The good news is:

• Seasonality is positive for the coming week.  

The Negatives

The first chart covers the past 6 months showing the Nasdaq composite (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 vertical lines have been drawn on the 1st trading day of each month.  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 deeper into negative territory. 

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

NY HL ratio also fell deeper into negative territory.

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 its fall.

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

NY NL turned downward from an uncomfortably high level.

The next 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. 

OTC NH continued to  move downward.

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 ditto.

The Positives

Seasonality turns modestly positive late next week and improves as the month goes on.

Seasonality

Next week includes the 5 trading days prior Christmas during the 2nd 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 2021 while SPX data runs from 1953 to 2021.  There are summaries for both the 2nd 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 5 trading days before Christmas.

The number following the year represents its position in the Presidential Cycle.

The number following the daily return represents the day of the week;

1 = Monday, 2 = Tuesday etc.


OTC Presidential Year 2 (PY2)

               Day5       Day4       Day3       Day2       Day1       Totals

 1966-2       0.18% 1   -0.38% 2    0.47% 3    0.84% 4    0.34% 5     1.46%

 1970-2       0.28% 5   -0.44% 1    0.12% 2   -0.17% 3    0.13% 4    -0.08%

 1974-2       0.74% 3   -0.29% 4   -1.33% 5   -1.38% 1    0.76% 2    -1.49%

 1978-2      -2.62% 1    0.35% 2    0.52% 3    0.45% 4    0.93% 5    -0.37%


 1982-2       1.48% 5   -0.46% 1    0.28% 2    1.10% 3    0.56% 4     2.96%

 1986-2      -0.26% 4    0.24% 5   -0.27% 1   -0.72% 2    0.25% 3    -0.76%

 1990-2       1.22% 2    0.28% 3    0.29% 4    0.35% 5   -0.32% 1     1.82%

 1994-2      -0.16% 1    0.09% 2    1.22% 3    0.26% 4    0.39% 5     1.79%

 1998-2       2.06% 5    2.49% 1   -0.80% 2    2.43% 3   -0.44% 4     5.75%


 Avg          0.87%      0.53%      0.15%      0.68%      0.09%       2.31%


 2002-2      -2.19% 3   -0.54% 4    0.66% 5    1.37% 1   -0.67% 2    -1.38%

 2006-2      -0.88% 1   -0.25% 2   -0.08% 3   -0.48% 4   -0.61% 5    -2.30%

 2010-2       0.21% 5    0.25% 1    0.68% 2    0.15% 3   -0.22% 4     1.07%

 2014-2       2.24% 4    0.36% 5    0.34% 1   -0.33% 2    0.17% 3     2.77%

 2018-2       0.45% 2   -2.17% 3   -1.63% 4   -2.99% 5   -2.21% 1    -8.56%


 Avg         -0.03%     -0.47%     -0.01%     -0.46%     -0.71%      -1.68%


OTC summary for PY2 1966 - 2018

Averages      0.20%     -0.03%      0.03%      0.06%     -0.07%       0.19%

%Winners        64%        50%        64%        57%        57%         50%

MDD  12/24/2018  8.71% --  12/23/1974  2.97% --  12/19/2002  2.73%


OTC summary for all years 1963 - 2021

Averages      0.13%      0.04%     -0.01%      0.20%      0.26%       0.62%

% Winners      58%        48%        58%        64%        66%         64%


SPX PY2

               Day5       Day4       Day3       Day2       Day1       Totals

 1954-2       0.26% 5    0.89% 1    0.14% 2   -0.11% 3    0.08% 4     1.26%

 1958-2       0.43% 4   -0.15% 5   -0.67% 1   -0.54% 2    1.29% 3     0.36%


 1962-2      -0.48% 2    0.82% 3    0.38% 4   -0.29% 5   -0.02% 1     0.42%

 1966-2      -0.38% 1   -0.38% 2    0.52% 3    0.38% 4   -0.27% 5    -0.13%

 1970-2       0.20% 5   -0.31% 1    0.11% 2    0.07% 3    0.57% 4     0.63%

 1974-2       0.47% 3   -0.37% 4   -1.09% 5   -1.42% 1    1.39% 2    -1.01%

 1978-2      -1.98% 1    0.86% 2    0.47% 3    0.03% 4    1.69% 5     1.06%


 Avg         -0.43%      0.12%      0.08%     -0.25%      0.67%       0.19%


 1982-2       1.62% 5   -0.89% 1    1.72% 2    0.16% 3    0.64% 4     3.25%

 1986-2      -0.32% 4    1.20% 5   -0.39% 1   -0.97% 2    0.17% 3    -0.31%

 1990-2       1.24% 2    0.05% 3   -0.02% 4    0.49% 5   -0.56% 1     1.19%

 1994-2      -0.19% 1   -0.18% 2    0.55% 3    0.02% 4    0.03% 5     0.23%

 1998-2       0.68% 5    1.25% 1    0.07% 2    2.07% 3   -0.18% 4     3.88%


 Avg          0.60%      0.28%      0.38%      0.35%      0.02%       1.65%


 2002-2      -1.31% 3   -0.77% 4    1.30% 5    0.18% 1   -0.55% 2    -1.15%

 2006-2      -0.32% 1    0.22% 2   -0.14% 3   -0.37% 4   -0.53% 5    -1.15%

 2010-2       0.08% 5    0.25% 1    0.60% 2    0.34% 3   -0.16% 4     1.12%

 2014-2       2.40% 4    0.46% 5    0.38% 1    0.17% 2   -0.01% 3     3.40%

 2018-2       0.01% 2   -1.54% 3   -1.58% 4   -2.06% 5   -2.71% 1    -7.88%


 Avg          0.17%     -0.28%      0.11%     -0.35%     -0.79%      -1.13%


SPX summary for PY2 1954 - 2018

Averages      0.14%      0.08%      0.14%     -0.11%      0.05%       0.30%

%Winners        59%        53%        65%        59%        47%         65%

MDD  12/24/2018  7.66% --  12/23/1974  2.86% --  12/19/2002  2.08%


SPX summary for all years 1953 - 2021

Averages      0.13%      0.05%      0.10%      0.00%      0.21%       0.48%

% Winners      53%        43%        57%        52%        65%         69%

Money supply (M2) and Interest Rates

The following charts were supplied by Gordon Harms.

The first chart, made with FastTrack, covers the past 5 years showing the SPX in red and M2 money supply in green.

Money supply has been declining slowely since late last year.

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

2yr yield 4.204% down from 4.795%

5yr yield 3.631% down from 3.872%

10yr yield 3.489% down from 3.688% 

30yr yield 3.545% down from 3.741%

Everything is inverted (shorter term maturities yield more than longer term maturities) except the 30 year to the 10 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.

Conclusion

I think the selling should peak early in the week before most traders go away until early next year.

The strongest sectors last week were Health care and Utilities while the weakest were Banks (for the 3rd week in a row) and Energy (for the 6th week in a row).

I expect the major averages to be lower on Friday, December 23 than they were on Friday, December 16.

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