The good news is: The market has been following the seasonal average for the 3rd year of the Presidential Cycle pretty closely. The strongest part of this year lasts until July.

​The Negatives

The market is overbought.

The Positives

New highs came alive last week. The secondaries were stronger than the blue chips. New lows have remained at benign levels.

The first chart covers the past 6 months showing the Nasdaq composite (OTC) in blue and a 10% trend (19 day EMA) of Nasdaq new highs (OTC NH) in green. Dashed vertical lines have been drawn on the first trading day of each month.

 OTC NH moved sharply upward after stalling the previous week.

The next chart is similar to the one above, except, it shows the S&P 500 (SPX) in red and NY NH, in green has been calculated with NYSE data.

 NY NH is also moving starply upward..

The next chart covers the past 6 months showing the 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 horizontal lines have been drawn at 10% levels for the indicator; the line is solid at the 50%, neutral, level.

NY HL Ratio is back above 90%, very strong. 

The next chart is similar to the 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 resumed its upward climb, finishing the week at a respectable 77%.

Seasonality

Next week includes the 4 trading days prior to the 4th Friday of February 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 Presidents Day.

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 and mixed.

Report for the week before the 4th Friday of February.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday through the 4th Friday.

OTC Presidential Year 3 (PY3)
 Year       Mon     Tue     Wed    Thur    Fri    Totals
 1963-3   0.00%   0.00%   0.00%   0.00%   0.00%   0.00%
 1967-3  -0.05%   0.19%   0.00%   0.50%   0.76%   1.40%
 1971-3  -1.01%   0.04%   0.92%   0.59%   0.11%   0.64%
 1975-3  -0.88%  -1.46%   0.24%   0.40%   0.65%  -1.06%

 1979-3   0.00%   0.21%  -0.26%  -0.04%  -0.33%  -0.42%
 1983-3   0.00%  -0.81%   0.31%   0.89%   0.05%   0.45%
 1987-3  -0.48%   0.52%   0.87%   0.24%   0.70%   1.84%
 1991-3   0.00%   0.36%  -0.95%   0.08%   0.58%   0.06%
 1995-3   0.00%  -0.30%   0.42%   0.43%  -0.03%   0.52%

 Avg     -0.48%   0.00%   0.08%   0.32%   0.19%   0.49%

 1999-3   2.56%   1.43%  -1.52%  -0.54%  -1.67%   0.26%
 2003-3  -1.97%   0.50%  -1.90%   1.55%   1.03%  -0.80%
 2007-3   0.00%   0.67%   0.21%   0.26%  -0.39%   0.75%
 2011-3   0.00%  -2.74%  -1.21%   0.55%   1.58%  -1.82%
 2015-3   0.10%   0.14%  -0.02%   0.42%  -0.49%   0.15%

 Avg      0.23%   0.00%  -0.89%   0.45%   0.01%  -0.29%

OTC summary for PY3 1963 - 2015
 Avg     -0.25%  -0.10%  -0.24%   0.41%   0.20%   0.15%
 Win%       29%     69%     50%     85%     62%     69%

OTC summary for all years 1963 - 2018
 Avg     -0.14%  -0.28%   0.17%   0.05%   0.13%   0.01%
 Win%       48%     38%     62%     62%     57%     60%


SPX PY3
 Year       Mon     Tue     Wed    Thur    Fri    Totals
 1955-3  -0.11%   0.00%  -0.08%  -0.54%  -0.14%  -0.87%

 1959-3   0.00%  -0.07%  -0.43%   0.18%   0.13%  -0.20%
 1963-3   0.00%   0.00%   0.00%   0.00%   0.00%   0.00%
 1967-3  -0.56%  -0.07%   0.00%   0.13%  -0.05%  -0.55%
 1971-3  -1.05%   0.39%   0.67%   0.20%  -0.18%   0.02%
 1975-3  -1.43%  -2.35%   1.06%   0.50%   1.02%  -1.20%

 Avg     -1.01%  -0.52%   0.43%   0.25%   0.23%  -0.48%

 1979-3   0.00%   0.76%  -0.35%  -0.75%  -0.56%  -0.90%
 1983-3   0.00%  -1.70%   0.90%   1.91%   0.09%   1.21%
 1987-3  -1.09%   0.18%   0.40%  -0.37%   0.44%  -0.44%
 1991-3   0.00%   0.09%  -1.15%  -0.05%   0.19%  -0.92%
 1995-3   0.00%   0.16%   0.49%   0.38%   0.28%   1.30%

 Avg     -1.09%  -0.10%   0.06%   0.23%   0.09%   0.05%

 1999-3   2.65%  -0.07%  -1.40%  -0.67%  -0.54%  -0.02%
 2003-3  -1.84%   0.72%  -1.31%   1.17%   0.46%  -0.79%
 2007-3   0.00%   0.28%  -0.14%  -0.09%  -0.36%  -0.30%
 2011-3   0.00%  -2.05%  -0.61%  -0.10%   1.06%  -1.71%
 2015-3  -0.03%   0.28%  -0.08%  -0.15%  -0.30%  -0.27%

 Avg      0.26%  -0.17%  -0.71%   0.03%   0.07%  -0.62%

SPX summary for PY3 1955 - 2015 
 Avg     -0.43%  -0.25%  -0.15%   0.12%   0.10%  -0.38%
 Win%       13%     57%     36%     47%     53%     20%


SPX summary for all years 1953 - 2018
 Avg     -0.15%  -0.17%   0.13%  -0.05%   0.12%  -0.04%
 Win%       39%     42%     50%     48%     61%     48%

Money supply (M2) and Interest Rates

The following charts were supplied by Gordon Harms.

M2 growth declined a bit last month, but remains above its longer term trend.

Interest rates at the close Friday:
2yr yield 2.520%
5yr yield 2.491%
10yr yield 2.666%
30yr yield 2.994%
All of the rates dropped a little last month and the inversion between the 2yr and 5yr continued.

Conclusion

The market is overbought.  The OTC and Russell 2000 have been up for 6 consecutive days. The breadth indicators are strong. The average seasonal pattern suggests a leveling off for the rest of this month.

I expect the major averages to be higher on Friday February 22 than they were on Friday February 15.