The good news is:

• The Dow Jones Industrial Average (DJIA), the Nasdaq composite (OTC) and the S&P 500 (SPX) all closed at their highs for the year on Friday.

The Negatives

The market is overbought.

The first chart covers the last 6 months showing the 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 1st trading day of each month.

NY NH, again, failed to confirm the SPX at its new high for the year.

The next chart is similar to the one above except it shows the OTC in blue and OTC NH, in green, has been calculated with Nasdaq data.

The OTC closed at its high for the year while OTC NH is far from its July high.

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, again, finished the week slightly above the neutral line.. 

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 fell a little last week, but, closed the week well into positive territory. 

The next chart covers the last 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.

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.

Ditto NY NL.

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.  

NYSE SI’s remained maxed out, except NY HL SI which turned slightly downward.

The next chart is similar to the one above, except it shows the OTC, in blue, as the index and the SI’s have been generated from Nasdaq breadth data.  

OTC AD SI is still maxed out while the high-low and volume SI’s have moved slightly downward. 

Seasonality

Next week includes the 5 trading days prior to the 3rd Friday of December during the 3rd 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 2022 while SPX data runs from 1953 to 2022.  There are summaries for both the 3rd 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 3 (PY3)

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1963-3  -0.28%  -0.40%   0.17%   0.09%  -0.37%  -0.79%

 1967-3  -0.33%  -0.21%   0.66%   0.59%   0.37%   1.09%

 1971-3   0.32%  -0.08%   0.35%   0.51%   0.46%   1.56%

 1975-3  -0.49%   0.87%   0.81%   0.36%  -0.20%   1.35%

 1979-3   0.35%  -0.56%  -0.05%   0.41%  -0.07%   0.10%


 Avg     -0.09%  -0.07%   0.39%   0.39%   0.04%   0.66%


 1983-3  -0.20%  -0.36%  -0.90%  -0.39%   0.24%  -1.61%

 1987-3   2.00%   1.06%   2.00%   0.08%   2.00%   7.14%

 1991-3   0.52%  -0.74%   0.03%  -0.98%   0.23%  -0.95%

 1995-3  -0.08%  -0.89%   0.42%  -1.73%  -0.74%  -3.03%

 1999-3   1.05%  -2.00%   1.41%   2.00%   1.02%   3.48%


 Avg      0.66%  -0.59%   0.59%  -0.20%   0.55%   1.01%


 2003-3  -1.58%   0.31%  -0.15%   1.81%  -0.26%   0.13%

 2007-3  -2.00%   0.84%   0.19%   1.53%   1.94%   2.50%

 2011-3  -1.31%  -1.26%  -1.55%   0.07%   0.56%  -3.49%

 2015-3   0.38%   0.87%   1.52%  -1.35%  -1.59%  -0.17%

 2019-3   0.91%   0.10%   0.05%   0.67%   0.42%   2.16%


 Avg     -0.72%   0.17%   0.01%   0.55%   0.21%   0.23%


OTC summary for PY3 1963 - 2019 

 Avg     -0.05%  -0.16%   0.33%   0.24%   0.27%   0.63%

 Win%       47%     40%     73%     73%     60%     60%


OTC summary for all years 1963 - 2022

 Avg     -0.04%   0.08%   0.03%  -0.04%   0.13%   0.16%

 Win%       52%     53%     51%     57%     57%     57%


SPX PY3

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1955-3  -1.02%   0.07%  -0.84%  -0.02%   0.16%  -1.66%

 1959-3   0.27%  -0.24%   0.12%  -0.19%   0.48%   0.44%


 1963-3   0.32%   0.59%  -0.15%  -0.31%  -0.16%   0.30%

 1967-3  -0.31%  -0.12%   0.35%   0.14%  -0.46%  -0.41%

 1971-3   0.29%  -0.31%   0.89%   1.22%   0.52%   2.61%

 1975-3   0.30%   0.95%   0.25%   0.31%  -0.70%   1.11%

 1979-3   0.38%  -0.94%  -0.09%   0.06%  -0.62%  -1.22%


 Avg      0.19%   0.04%   0.25%   0.28%  -0.28%   0.48%


 1983-3   0.32%  -0.42%  -0.97%  -1.02%   0.45%  -1.64%

 1987-3   2.00%   0.25%   2.00%  -2.00%   2.00%   4.25%

 1991-3   0.00%  -0.45%   0.19%  -0.25%   1.18%   0.67%

 1995-3   0.33%  -0.12%   0.47%  -0.77%  -0.09%  -0.18%

 1999-3  -0.13%  -0.85%   0.73%   0.38%   0.16%   0.29%


 Avg      0.50%  -0.32%   0.48%  -0.73%   0.74%   0.68%


 2003-3  -0.57%   0.66%   0.13%   1.18%  -0.05%   1.35%

 2007-3  -1.50%   0.63%  -0.14%   0.49%   1.67%   1.15%

 2011-3  -1.49%  -0.87%  -1.13%   0.32%   0.32%  -2.85%

 2015-3   0.48%   1.06%   1.45%  -1.50%  -1.78%  -0.29%

 2019-3   0.71%   0.03%  -0.04%   0.45%   0.49%   1.65%


 Avg     -0.47%   0.30%   0.05%   0.19%   0.13%   0.20%


SPX summary for PY3 1955 - 2019 

 Avg      0.02%   0.00%   0.19%  -0.09%   0.21%   0.33%

 Win%       59%     47%     59%     53%     59%     59%


SPX summary for all years 1953 - 2022

 Avg      0.01%   0.13%   0.06%  -0.06%   0.08%   0.22%

 Win%       55%     54%     51%     47%     57%     59%

Conclusion

The market is overbought. 

The breadth indicators stalled while blue chip indices leapt to new highs.

Seasonality has been modestly positive.

The strongest sectors last week were Finance and Utilities while the weakest were Precious Metals (down from the top last week) and Energy (for the 5th week at the bottom).

I expect the major averages to be lower on Friday, December 15 than they were on Friday, December 8. 

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