The good news is:

• Last week was great, everything was up including stocks, bonds and metals.  

The Negatives

The market is over bought (the Nasdaq composite (OTC) and Russell 2000 (R2K) have both been up for 6 consecutive days) and the big boys have avoided this game.

The first chart covers the past 6 months showing the S&P 500 (SPX) in red and a 5% trend (39 day EMA) of NYSE total volume in bluish grey.  Dashed vertical lines have been drawn on the 1st trading day of each month.

Total exchange volume fell sharply last week while prices rose sharply.  

The Positives

Last week new highs rose to triple digits on both the NYSE and Nasdaq while new lows declined to single digits on the NYSE and low double digits on the Nasdaq.

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 to its highest level in over a year. 

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

NY HL ratio also rose to its highest level in over a year..

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 sharp upward move last week.

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 moved upward with new low numbers mostly in single digits.

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 moved upward taking the index with it.

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 hit its highest level since April.

Seasonality

Next week includes the 4 trading days prior to the 3rd Friday of January during the 3rd year of the Presidential Cycle.  The tables below show the daily change, on a percentage basis for that period.  The market will be closed Monday in observance of the Martin Luther King holiday.

OTC data covers the period from 1963 to 2021 while SPX data runs from 1953 to 2021.  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 mixed. 

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 3 (PY3)

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1963-3   0.13%  -0.23%   0.26%   0.68%   0.65%   1.49%

 1967-3   1.01%  -0.25%   0.75%   0.08%   0.96%   2.55%

 1971-3   0.07%   0.44%   0.20%   1.26%   2.13%   4.11%

 1975-3  -0.55%  -0.36%   1.20%   1.46%  -1.08%   0.67%

 1979-3   0.59%  -0.59%  -0.12%   0.58%   0.27%   0.74%


 Avg      0.25%  -0.20%   0.46%   0.81%   0.59%   1.91%


 1983-3   0.61%  -0.20%  -0.59%   0.32%  -0.82%  -0.67%

 1987-3   1.26%   0.24%   0.92%   0.67%  -0.69%   2.41%

 1991-3  -1.67%   0.44%   2.21%   2.91%   0.31%   4.19%

 1995-3   0.79%   0.52%   0.03%  -0.50%  -0.85%  -0.01%

 1999-3   0.00%   2.53%   0.32%  -2.93%  -0.25%  -0.32%


 Avg      0.25%   0.71%   0.58%   0.10%  -0.46%   1.12%


 2003-3  -0.12%   1.03%  -1.52%  -1.05%  -3.34%  -4.99%

 2007-3   0.00%  -0.20%  -0.74%  -1.46%   0.33%  -2.07%

 2011-3   0.00%   0.38%  -1.46%  -0.77%  -0.55%  -2.40%

 2015-3  -0.84%  -0.07%  -0.48%  -1.48%   1.39%  -1.47%

 2019-3  -0.94%   1.71%   0.15%   0.71%   1.03%   2.66%


 Avg     -0.63%   0.57%  -0.81%  -0.81%  -0.23%  -1.65%


OTC summary for PY3 1963 - 2019 

 Avg      0.03%   0.36%   0.08%   0.03%  -0.03%   0.46%

 Win%       58%     53%     60%     60%     53%     53%


OTC summary for all years 1963 - 2022

 Avg     -0.03%   0.21%   0.07%   0.20%   0.04%   0.50%

 Win%       58%     57%     60%     65%     60%     68%


SPX PY3

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1955-3  -1.98%   0.64%   0.46%   0.49%   0.88%   0.48%

 1959-3   0.02%  -0.56%   0.27%   0.38%  -0.04%   0.07%


 1963-3   0.54%  -0.14%  -0.68%   0.71%   0.08%   0.51%

 1967-3  -0.26%   1.10%   0.65%   0.03%   0.29%   1.81%

 1971-3   0.41%   0.37%   0.02%   0.44%   0.73%   1.97%

 1975-3  -0.41%  -0.87%   0.64%  -0.12%  -1.51%  -2.28%

 1979-3   0.76%  -1.22%   0.02%   0.24%   0.03%  -0.17%


 Avg      0.21%  -0.15%   0.13%   0.26%  -0.08%   0.37%


 1983-3   0.04%  -0.21%  -0.77%   0.70%  -1.67%  -1.91%

 1987-3   0.61%  -0.13%   1.03%   1.09%   0.30%   2.89%

 1991-3  -0.87%   0.40%   0.78%   3.73%   1.30%   5.34%

 1995-3   0.73%   0.14%  -0.07%  -0.59%  -0.46%  -0.25%

 1999-3   0.00%   0.61%   0.46%  -1.70%  -0.81%  -1.45%


 Avg      0.13%   0.16%   0.28%   0.65%  -0.27%   0.92%


 2003-3  -0.14%   0.58%  -1.44%  -0.39%  -1.40%  -2.80%

 2007-3   0.00%   0.08%  -0.09%  -0.30%   0.29%  -0.02%

 2011-3   0.00%   0.14%  -1.01%  -0.13%   0.24%  -0.76%

 2015-3  -0.81%  -0.26%  -0.58%  -0.92%   1.34%  -1.23%

 2019-3  -0.53%   1.07%   0.22%   0.76%   1.32%   2.85%


 Avg     -0.49%   0.32%  -0.58%  -0.20%   0.36%  -0.39%


SPX summary for PY3 1955 - 2019 

 Avg     -0.14%   0.10%  -0.01%   0.26%   0.05%   0.30%

 Win%       50%     59%     59%     59%     65%     47%


SPX summary for all years 1953 - 2022

 Avg     -0.08%   0.09%  -0.04%   0.04%  -0.05%  -0.01%

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

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 slowly since late 2021.

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

• 2yr yield 4.220% up from 4.204%
• 5yr yield 3.611% down from 3.631%
• 10yr yield 3.505% up from 3.489% 
• 30yr yield 3.614% up from 3.545%

Everything is inverted (shorter term maturities yield more than longer term maturities) except the 30 year to the 10 year and 5 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

Stocks, bonds and metals all had a great week while the big boys stayed away.

The strongest sectors last week were Precious metals (for the 2nd week) and Internet while the weakest were Biotech (for the 2nd week) and Health care.

I expect the major averages to be higher on Friday, January 20 than they were on Friday, January 13.

More By This Author:

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