The good news is:​ All of the major averages except the Dow Jones Industrial Average (DJIA) closed at all-time highs on Thursday or Friday last week.  Even Energy and Precious Metals had a good week.

The Negatives

Not much to report here; just NYSE new highs failing to confirm the new index highs.

The first chart covers the past 6 months showing the S&P 500 (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 unambiguously failed to confirm the new SPX high.

The Positives

If you are going to have an index failing to confirm new highs in the broad-based indices, the DJIA would be your first choice.

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

OTC NH got out of its funk and shot up to confirm the new OTC high.

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.

OTC HL Ratio rose to a strong 79%.

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 rose to a very strong 89%.

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 2018 while SPX data runs from 1953 to 2018. 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 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%
 1983-3  -0.20%  -0.36%  -0.90%  -0.39%   0.24%  -1.61%
 1987-3   2.25%   1.06%   2.10%   0.08%   2.32%   7.82%
 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%

 Avg      0.57%  -0.30%   0.32%  -0.52%   0.40%   0.47%

 1999-3   1.05%  -2.36%   1.41%   2.57%   1.02%   3.69%
 2003-3  -1.58%   0.31%  -0.15%   1.81%  -0.26%   0.13%
 2007-3  -2.32%   0.84%   0.19%   1.53%   1.94%   2.17%
 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%

 Avg     -0.76%  -0.32%   0.28%   0.93%   0.33%   0.47%

OTC summary for PY3 1963 - 2015 
 Avg     -0.12%  -0.21%   0.36%   0.25%   0.28%   0.56%
 Win%       43%     36%     71%     71%     57%     57%

OTC summary for all years 1963 - 2018
 Avg     -0.06%   0.11%  -0.04%  -0.03%   0.12%   0.11%
 Win%       50%     52%     49%     57%     59%     59%


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%

 Avg      0.17%   0.18%   0.29%   0.23%  -0.07%   0.81%

 1979-3   0.38%  -0.94%  -0.09%   0.06%  -0.62%  -1.22%
 1983-3   0.32%  -0.42%  -0.97%  -1.02%   0.45%  -1.64%
 1987-3   2.92%   0.25%   2.17%  -2.06%   2.54%   5.83%
 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%

 Avg      0.79%  -0.33%   0.36%  -0.81%   0.69%   0.69%

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

 Avg     -0.64%   0.13%   0.21%   0.17%   0.06%  -0.07%

SPX summary for PY3 1955 - 2015 
 Avg      0.04%  -0.01%   0.21%  -0.13%   0.23%   0.34%
 Win%       56%     44%     63%     50%     56%     56%

SPX summary for all years 1953 - 2018
 Avg      0.02%   0.18%   0.05%  -0.03%   0.12%   0.33%
 Win%       55%     52%     51%     47%     59%     61%

Money supply (M2) and Interest Rates

The following charts were supplied by Gordon Harms.
M2 growth leveled off at its accelerated pace.

Interest rates at their close last Friday and their changes from last month:
2yr yield 1.610% down from 1.614%
5yr yield 1.657% up from 1.655%
10yr yield 1.827% down from 1.832%
30yr yield 2.255% down from 2.305%

The next chart is a close up showing just the past year from the chart above.

Conclusion

The last half of December is a time equities usually drift upward on low volume. There is no reason this year should be different

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

Last week's negative forecast was a miss.