Technical Market Report For Saturday, Aug. 14

Technical Market Report for Saturday, Aug. 14, 2021

The good news is that the S&P 500 (SPX) and Dow Jones Industrial Average (DJIA) both closed at all-time highs last Friday.

The Negatives

The blue chips have been outperforming the secondaries. Thursday and Friday saw new lows exceed new highs on the Nasdaq for the first time since mid-July.

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 on the first trading day of each month. Not much happening here, the OTC NH remained near its lowest level of the past six months.

The next chart is similar to the first one, except it shows the SPX in red and the NY NH in green. The information has been calculated with NYSE data. The NY NH went nowhere as the index hit new all-time highs.

The next chart covers the past six months, showing the OTC in blue and a 10% trend (19-day EMA) of Nasdaq new lows (OTC NL) in brown. The OTC NL has been plotted on an inverted Y axis, so decreasing numbers of new lows move the indicator upward (up is good). New lows increased.

The next chart is similar to the one above, except is shows the SPX in red and the NY NL in blue. The information has been calculated with NYSE data. New lows were increasing while the index was hitting new all-time highs.

The Positives

Last week the new high and low numbers increased modestly on the NYSE, but they increased to the point that they exceeded new highs on the Nasdaq. 

The next chart covers the past six months, showing the OTC in blue, and a 40% trend (four-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. The OTC HL Ratio declined to finish the week at the neutral line.

The next chart is similar to the previous one, except it shows the SPX in red and the NY HL ratio in blue. The information has been calculated with NYSE data. The NY HL Ratio remained in the low 80% area for another week. 

Seasonality

Next week includes the five trading days prior to the third Friday of August during the first 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 2020, while SPX data runs from 1953 to 2020. There are summaries for both the first 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.

Average returns for the coming week have been modest, mixed, and weaker during the first year of the Presidential Cycle than other years. The number following the year is the position in the Presidential Cycle.

OTC Presidential Year 1 (PY1)

   Year       Mon       Tue       Wed      Thur      Fri      Totals

 1965-1   0.70%  -0.22%   0.26%   0.24%  -0.26%   0.72%

 1969-1  -0.29%  -0.79%  -0.94%  -0.10%   0.42%  -1.71%

 1973-1  -0.92%  -0.73%  -0.23%  -0.04%   0.39%  -1.53%

 1977-1   0.13%  -0.24%   0.07%   0.14%  -0.01%   0.09%

 1981-1  -1.16%  -1.26%   0.10%   0.36%  -0.58%  -2.54%

 1985-1  -0.28%  -0.43%   0.21%  -0.01%  -0.39%  -0.90%

 1989-1  -1.40%   1.08%  -0.03%   0.01%   0.25%  -0.09%

 1993-1   1.20%   0.57%   0.52%  -0.59%   0.07%   1.76%

 1997-1  -0.73%  -0.67%   0.46%   0.21%  -1.56%  -2.29%

   Avg:     -0.48%  -0.14%   0.25%   0.00%  -0.44%  -0.81%

 2001-1   1.32%  -0.89%  -2.32%   0.60%  -3.28%  -4.58%

 2005-1   0.47%  -1.38%   0.38%  -0.42%  -0.02%  -0.98%

 2009-1  -2.75%   1.30%   0.68%   1.01%   1.59%   1.83%

 2013-1   0.27%   0.39%  -0.41%  -1.72%  -0.09%  -1.56%

 2017-1   1.33%  -0.11%   0.19%  -1.93%  -0.09%  -0.61%

   Avg:      0.13%  -0.14%  -0.30%  -0.49%  -0.38%  -1.18%

OTC Summary for PY1 1965 - 2017 

•  Avg:     -0.15%  -0.24%  -0.08%  -0.16%  -0.25%  -0.89%
•  Win%:       50%     29%     64%     50%     36%     29%

OTC Summary for All Years 1963 - 2020

•  Avg:      0.24%   0.02%   0.12%  -0.15%  -0.08%   0.15%
•  Win%:       67%     49%     59%     53%     55%     53%

SPX PY1

   Year       Mon       Tue      Wed      Thur       Fri      Totals

 1953-1  -0.24%  -0.41%  -0.61%  -0.08%   0.25%  -1.10%

 1957-1  -1.26%  -0.06%  -1.23%   0.04%   0.17%  -2.33%

 1961-1  -0.50%  -0.25%   0.27%   0.56%   0.26%   0.34%

 1965-1   0.12%   0.20%  -0.06%  -0.23%  -0.12%  -0.09%

 1969-1  -0.62%  -0.78%   0.08%   0.69%   0.71%   0.07%

 1973-1  -1.01%  -0.96%   0.29%  -0.70%   0.02%  -2.36%

 1977-1   0.31%  -0.46%   0.01%  -0.06%  -0.17%  -0.38%

   Avg:     -0.34%  -0.45%   0.12%   0.05%   0.14%  -0.48%

 1981-1  -0.96%  -0.85%   0.29%   0.15%  -1.12%  -2.48%

 1985-1  -0.37%  -0.18%   0.06%  -0.08%  -0.62%  -1.18%

 1989-1  -0.49%   0.48%   0.28%  -0.35%   0.46%   0.38%

 1993-1   0.50%   0.17%   0.64%   0.09%  -0.06%   1.33%

 1997-1   0.37%  -1.12%  -0.49%   0.30%  -2.59%  -3.53%

   Avg:     -0.19%  -0.30%   0.16%   0.02%  -0.79%  -1.10%

 2001-1   0.09%  -0.38%  -0.73%   0.31%  -1.67%  -2.38%

 2005-1   0.28%  -1.18%   0.07%  -0.10%   0.06%  -0.86%

 2009-1  -2.43%   1.01%   0.69%   1.09%   1.86%   2.23%

 2013-1  -0.12%   0.28%  -0.52%  -1.43%  -0.33%  -2.11%

 2017-1   1.00%  -0.05%   0.14%  -1.54%  -0.18%  -0.63%

   Avg:     -0.23%  -0.06%  -0.07%  -0.33%  -0.05%  -0.75%

SPX Summary for PY1 1953 - 2017 

•  Avg:     -0.31%  -0.27%  -0.05%  -0.08%  -0.18%  -0.89%
•  Win%:       41%     29%     65%     47%     47%     29%

SPX Summary for All Years 1953 - 2020

•  Avg:      0.16%   0.02%  -0.07%  -0.09%   0.03%   0.06%
•  Win%:       65%     50%     55%     51%     59%     51%

Money Supply (M2) and Interest Rates

The following charts were supplied by Gordon Harms. M2 growth continued to level off. Perhaps the Fed has quit calculating M2.

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

• 2-year yield: 0.213%, down from 0.238%.
• 5-year yield: 0.776%, down from 0.783%.
• 10-year yield: 1.286%, down from 1.294%.
• 30-year yield: 1.930%, up from 1.922%.

A carefully managed yield curve.

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

Conclusion

Not much has been going on; all of the markets appear to be carefully managed. After several weeks of new blue chip highs, the market might take a little dip -- which would fit the seasonal pattern.

The strongest sectors last week were banks and utilities (same as the previous week), while the weakest were precious metals and internet. I expect the major averages to be lower on Friday, Aug. 20 than they were on Friday, Aug. 13. Last week the DJIA and SPX were up while the OTC and Russell 2000 were down, so I am calling last week's positive forecast a tie.