The good news is:

• The Nasdaq composite (OTC) closed at its high for this year last Thursday.

 

The Negatives

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 moved side ways last week along with everything else. 

 

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 remained in negative 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 rose a bit last week, but remains at a dangerously high number.

 

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 moved sideways at an uncomfortably high level.

 

Summation indices are running totals of oscillator values.

Short term momentum indicators applied to summation indices make them binary so position is all that matters.

The next 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.  

NYSE SI’s momentum indicators remained negative last week.

 

The Positives

Big tech is all that is holding up the OTC and SPX.

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

All the momentum indicators of Nasdaq SI’s turned upward at the end of last week. 

 

Seasonality

Next week includes the 5 trading days prior to the 3rd Friday of May 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 negative by all measures. 

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

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  -0.06%   0.09%   0.06%   0.18%  -0.06%   0.21%

1967-3  -0.35%  -0.52%   0.78%   0.23%   0.03%   0.16%

1971-3  -1.44%  -0.69%  -0.06%   0.36%   0.12%  -1.71%

1975-3  -0.63%   1.28%  -0.53%  -0.14%  -0.42%  -0.45%

1979-3  -0.54%   0.02%   0.26%   0.84%   0.44%   1.02%

Avg     -0.60%   0.03%   0.10%   0.29%   0.02%  -0.15%

1983-3  -1.43%   0.47%   0.83%  -0.23%   0.24%  -0.11%

1987-3  -0.24%  -0.39%   0.33%   0.18%  -0.89%  -1.01%

1991-3   0.10%  -1.04%  -2.19%   0.77%  -0.08%  -2.44%

1995-3   0.48%   0.60%   0.42%  -0.90%   0.06%   0.66%

1999-3   1.34%  -0.13%   0.74%  -1.37%  -0.87%  -0.28%

Avg      0.05%  -0.10%   0.03%  -0.31%  -0.31%  -0.64%

2003-3   1.40%  -0.11%  -0.31%   1.07%  -0.83%   1.22%

2007-3  -0.62%  -0.83%   0.88%  -0.32%   0.75%  -0.13%

2011-3  -1.63%   0.03%   1.14%   0.30%  -0.71%  -0.87%

2015-3  -0.20%  -0.35%   0.11%   1.39%  -0.05%   0.90%

2019-3  -3.41%   1.14%   1.13%   0.97%  -1.04%  -1.20%

Avg     -0.89%  -0.02%   0.59%   0.68%  -0.37%  -0.02%

OTC summary for PY3 1963 - 2019

Avg     -0.48%  -0.03%   0.24%   0.22%  -0.22%  -0.27%

Win%       27%     47%     73%     67%     40%     40%

OTC summary for all years 1963 - 2022

Avg     -0.07%   0.00%  -0.09%   0.04%  -0.17%  -0.29%

Win%       48%     45%     57%     52%     42%     47%

SPX PY3

Year       Mon     Tue     Wed    Thur    Fri    Totals

1955-3  -1.12%  -0.14%   0.84%   0.56%   0.67%   0.81%

1959-3   0.42%   0.16%   0.56%   0.69%  -0.36%   1.46%

1963-3  -0.06%  -0.38%   0.31%  -0.26%   0.06%  -0.33%

1967-3  -0.82%   0.46%  -0.39%  -0.27%  -0.50%  -1.51%

1971-3  -1.49%   0.14%   0.24%   0.24%  -0.32%  -1.19%

1975-3   0.09%   1.07%   0.75%  -0.93%  -1.07%  -0.09%

1979-3  -0.47%   0.08%   0.29%   1.54%  -0.01%   1.43%

Avg     -0.55%   0.27%   0.24%   0.06%  -0.37%  -0.34%

1983-3  -0.91%   0.19%  -0.27%  -0.78%   0.09%  -1.68%

1987-3  -0.61%   0.59%   0.23%   0.09%  -2.31%  -2.01%

1991-3   0.27%  -1.36%  -0.82%   0.98%   0.05%  -0.88%

1995-3   0.42%   0.09%  -0.21%  -1.42%  -0.08%  -1.21%

1999-3   0.13%  -0.46%   0.82%  -0.39%  -0.64%  -0.55%

Avg     -0.14%  -0.19%  -0.05%  -0.31%  -0.58%  -1.27%

2003-3   1.25%  -0.30%  -0.32%   0.79%  -0.25%   1.17%

2007-3  -0.18%  -0.13%   0.86%  -0.09%   0.66%   1.12%

2011-3  -0.62%  -0.04%   0.88%   0.22%  -0.77%  -0.33%

2015-3  -0.51%  -0.29%  -0.03%   1.08%   0.08%   0.32%

2019-3  -2.41%   0.80%   0.58%   0.89%  -0.58%  -0.72%

Avg     -0.49%   0.01%   0.40%   0.58%  -0.17%   0.31%

SPX summary for PY3 1955 - 2019

Avg     -0.39%   0.03%   0.25%   0.17%  -0.31%  -0.25%

Win%       35%     53%     65%     59%     35%     35%

SPX summary for all years 1953 - 2022

Avg     -0.06%   0.04%  -0.05%  -0.02%  -0.09%  -0.19%

Win%       51%     50%     49%     51%     51%     46%

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 3.996% down from 4.110%
• 5yr yield 3.448% down from 3.611%
• 10yr yield 3.468% down from 3.520% 
• 30yr yield 3.792% up from 3.740%

Everything is inverted (shorter term maturities yield more than longer term maturities) from the 2yr. Beyond the 2yr everything is “normal”.

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

Market breadth was lousy again last week.  Again most of the Indices were down for the week except the OTC which beat its previous high for the year again on Thursday.  This is reminiscent of March of 2000 just before Dotcom bubble burst and took the rest of the market with it.

The strongest sectors last week were Utilities and Internet while the weakest were Energy (for the 4th week in a row) and Banks (for the 2nd week in a row).

I expect the major averages to be lower on Friday, May 19 than they were on Friday, May 12.

Last week all of the major indices were down except the OTC again, so I am calling last week's negative forecast a tie.

 

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