The good news is:  New lows have continued to disappear.

​The Negatives

The market is overbought. All of the major indices are up 4% to 9% in the past 2 weeks.

The Positives

New lows have remained minimal. The secondaries continue to lead the way upward; the Russell 2000 (R2K) was up nearly 5% last week while the Dow Jones Industrial Average (DJIA), the laggard, was up a mere 2.4%.

The first chart covers the past 6 months showing the S&P 500 (SPX) in red and a 40% trend (4 day EMA) of NYSE new highs divided by new highs + new lows (NY HL Ratio), in blue.  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.

 NY HL Ratio continued to move sharply upward and reached positive territory for the 1st time since last October. 

The next chart is similar to the first one above except it shows the Nasdaq composite (OTC) in blue and OTC HL Ratio, in red, has been calculated with Nasdaq data.

OTC HL Ratio also moved into positive territory.

The next chart covers the past 6 months showing the OTC in blue and a 10% trend of Nasdaq new lows (OTC NL) in brown.  OTC NL has been plotted on an inverted Y axis so diminishing numbers of new lows move the indicator upward (up is good).

OTC NL continued moving sharply 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.
NY NL also continued to move sharply upward.

Seasonality

Next week includes the 5 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.  

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 modest by all measures.

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 Presiddential Year 3
 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%
 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%

 Avg      0.32%   0.08%   0.49%   0.80%  -0.35%   1.33%

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

 Avg     -0.48%   0.74%  -0.77%  -1.54%  -0.48%  -2.25%

OTC summary for Presidential Year 3 1963 - 2015 
 Avg      0.12%   0.26%   0.07%  -0.02%  -0.11%   0.30%
 Win%       64%     50%     57%     57%     50%     50%

OTC summary for all years 1963 - 2018
 Avg     -0.03%   0.21%   0.05%   0.20%   0.07%   0.51%
 Win%       58%     57%     59%     64%     59%     68%


SPX Presidential Year 3
 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%

 Avg      0.06%  -0.02%   0.18%   0.29%  -0.09%   0.42%

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

 Avg      0.25%  -0.21%   0.20%   1.03%  -0.10%   1.18%

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

 Avg     -0.48%   0.23%  -0.53%  -0.69%  -0.07%  -1.25%

SPX summary for Presidential Year 3 1955 -2015 
 Avg     -0.11%   0.04%  -0.02%   0.23%  -0.03%   0.14%
 Win%       54%     56%     56%     56%     63%     44%

SPX summary for all years 1953 - 2018
 Avg     -0.09%   0.10%  -0.05%   0.04%  -0.04%  -0.03%
 Win%       43%     59%     55%     57%     56%     50%

Money supply (M2) and Interest Rates

The following charts were supplied by Gordon Harms. Here we see the real reason for the rally, a flood of liquidity. M2 had been moving downward for several months then, in the past month, turned sharply upward. The PPT in action.

Interest rates at the close Friday:
2yr yield 2.549%
5yr yield 2.526%
10yr yield 2.704%
30yr yield 3.035%

There is an inversion between the 2yr and 5yr and the difference between the 2yr and the 30yr is only 0.486%

Conclusion

New highs have yet to show any signs of life while new lows have disappeared.  The market should continue moving upward as long as the PPT is on the job.

I expect the major averages to be higher on Friday, January 18 than they were on Friday, January 11.