The good news is:

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

The Negatives

The market is overbought.

Seasonally next week is traditionally one of the worst of the year.

The Positives

Everything was good last week.  Breadth was strong and most of the major indices closed at their highs for the year.

The first 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 vertical lines have been drawn on the first 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 jumped up into positive territory last week. 

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

NY HL ratio moved upward to a very strong 87%.  

The next 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.  

NY NH confirmed Thursday’s SPX 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.

OTC NH moved sharply upward nearly confirming Thursday’s OTC high for the year.

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 moved sharply upward last week.

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 also moved upward last week.

Summation indices are running totals of oscillator values.

Short term momentum indicators applied to summation indices make them binary so position is most important.

The first chart covers the past 6 months showing momentum of summation indices of oscillators of advancing and declining issues, new highs and new lows and upside and downside volume on the NYSE.  Dashed vertical lines have been drawn on the 1st trading day of each month.

NYSE SI’s are either at the top of the chart or are heading there quickly.

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

All of Nasdaq SI’s are all at or near the top of the chart. 

Seasonality

Next week includes the 5 trading days prior to the 3rd Friday of July 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.

Seasonally next week is one of the worst of the year.  Average returns for the coming week have been negative by all measures and weaker during the 3rd year of the Presidential Cycle than other years.. 

Report for the week before the 3rd Friday of July.

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  -0.21%  -0.32%  -0.32%  -0.59%  -0.39%  -1.83%

 1967-3  -0.03%  -0.14%   0.92%   0.19%   0.18%   1.12%

 1971-3   0.30%  -0.43%  -0.38%   0.34%  -0.67%  -0.84%

 1975-3  -0.29%  -1.21%  -1.28%  -0.57%  -0.64%  -3.99%

 1979-3   0.27%  -0.74%  -0.44%   0.23%   0.30%  -0.39%


 Avg      0.01%  -0.57%  -0.30%  -0.08%  -0.24%  -1.19%


 1983-3   0.13%  -0.96%  -0.74%   0.29%  -0.83%  -2.11%

 1987-3  -0.59%  -0.50%  -0.02%  -0.39%   0.35%  -1.14%

 1991-3   0.71%  -0.52%  -0.04%   0.69%   0.15%   0.98%

 1995-3   0.60%  -1.44%  -4.15%   1.14%   0.12%  -3.72%

 1999-3  -0.10%  -0.44%   1.44%   0.76%   0.88%   2.54%


 Avg      0.15%  -0.77%  -0.70%   0.50%   0.14%  -0.69%


 2003-3  -1.59%   1.47%   0.77%  -1.03%   1.72%   1.34%

 2007-3  -0.36%   0.55%  -0.47%   0.76%  -1.19%  -0.71%

 2011-3  -2.00%  -0.74%   0.54%  -1.22%   0.98%  -2.44%

 2015-3   0.17%  -0.21%  -0.70%  -0.49%  -1.12%  -2.35%

 2019-3   0.17%  -0.43%  -0.46%   0.27%  -0.74%  -1.19%


 Avg     -0.72%   0.13%  -0.06%  -0.34%  -0.07%  -1.07%


 OTC summary for PY3 1963 - 2019

 Avg     -0.19%  -0.40%  -0.36%   0.02%  -0.06%  -0.98%

 Win%       47%     13%     27%     60%     53%     27%


OTC summary for all years 1963 - 2022

 Avg     -0.08%  -0.12%   0.02%  -0.02%  -0.19%  -0.38%

 Win%       58%     38%     49%     56%     42%     42%


SPX PY3

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1955-3   0.26%   0.00%  -1.19%   0.02%   0.36%  -0.56%

 1959-3  -0.47%   0.85%   0.34%   0.10%  -0.03%   0.78%


 1963-3  -0.63%  -0.09%  -0.30%  -0.64%  -0.20%  -1.86%

 1967-3   0.01%   0.81%   0.16%   0.21%   0.20%   1.40%

 1971-3   0.13%  -1.31%  -0.28%   0.06%  -0.17%  -1.57%

 1975-3  -0.82%  -1.07%  -1.39%  -0.12%  -0.87%  -4.26%

 1979-3   0.41%  -0.89%  -0.14%  -0.08%   0.21%  -0.48%


 Avg     -0.18%  -0.51%  -0.39%  -0.11%  -0.17%  -1.36%


 1983-3   0.62%  -1.53%  -0.04%   0.33%  -1.04%  -1.66%

 1987-3  -1.02%  -0.91%  -0.03%  -0.21%   0.47%  -1.69%

 1991-3   0.56%  -0.22%  -0.09%   1.10%  -0.30%   1.05%

 1995-3   0.51%  -0.76%  -1.34%   0.46%   0.01%  -1.11%

 1999-3  -0.30%  -0.39%   0.33%   0.82%   0.65%   1.11%


 Avg      0.07%  -0.76%  -0.23%   0.50%  -0.04%  -0.46%


 2003-3  -1.46%   0.95%   0.05%  -0.71%   1.74%   0.57%

 2007-3  -0.19%  -0.01%  -0.21%   0.45%  -1.22%  -1.18%

 2011-3  -1.81%  -0.44%   0.31%  -0.67%   0.56%  -2.06%

 2015-3   0.08%  -0.43%  -0.24%  -0.57%  -1.07%  -2.23%

 2019-3   0.02%  -0.34%  -0.65%   0.36%  -0.62%  -1.24%


 Avg     -0.67%  -0.05%  -0.15%  -0.23%  -0.12%  -1.23%


SPX summary for PY3  1955 - 2019

 Avg     -0.24%  -0.36%  -0.28%   0.05%  -0.08%  -0.88%

 Win%       53%     19%     29%     59%     47%     29%


SPX summary for all years 1953 - 2022

 Avg     -0.10%  -0.19%   0.03%  -0.03%  -0.12%  -0.40%

 Win%       49%     35%     54%     55%     46%     40%

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 increased in the past month which may explain the rally.

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

2yr yield 4.747% up from 4.720%

5yr yield 4.047% up from 3.984%

10yr yield 3.832% up from 3.769% 

30yr yield 3.929% up from 3.857%

Everything is inverted (shorter term maturities yield more than longer term maturities) except the 30 yr which is higher than the 10 yr.

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

The market has been following the average seasonal pattern for the 3rd year of the Presidential Cycle pretty closely.  The large cap averages all closed at their highs for the year last week and next week has been one of the weakest of the year. 

The strongest sectors last week were Precious Metals (up from an 8-week run as the weakest sector) and Basic Materials while the weakest were Health Care (for the 2nd week) and Telecom.

I expect the major averages to be lower on Friday, July 21 than they were on Friday, July 14. 

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