Technical Market Report For July 18

The good news is new lows continue at minimal levels.

The Negatives

Leadership is narrow; there have been very few new highs considering the indices are near their all time highs.

The first chart covers the past six 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 of the 1st trading day of each month.

The index stalled last week and new lows, already weak declined sharply.

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.

There is nothing pretty about this chart.

The Positives

The secondaries represented by the Russell 2000 (R2K) had a good week, up 3.56%.

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 rose to a very strong 93%. 

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 with Nasdaq data.

OTC HL Ratio was nearly unchanged, finishing the week at a very strong 86%.

Seasonality

Next week includes the five trading days prior to the fourth Friday of July during the fourth 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 2019 while SPX data runs from 1953 to 2019. There are summaries for both the fourth year of the Presidential Cycle and all years combined. Prior to 1953 the market traded six days a week so that data has been ignored.

Returns for next week have, on average, been negative by all measures.

Report for the week before the fourth Friday of July.

The number following the year is the position in the Presidential Cycle.

Daily returns from Monday through the 4th Friday.

OTC Presidential Year 4 (PY4)

 Year Mon Tue Wed Thur Fri Totals

 1964-4-0.02%-0.34% 0.02% 0.05% 0.10%-0.19%

 1968-4 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

 1972-4 0.89%-0.23% 0.14%-0.23%-0.16% 0.41%

 1976-4-0.35%-0.43%-0.16% 0.14%-0.07%-0.87%

 1980-4 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

 1984-4-1.01%-0.59%-0.19% 0.78% 0.99%-0.02%

 1988-4 0.05%-0.88% 0.09%-0.71%-0.39%-1.84%

 1992-4-0.16% 1.22% 1.03% 0.23% 0.35% 2.67%

 1996-4-1.48%-2.99%-0.64% 1.92% 1.60%-1.59%

 Avg -0.65%-0.81% 0.07% 0.55% 0.64%-0.20%

 2000-4-2.76% 1.21%-1.04%-3.65%-4.66% -10.90%

 2004-4 0.04% 1.76%-2.23% 0.78%-2.12%-1.76%

 2008-4 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

 2012-4-1.20%-0.94%-0.31% 1.37% 2.24% 1.16%

 2016-4 0.52%-0.38% 1.06%-0.31% 0.52% 1.40%

 Avg -0.85% 0.41%-0.63%-0.45%-1.01%-2.52%

OTC summary for PY4 1964 - 2016 

 Avg -0.50%-0.24%-0.20% 0.03%-0.15%-1.05%

 Win% 36% 27% 45% 64% 55% 36%

OTC summary for all years 1963 - 2019

 Avg -0.27%-0.09% 0.18% 0.04%-0.01%-0.16%

 Win% 46% 56% 58% 60% 60% 54%

SPX PY4

 Year Mon Tue Wed Thur Fri Totals

 1956-4-0.04% 0.00% 0.22% 0.08%-0.81%-0.55%

 1960-4-0.62% 0.00%-0.16%-0.92%-0.69%-2.39%

 1964-4-0.46%-0.28% 0.08% 0.21% 0.11%-0.33%

 1968-4 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

 1972-4 1.18%-0.30%-0.07%-0.23% 0.09% 0.68%

 1976-4-0.37%-0.55% 0.10% 0.11% 0.13%-0.59%

 Avg -0.07%-0.37%-0.01%-0.21%-0.09%-0.66%

 1980-4 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

 1984-4-0.40%-0.76% 0.68% 0.84% 0.74% 1.10%

 1988-4-0.57%-0.75% 0.57%-1.24%-1.19%-3.17%

 1992-4-0.01% 1.45% 1.13% 0.40% 0.07% 3.04%

 1996-4-0.78%-1.09%-0.04% 0.72% 0.75%-0.43%

 Avg -0.44%-0.29% 0.59% 0.18% 0.09% 0.13%

 2000-4-1.07% 0.69%-1.50%-0.19%-2.05%-4.12%

 2004-4-0.04% 0.71%-1.33% 0.27%-0.97%-1.37%

 2008-4 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

 2012-4-0.89%-0.90%-0.03% 1.65% 1.91% 1.74%

 2016-4 0.24%-0.14% 0.43%-0.36% 0.46% 0.62%

 Avg -0.44% 0.09%-0.61% 0.34%-0.16%-0.78%

SPX summary for PY4 1956 - 2016 

 Avg -0.30%-0.17% 0.01% 0.10%-0.11%-0.44%

 Win% 15% 27% 54% 62% 62% 38%

SPX summary for all years 1953 - 2019

 Avg -0.17%-0.07% 0.32% 0.16% 0.00% 0.24%

 Win% 35% 55% 63% 61% 60% 58%

Money supply (M2) and Interest Rates

The following charts were supplied by Gordon Harms.

M2 appears to be leveling off at its substantially elevated level.

Interest rates at their close last Friday and their changes from last month:

2yr yield 0.145% down from 0.205%

5yr yield 0.276% down from 0.337%

10yr yield 0.634% down from 0.704%

30yr yield 1.330% down from 1.458%

The PPT is being careful to not let the yield curve invert.

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

Conclusion

The Plunge Protection Team (PPT) AKA Presidents Working Group on Financial Markets must have noticed the small caps were underperforming and gave them a boost last week.  

Seasonally next week, like last week, has been very weak. 

The strongest sectors last week were precious metals and basic materials; the weakest were energy and tech. 

I expect the major averages to be higher on Friday, July 24, than they were on Friday, July 17.In the PPT I trust.

Last week the OTC was down while all the other major averages were up so I am calling last weeks positive forecast a tie.