Technical market report for January 28, 2017

The good news is:
Most of the major indices closed at all time highs last week.

The Negatives
New highs failed to confirm the new index highs and the blue chips outperformed the secondaries.

The chart below 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 1st trading day of each month.

OTC NH rose a bit last week, but failed to confirm the index high by a significant margin.

Since 1979 the Russell 2000 (R2K) has been up 58% of the time in February with an average gain of 1.2%. During the 1st year of the Presidential Cycle the R2K has been up 56% of the time with an average loss of -2.0%. The best February for the R2K 2000 (+16.4%), the worst 2009 (-12.3%)

The chart below is similar to those above except it shows the average daily performance of the R2K, over all years since 1979, in February in magenta and the average daily performance during the 1st year of the Presidential Cycle in green.

Since 1885 the Dow Jones Industrial Average (DJIA) has been up 52% of the time in February with an average loss of -0.1%. During the 1st year of the Presidential Cycle the DJIA has been up 36% of the time in February with an average loss of -1.5%. The best February for the DJIA 1931 (+13.2%), the worst 1933 (-15.6%)

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

​​​The Positives

New highs picked up last week continuing to outnumber new lows by strong margins.

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 finishing the week at a very strong 84%.

The next chart covers the past year showing the Russell 2000 (R2K) in red, the SPX in green and a Fasttrack relative strength indicator called Accutrack as a histogram in yellow.

 Accutrack indicates the relative performance of the R2K to the SPX and has been falling sharply since late November.  Accutrack went negative about 2 weeks ago. 

Since 1928 the SPX has been up 53% of the time in February and has, on average, been flat (no change, 0.0%). During the 1st year of the Presidential Cycle the SPX has been up 41% of the time with an average loss of -2.1%. The best February for the SPX was 1931 (+11.4%) the worst 1933 (-18.4%).

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

Seasonality
Next week includes the last 2 trading days of January and the 1st 3 days of February during the 1st 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 2016 while SPX data runs from 1928 to 2016. There are summaries for both the 1st year of the Presidential Cycle and all years combined.

Average returns for the coming week have been modestly positive over all years, but modestly negative during the 1st year of the Presidential Cycle.

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

 NY HL Ratio rose last week to a very strong 92%. 

Conclusion
All of the major indices rose last week and the blue chip indices hit all time highs. There was a nice bump in new highs producing not so subtle non confirmations and the secondaries continued to under perform the blue chips. The market appears to setting up for a pull back in February consistent with the seasonal pattern.

I expect the major averages to be higher on Friday February 3 than they were on Friday January 27.