Technical Market Report For May 16

The good news is Nasdaq volume has been at near record levels for the past 6 weeks.

The Negatives

The Plunge Protection Team (PPT) AKA The Working Group on Financial Markets fell asleep at the wheel early last week; the major indices fell and new lows ballooned to over 100 on both the Nasdaq and NYSE.

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 of the 1st trading day of each month.

The weakness of OTC NH indicates minimal broad market support. 

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.

Ditto NYSE

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 fell into negative territory finishing the week at 45%.

The Positives

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 took a dive into negative territory last week, then finished the week a barely positive 54%.

Seasonality

Next week includes the five trading days prior to the fourth Friday of May 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 6 days a week so that data has been ignored. 

Returns for the coming week have, on average, been a little better for the OTC than the SPX.

Report for the week before the fourth Friday of May.

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

Daily returns from Monday through the fourth Friday.

OTC Presidential Year 4 (PY4)

 Year Mon Tue Wed Thur Fri Totals

 1964-4 0.05%-0.82%-0.08% 0.49% 0.28%-0.07%

 1968-4-0.38%-0.22% 0.66% 0.56% 0.67% 1.29%

 1972-4 0.17% 0.26% 0.57% 0.25% 0.11% 1.35%

 1976-4-1.39%-0.39% 0.33%-0.36% 0.30%-1.51%

 1980-4 0.00%-0.21%-0.12% 0.82% 1.03% 1.52%

 1984-4-0.60%-0.97%-0.51%-1.75%-0.07%-3.89%

 1988-4-0.76% 0.52% 0.16% 0.43%-0.17% 0.18%

 1992-4 0.37% 0.26% 0.39%-0.21% 0.21% 1.02%

 1996-4 0.50%-0.30% 0.24% 0.10%-0.07% 0.48%

 Avg -0.12%-0.14% 0.03%-0.12% 0.18%-0.14%

 2000-4-0.77%-5.93% 3.35%-1.99%-0.01%-5.36%

 2004-4 0.57% 2.17% 0.59% 0.42% 0.11% 3.86%

 2008-4-0.50%-0.95%-1.77% 0.67%-0.81%-3.36%

 2012-4 2.46%-0.29% 0.39%-0.38%-0.07% 2.12%

 2016-4-0.08% 2.00% 0.70% 0.14% 0.65% 3.40%

 Avg0.34%-0.60% 0.65%-0.23%-0.02% 0.13%

OTC summary for PY4 1964 - 2016 

 Avg -0.03%-0.35% 0.35%-0.06% 0.15% 0.07%

 Win% 46% 36% 71% 64% 57% 64%

OTC summary for all years 1963 - 2019

 Avg -0.07%-0.14% 0.04% 0.13% 0.13% 0.09%

 Win% 46% 42% 58% 58% 63% 58%

SPX PY4

 Year Mon Tue Wed Thur Fri Totals

 1956-4-0.86%-1.59%-0.53%-0.93% 0.04%-3.87%

 1960-4-0.13%-0.11%-0.05% 0.07% 0.05%-0.16%

 1964-4-0.47%-0.52% 0.45% 0.05% 0.04%-0.45%

 1968-4-0.46% 0.50% 0.26%-0.22% 0.19% 0.26%

 1972-4 0.65% 0.08% 0.48% 0.14% 0.18% 1.53%

 1976-4-1.80% 0.05%-0.15% 0.04% 0.80%-1.05%

 Avg -0.44% 0.00% 0.20% 0.02% 0.25% 0.03%

 1980-4 0.30%-0.05% 0.09% 1.20% 1.48% 3.02%

 1984-4-0.67%-0.55%-0.47%-1.25% 0.26%-2.69%

 1988-4-0.87% 1.07% 0.10% 0.34%-0.48% 0.17%

 1992-4 0.66% 0.86%-0.24%-0.67% 0.34% 0.96%

 1996-4 0.63%-0.06% 0.84%-0.36% 0.37% 1.43%

 Avg0.01% 0.26% 0.06%-0.15% 0.39% 0.58%

 2000-4-0.45%-1.91% 1.83%-1.26%-0.25%-2.04%

 2004-4 0.17% 1.61% 0.17% 0.57%-0.05% 2.46%

 2008-4 0.09%-0.93%-1.61% 0.26%-1.32%-3.50%

 2012-4 1.60% 0.05% 0.17% 0.14%-0.22% 1.74%

 2016-4-0.21% 1.37% 0.70%-0.02% 0.43% 2.26%

 Avg0.24% 0.04% 0.25%-0.06%-0.28% 0.19%

SPX summary for PY4 1956 - 2016 

 Avg -0.11%-0.01% 0.13%-0.12% 0.12% 0.01%

 Win% 44% 50% 63% 56% 69% 56%

SPX summary for all years 1953 - 2019

 Avg -0.08%-0.10%-0.09% 0.04% 0.08%-0.15%

 Win% 46% 46% 50% 53% 61% 57%

Money supply (M2) and Interest Rates

The following charts were supplied by Gordon Harms.

M2 has had a growth rate NEVER seen before. This is why the market has been up.

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

2yr yield 0.149% down from 0.375%

5yr yield 0.310% down from 0.500%

10yr yield 0.646% down from 1.500%

30yr yield 1.330% down from 2.000%

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

With governments killing off many businesses and severely damaging the rest, it is a fantasy to imagine the kind of market performance we have been witnessing. New lows build up quickly when the indices decline while there are few new highs when the indices advance. The PPT is managing the decline.

The strongest sectors last week were Precious Metals and health; the weakest were Banks and Utilities.

I expect the major averages to be lower on Friday May 22 than they were on Friday May 15.

Last week's positive forecast was a miss.