Technical Stock Market Report

The good news is:  Both the S&P 500 (SPX) and Dow Jones Industrial Average (DJIA) closed at an all time high last Friday.

The negatives:  The market had a good week with the NASDAQ composite (OTC) leading the way followed closely by the SPX.  Last weeks rally was consistent with well documented end of month / beginning of month, positive, seasonal patterns which end Tuesday or Wednesday of next week.

The chart below covers the period from March 4 when the Russell 2000 (R2K) hit its all time high and the OTC hit a multi year high.  It shows the major indices on log scales to illustrate the stratification in performance.  Dashed vertical lines have been drawn on the 1st trading day of each week and the 1st trading day of each month.

Over the period shown both the DJIA, in black, and the SPX, in red, have been making marginal new highs followed by the S&P mid cap (MID), in green, the OTC, in blue, and, at the bottom, the Russell 2000 (R2K), in magenta.  Highest quality on the top and lowest on the bottom.

The next chart covers the past 6 months showing the 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 1st trading day of each month.

OTC NH picked up last week, its strongest rally of the past 3 months, but remains near its lowest level in nearly a year and a half.

The next chart is similar the one above except it shows the SPX in red and NY NH, in green has been calculated from NYSE data.

NY NH rose sharply last week, but remains closer to its low of the past 6 months than its high.

The next chart shows the SPX in red and NH 30, in green, has been calculated from NYSE equity only issues. NH 30 represents a 10% trend of new highs over the past 30 trading days or 6 weeks rather than the trailing 52 weeks reported by the exchanges.

The pattern of NY NH 30 has been similar to that of NY NH in the chart above.

The positives:  The chart below 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 neutral 50% level.

NY HL Ratio rose to a very strong 88%.

The next chart is similar to the one above except it shows the OTC in blue and OTC HL Ratio, in red, has been calculated from NASDAQ data.

OTC HL Ratio rose above the neutral line for the first time in about 6 weeks.

Money Supply (M2):  The Money supply chart has been provided by Gordon Harms.

M2 has increased a little last week.

Although the Fed claims to have reduced its bond purchases to $45B a month, its balance sheet has continued to expand at about an $85B a month rate.

June

Since 1963, over all years, the OTC, in June, has been up 57% of the time with an average gain of 0.4%.  During the 2nd year of the Presidential Cycle the OTC in June has been up 42% of the time with an average loss of -1.7%.  The best June ever for the OTC was 2000 (+16.6%), the worst 2002 (-9.4%).

The average month has 21 trading days.  The chart below has been calculated by averaging the daily percentage change for each of the 1st 11 trading days and each of the last 10.  In months when there were more than 21 trading days some of the days in the middle were not counted.  In months when there were less than 21 trading days some of the days in the middle of the month were counted twice.  Dashed vertical lines have been drawn after the 1st trading day and at 5 trading day intervals after that.  The line is solid on the 11th trading day, the dividing point.

In the chart below the blue line shows the average daily performance of the OTC in June over all years since 1963, while the green line shows the average during the 2nd year of the Presidential Cycle over the same period.

Since 1928 the SPX has been up 55% of the time in June with an average gain of 0.7%.  During the 2nd year of the Presidential Cycle the SPX has been up 38% of the time with an average loss of -1.2%.  The best June ever for the SPX was 1938 (+24.7%) the worst 1930 (-16.5%).

The chart below is similar to the one above except it shows the average daily performance over all years since 1928 for the SPX in June in red and the average daily performance during the 1st year of the Presidential Cycle, over the same period, in green.

Since 1979 the Russell 2000 (R2K) has been up 60% of the time in June with an average gain of 0.4%.  During the 2nd year of the Presidential Cycle the R2K has been up 38% of the time with an average loss of -2.5%.  The best June ever for the R2K, 2000 (+8.6%), the worst 2010 (-7.9%)

The chart below is similar to those above except it shows the average daily performance of the R2K, over all years since 1979, in June in magenta and the average daily performance during the 2nd year of the Presidential Cycle in green.

Since 1885 the Dow Jones Industrial Average (DJIA) has been up 46% of the time in June with an average gain of 0.1%.  During the 2nd year of the Presidential Cycle the DJIA has been up 38% of the time in June with an average loss of -1.0%.  The best June ever for the DJIA 1938 (+24.3%), the worst 1930 (-17.7%)

The chart below is similar to those above except it shows the average daily performance over all years for the DJIA in June in black and the average performance during the 1st year of the Presidential Cycle in green.

Conclusion

In May the blue chips were stronger than average for the 2nd year of the Presidential Cycle while the secondaries followed the seasonal pattern pretty closely, but with a positive bias.  This is reminiscent of 1999.  June should be interesting.

I expect the major averages to be lower on Friday June 6 than they were on Friday May 30.

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Disclaimer: : Charts and figures presented herein are believed to be reliable but I cannot attest to their accuracy.   Recent (last 10-15 yrs.) data has been supplied by CSI (csidata.com), FastTrack (fasttrack.net), Quotes Plus and the Wall Street Journal (wsj.com).  Historical data is from Barron’s and ISI price books.  The views expressed dare provided for information purposes only and should not be construed in any way as investment advice.  Furthermore, the opinions expressed may change without notice.