Technical Market Report For Saturday, August 22

The good news is:

• Both, the NASDAQ composite (OTC) and S&P 500 (SPX) closed at all time highs last Friday, August 21.

The Negatives

• Narrowing leadership, minimal new highs, and declining volume as the indices hit all time highs.

The first chart covers the past six months, showing the SPX in red, and a 5% trend (39 day EMA) of NYSE volume of advancing issues (UV) in blue. Dashed vertical lines have been drawn on the first trading day of each month.

This is a bizarre chart showing UV crashing, while the SPX is hitting a new high. A sign of the times.

The next chart covers the past six months, showing the SPX in red, and a 40% trend (four 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 solidly at the 50% neutral level.

The NY HL Ratio was tumbling as the index hit its new high. 

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

The next chart covers the past six months, showing the OTC in blue, and a 10% trend (19 day EMA) of NASDAQ new highs (OTC NH) in green. New highs were tumbling as the OTC hit its new high.

Just in case you thought the previous chart didn’t look too bad, the next chart is similar to the one above, except it covers the past year. It shows progressively lower highs for the OTC NH, accompanied by higher highs for the index.

The next chart is similar to the OTC NH chart above, except it shows the SPX in red and NY NH in green. The information has been calculated with NYSE data. NY NH performance has been pitiful, and thus declined while the SPX hit its all time high.

Apple (AAPL) is a significant component of both the OTC and SPX, so it hitting a 2 trillion market cap helped both of those indices. 

Seasonality

Next week includes the five trading days prior to the fourth Friday of August 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 coming week have been modest and mixed.

Report for the week before the fourth Friday of August.

(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 0.56%-0.05%-0.51% 0.12% 0.46% 0.59%
•  1968-4 0.69% 0.69% 0.00%-0.50% 0.06% 0.94%
•  1972-4-0.11% 0.00%-0.14%-0.53%-0.07%-0.85%
•  1976-4-0.65%-0.52% 0.47%-0.39%-0.07%-1.17%
•  1980-4-1.47%-0.54% 0.79% 1.26% 0.99% 1.03%
•  1984-4-0.06% 1.24% 0.21% 0.10% 0.26% 1.75%
•  1988-4-0.98%-0.05% 0.67%-0.53% 0.10%-0.79%
•  1992-4-1.47%-0.21% 0.83% 0.80% 0.05%-0.01%
•  1996-4-0.25%-0.55% 0.19% 1.53%-0.08% 0.84%
•  Avg   -  -0.85%-0.02% 0.54% 0.63% 0.27% 0.57%
•  2000-4 0.58% 0.13% 1.33% 1.05%-0.26% 2.84%
•  2004-4 0.04%-0.10% 1.30%-0.42% 0.49% 1.31%
•  2008-4-1.45%-1.35% 0.20%-0.36% 1.44%-1.52%
•  2012-4-0.01%-0.29% 0.21%-0.66% 0.54%-0.22%
•  2016-4 0.12% 0.30%-0.81%-0.11% 0.13%-0.37%
•  Avg  -  -0.14%-0.26% 0.45%-0.10% 0.47% 0.41%

OTC summary for PY4 1964 - 2016 

•  Avg -   -0.32%-0.10% 0.36% 0.10% 0.29% 0.31%
•  Win% -   36% 31% 77% 43% 71% 50%

OTC summary for all years 1963 - 2019

•  Avg  -   -0.13% 0.05% 0.38%-0.11% 0.16% 0.34%
•  Win%   -  42% 56% 65% 49% 63% 60%

SPX PY4

•  Year        Mon   Tue    Wed    Thur    Fri    Totals
•  1956-4-1.17%-0.75%-0.98% 1.22%-0.10%-1.78%
•  1960-4 0.32% 0.98% 0.55%-0.48%-0.33% 1.04%
•  1964-4-0.19%-0.57%-0.15% 0.47% 0.35%-0.09%
•  1968-4 0.32%-0.04% 0.00%-0.26%-0.01% 0.01%
•  1972-4-0.04% 0.62%-0.13%-1.10%-0.32%-0.97%
•  1976-4-0.40%-0.68% 0.75%-0.70% 0.16%-0.86%
•  Avg  -  0.00% 0.06% 0.26%-0.42%-0.03%-0.18%
•  1980-4-1.85%-0.64% 0.95% 1.37% 0.45% 0.27%
•  1984-4 0.49% 1.75%-0.46% 0.04% 0.23% 2.05%
•  1988-4-1.25% 0.04% 1.57%-0.75% 0.19%-0.19%
•  1992-4-1.00% 0.22% 0.46% 0.00% 0.32% 0.00%
•  1996-4 0.21%-0.14%-0.09% 0.85%-0.55% 0.28%
•  Avg  -   -0.68% 0.25% 0.49% 0.30% 0.13% 0.48%
•  2000-4 0.52%-0.09% 0.52% 0.16%-0.12% 0.99%
•  2004-4-0.24% 0.05% 0.80% 0.01% 0.24% 0.86%
•  2008-4-1.51%-0.93% 0.62% 0.25% 1.13%-0.44%
•  2012-4 0.00%-0.35% 0.02%-0.81% 0.65%-0.49%
•  2016-4-0.06% 0.20%-0.52%-0.14%-0.16%-0.68%
•  Avg  -   -0.26%-0.23% 0.29%-0.11% 0.35% 0.05%

SPX summary for PY4 1956 - 2016 

•  Avg   -  -0.37%-0.02% 0.26% 0.01% 0.13% 0.00%
•  Win%  -   31% 44% 60% 56% 56% 50%

SPX summary for all years 1953 - 2019

•  Avg  -   -0.16% 0.04% 0.24%-0.14% 0.00%-0.02%
•  Win%  -   43% 57% 58% 45% 51% 60%

Conclusion

There were both intermediate and short term non-confirmations of Friday’s highs. Free money may be running into some limitations. The strongest sectors last week were retail and internet; the weakest were energy and banks (down from the top last week). 

I expect the major averages to be lower on Friday, August 28 than they were on Friday, August 21. Last week, the SPX and OTC were up, the Russell 2000 was down, and the Dow Jones Industrial average was unchanged. So, I am calling last week's positive forecast a tie.