similar to the one above; except it shows the NASDAQ composite (OTC), in blue and the SI’s have been generated from NASDAQ breadth data. 

Ditto NASDAQ SI’s. 

(Click on image to enlarge)

Seasonality

Next week includes the 5 trading days prior to the 4^th Friday of May 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 positive by all measures. 

 

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

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

Daily returns from Monday through the 4th Friday.

 

OTC Presidential Year 4 (PY4)

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1964-4   0.05%  -0.82%  -0.08%   0.49%   0.28%  -0.07%

 

 Avg      0.05%  -0.82%  -0.08%   0.49%   0.28%  -0.07%

 

 1968-4  -0.38%  -0.22%   0.66%   0.56%   0.67%   1.29%

 1972-4   0.17%   0.26%   0.57%   0.25%   0.11%   1.35%

 1976-4  -1.39%  -0.39%   0.33%  -0.36%   0.30%  -1.51%

 1980-4   0.00%  -0.21%  -0.12%   0.82%   1.03%   1.52%

 1984-4  -0.60%  -0.97%  -0.51%  -1.75%  -0.07%  -3.89%

 

 Avg     -0.55%  -0.31%   0.19%  -0.10%   0.41%  -0.25%

 

 1988-4  -0.76%   0.52%   0.16%   0.43%  -0.17%   0.18%

 1992-4   0.37%   0.26%   0.39%  -0.21%   0.21%   1.02%

 1996-4   0.50%  -0.30%   0.24%   0.10%  -0.07%   0.48%

 2000-4  -0.77%  -5.93%   3.35%  -1.99%  -0.01%  -5.36%

 2004-4   0.57%   2.17%   0.59%   0.42%   0.11%   3.86%

 

 Avg     -0.02%  -0.66%   0.94%  -0.25%   0.01%   0.03%

 

 2008-4  -0.50%  -0.95%  -1.77%   0.67%  -0.81%  -3.36%

 2012-4   2.46%  -0.29%   0.39%  -0.38%  -0.07%   2.12%

 2016-4  -0.08%   2.00%   0.70%   0.14%   0.65%   3.40%

 2020-4   2.44%  -0.54%   2.08%  -0.97%   0.43%   3.44%

 

OTC summary for PY4 1964 - 2020 

 Avg      0.15%  -0.36%   0.46%  -0.12%   0.17%   0.30%

 Win%       50%     33%     73%     60%     60%     67%

 

OTC summary for all years 1963 - 2023

 Avg      0.03%  -0.20%   0.10%   0.18%   0.22%   0.33%

 Win%       50%     39%     59%     57%     65%     61%

 

SPX PY4

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1956-4  -0.86%  -1.59%  -0.53%  -0.93%   0.04%  -3.87%

 1960-4  -0.13%  -0.11%  -0.05%   0.07%   0.05%  -0.16%

 

 1964-4  -0.47%  -0.52%   0.45%   0.05%   0.04%  -0.45%

 1968-4  -0.46%   0.50%   0.26%  -0.22%   0.19%   0.26%

 1972-4   0.65%   0.08%   0.48%   0.14%   0.18%   1.53%

 1976-4  -1.80%   0.05%  -0.15%   0.04%   0.80%  -1.05%

 1980-4   0.30%  -0.05%   0.09%   1.20%   1.48%   3.02%

 

 Avg     -0.36%   0.01%   0.23%   0.24%   0.54%   0.66%

 

 1984-4  -0.67%  -0.55%  -0.47%  -1.25%   0.26%  -2.69%

 1988-4  -0.87%   1.07%   0.10%   0.34%  -0.48%   0.17%

 1992-4   0.66%   0.86%  -0.24%  -0.67%   0.34%   0.96%

 1996-4   0.63%  -0.06%   0.84%  -0.36%   0.37%   1.43%

 2000-4  -0.45%  -1.91%   1.83%  -1.26%  -0.25%  -2.04%

 

 Avg     -0.14%  -0.12%   0.41%  -0.64%   0.05%  -0.43%

 

 2004-4   0.17%   1.61%   0.17%   0.57%  -0.05%   2.46%

 2008-4   0.09%  -0.93%  -1.61%   0.26%  -1.32%  -3.50%

 2012-4   1.60%   0.05%   0.17%   0.14%  -0.22%   1.74%

 2016-4  -0.21%   1.37%   0.70%  -0.02%   0.43%   2.26%

 2020-4   3.15%  -1.05%   1.67%  -0.78%   0.24%   3.22%

 

 Avg      0.96%   0.21%   0.22%   0.03%  -0.19%   1.24%

 

SPX summary for PY4 1956 - 2020 

 Avg      0.08%  -0.07%   0.22%  -0.16%   0.12%   0.19%

 Win%       47%     47%     65%     53%     71%     59%

 

SPX summary for all years 1953 - 2023

 Avg      0.01%  -0.14%  -0.06%   0.07%   0.13%   0.02%

 Win%       49%     44%     51%     54%     63%     59%

 

Money supply (M2) and Interest Rates

The following charts were supplied by Gordon Harms.

The first chart, made with FastTrack, covers the past 4 years showing the SPX in red and M2 money supply in green.

Money supply has remained constant for several months.

(Click on image to enlarge)

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

2yr yield 4.837% down from 4.914%

5yr yield 4.452% down from 4.569%

10yr yield 4.426% down from 4.532% 

30yr yield 4.563% down from 4.630%

All the rates are inverted (shorter term maturities yield more than longer term maturities) relative to the 2 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.

(Click on image to enlarge)

 

Conclusion

All of the major indices except the Russell 2000 hit all time highs last week.

The strongest sectors last week were Precious Metals (for the 2^nd week) and Utilities (for the 5^th week) while the weakest were Transportation and Leisure.

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

Last weeks seasonality based negative forecast was a miss.

 

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