The good news is:

• The Russell 2000 (R2K) closed at an all time high last Thursday.

The Negatives

Negatives are hard to find; liquidity is at an extreme.

The Positives

New highs have been expanding while new lows have remained minimal.

The first chart covers the past 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 first trading day of each month.

OTC NH is advancing while the index has stalled, that implies higher prices ahead.

The next chart is similar to the first one except it shows the S&P 500 (SPX) in red and NY NH has been calculated with NYSE data.

NY NH ditto.

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 does not get much better than this.

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.

Seasonality

Next week includes the 4 trading days prior to the 3^rd market 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.  The market will be closed on Monday in observance of the Martin Luther King holiday.

OTC data covers the period from 1963 to 2020 while SPX data runs from 1953 to 2020.  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.

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

Report for the week before the 3rd Friday of January. The number following the year is the position in the Presidential Cycle.

Daily returns from Monday through 3rd Friday.

OTC Presidential Year 1 (PY1)

 Year       Mon     Tue      Wed     Thur      Fri    Totals

 1965-1   0.26%   0.20%   0.09%   0.09%   0.07%   0.70%

 1969-1  -0.76%  -0.74%  -0.16%   0.65%   1.11%   0.10%

 1973-1  -0.61%  -1.04%  -0.42%   0.03%  -0.15%  -2.19%

 1977-1  -0.06%  -0.01%   0.43%  -0.48%   0.25%   0.13%

 1981-1   0.39%  -0.20%   0.52%   0.39%   0.64%   1.75%

 Avg     -0.15%  -0.36%   0.09%   0.13%   0.38%   0.10%

 

 1985-1   1.28%   0.93%   0.95%   0.35%   0.72%   4.25%

 1989-1   0.07%  -0.34%   0.73%   0.57%   0.15%   1.18%

 1993-1   0.14%  -0.19%   0.09%   0.48%   0.12%   0.64%

 1997-1  -0.08%   1.11%  -0.89%   0.51%   0.64%   1.29%

 2001-1   0.00%  -0.30%   2.45%   3.19%   0.07%   5.41%

 Avg      0.35%   0.24%   0.67%   1.02%   0.34%   2.55%

 

 2005-1   0.00%   0.87%  -1.54%  -1.34%  -0.57%  -2.58%

 2009-1  -2.09%   0.50%  -3.67%   1.49%   1.16%  -2.62%

 2013-1  -0.26%  -0.22%   0.22%   0.59%  -0.04%   0.29%

 2017-1   0.00%  -0.63%   0.31%  -0.28%   0.28%  -0.33%

 Avg     -1.17%   0.13%  -1.17%   0.12%   0.21%  -1.31%

 

OTC summary for PY1 1965 - 2017 

 Avg     -0.15%   0.00%  -0.06%   0.45%   0.32%   0.57%

 Win%       45%     36%     64%     79%     79%     71%

OTC summary for all years 1963 - 2020

 Avg     -0.03%   0.23%   0.06%   0.22%   0.09%   0.58%

 Win%       58%     57%     60%     66%     60%     69%

SPX PY1

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1953-1  -0.84%   0.62%   0.23%   0.19%  -0.42%  -0.22%

 1957-1  -0.69%  -1.48%   0.11%  -0.02%  -1.28%  -3.37%

 1961-1  -0.03%  -0.40%   0.57%   0.15%   0.32%   0.61%

 1965-1   0.32%   0.16%  -0.03%  -0.09%   0.25%   0.61%

 1969-1  -0.53%   0.73%   0.48%   0.55%  -0.15%   1.09%

 1973-1  -0.72%  -0.25%   0.46%   0.14%  -0.06%  -0.43%

 1977-1  -0.27%  -0.40%   0.51%  -0.85%   0.34%  -0.66%

 1981-1   0.03%  -0.17%   0.14%   0.64%   0.34%   0.96%

 Avg     -0.23%   0.01%   0.31%   0.08%   0.14%   0.32%

 

 1985-1   1.55%   0.18%   0.22%  -0.27%   0.35%   2.02%

 1989-1   0.10%  -0.21%   1.05%   0.13%  -0.09%   0.97%

 1993-1  -0.07%  -0.39%  -0.40%   0.49%   0.14%  -0.24%

 1997-1   0.00%   1.23%  -0.22%   0.33%   0.83%   2.18%

 2001-1   0.00%   0.63%   0.21%   1.39%  -0.40%   1.83%

 Avg      0.39%   0.29%   0.17%   0.41%   0.16%   1.36%

 

 2005-1   0.00%   0.97%  -0.95%  -0.78%  -0.64%  -1.40%

 2009-1  -2.26%   0.18%  -3.35%   0.13%   0.76%  -4.54%

 2013-1  -0.09%   0.11%   0.02%   0.56%   0.34%   0.94%

 2017-1   0.00%  -0.30%   0.18%  -0.36%   0.34%  -0.14%

SPX summary for PY1 1953 - 2017 

 Avg     -0.25%   0.07%  -0.04%   0.14%   0.06%   0.01%

 Win%       36%     53%     71%     65%     59%     53%

SPX summary for all years 1953 - 2020

 Avg     -0.08%   0.11%  -0.04%   0.06%  -0.02%   0.05%

 Win%       44%     59%     56%     58%     57%     51%

 

Money supply (M2) and Interest Rates

The following charts were supplied by Gordon Harms.

M2 growth continued to level off.

 

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

2yr yield 0.129% up from 0.125%

5yr yield 0.448% up from 0.366%

10yr yield 1.090% up from 0.897%

30yr yield 1.837% up from 1.626%

A carefully managed yield curve.

 

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

 

Conclusion

Strong breadth with the secondaries leading the blue chips upward; that is about as good as it gets.

The strongest sectors last week were Banks and Electronics and the weakest were Basic Materials and Precious Metals. 

I expect the major averages to be higher on Friday January 22 than they were on Friday January 15. 

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