Technical Market Report For Saturday, Dec. 4

Technical Market Report for Saturday, Dec. 4, 2021

The good news is that the coming low will be easy to identify.

The Negatives

There has been no sign of a bottom; all of the breadth indicators are heading downward.

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 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).

The new low indicators are the best bottom indicators I am aware of. When a bottom has been reached, new lows disappear and the indicator moves sharply upward. We are not there yet.

The next chart is similar to the one above, except it shows the S&P 500 (SPX) in red and the NY NL in blue. The NY NL information has been calculated with NYSE data. Similar action was seen in the NY NL.

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 is at its lowest level since the COVID-19 crash.

The next chart is similar to the previous one, except it shows the SPX in red and the NY HL Ratio in blue. The NY HL Ratio information has been calculated with NYSE data. The NY HL Ratio also fell to its lowest level since the COVID-19 crash. 

The Positives

The market is oversold.

Seasonality

Next week includes the five trading days prior to the second Friday of December 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 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  -0.30%   0.14%   1.31%   1.02%   0.80%   2.97%

 1969-1  -0.66%  -1.02%  -0.32%   0.28%   0.60%  -1.13%

 1973-1   1.32%  -1.43%  -1.51%  -1.86%   0.57%  -2.91%

 1977-1   0.05%  -1.13%  -0.12%   0.20%   0.49%  -0.50%

 1981-1  -0.58%  -0.79%   0.08%   0.32%  -0.14%  -1.12%

 1985-1   0.09%   0.13%   0.49%   0.54%   1.06%   2.32%

 1989-1   0.26%   0.06%  -0.41%  -0.08%  -0.02%  -0.19%

 1993-1  -0.15%  -0.23%  -0.19%  -0.83%  -0.10%  -1.49%

 1997-1   1.08%  -1.87%  -1.48%  -2.39%  -1.41%  -6.07%

   Avg:      0.14%  -0.54%  -0.30%  -0.49%  -0.12%  -1.31%

 2001-1  -1.44%   0.49%   0.47%  -3.23%   0.34%  -3.36%

 2005-1  -0.69%   0.14%  -0.39%  -0.25%   0.46%  -0.73%

 2009-1  -0.22%  -0.76%   0.49%   0.33%  -0.03%  -0.18%

 2013-1   0.15%  -0.20%  -1.40%  -0.14%   0.06%  -1.52%

 2017-1  -1.05%  -0.19%   0.21%   0.54%   0.40%  -0.10%

   Avg:    -0.65%  -0.10%  -0.12%  -0.55%   0.25%  -1.18%

OTC summary for PY1 1965 - 2017 

• Avg:     -0.15%  -0.48%  -0.20%  -0.40%   0.22%  -1.00%
• Win%:       43%     36%     43%     50%     64%     14%

OTC Summary for All Years 1963 - 2020

• Avg:      0.13%   0.06%  -0.05%  -0.29%   0.14%   0.00%
• Win%:       60%     50%     53%     50%     55%     48%

SPX PY1

    Year       Mon      Tue       Wed      Thur      Fri      Totals

 1953-1  -0.12%  -0.32%  -0.12%  -0.24%  -0.08%  -0.88%

 1957-1  -0.94%  -0.88%  -0.12%   0.10%   0.44%  -1.40%

 1961-1   0.32%  -0.11%   0.08%  -0.40%   0.47%   0.36%

 1965-1  -0.75%   0.88%  -0.12%   0.31%   0.26%   0.59%

 1969-1  -1.20%  -0.09%  -0.08%   0.04%   0.32%  -1.00%

 1973-1   1.49%  -1.95%  -2.57%  -1.27%   0.99%  -3.32%

 1977-1  -0.42%  -1.53%  -0.05%   0.19%   0.74%  -1.07%

   Avg:    -0.11%  -0.56%  -0.55%  -0.23%   0.56%  -0.89%

 1981-1  -0.85%  -0.30%   0.53%   0.18%  -0.62%  -1.05%

 1985-1   0.62%   0.07%   0.94%   0.20%   1.55%   3.38%

 1989-1   0.22%  -0.52%  -0.29%  -0.28%   0.32%  -0.55%

 1993-1   0.33%   0.07%  -0.10%  -0.45%  -0.05%  -0.21%

 1997-1  -0.14%  -0.67%  -0.61%  -1.53%  -0.16%  -3.12%

   Avg:     0.04%  -0.27%   0.09%  -0.37%   0.21%  -0.31%

 2001-1  -1.59%  -0.28%   0.03%  -1.56%   0.33%  -3.06%

 2005-1  -0.24%   0.13%  -0.50%  -0.12%   0.28%  -0.45%

 2009-1  -0.25%  -1.03%   0.37%   0.58%   0.37%   0.05%

 2013-1   0.18%  -0.32%  -1.13%  -0.38%  -0.01%  -1.66%

 2017-1  -0.11%  -0.37%  -0.01%   0.29%   0.55%   0.35%

   Avg:    -0.40%  -0.37%  -0.25%  -0.24%   0.30%  -0.95%

SPX Summary for PY1 1953 - 2017 

• Avg:     -0.20%  -0.42%  -0.22%  -0.25%   0.34%  -0.77%
• Win%:       35%     24%     29%     47%     71%     29%

SPX Summary for All Years 1953 - 2020

• Avg:      0.15%  -0.01%   0.00%  -0.25%   0.13%   0.03%
• Win%:       56%     45%     52%     43%     63%     53%

Conclusion

We are still looking for a bottom, and there are no signs of that yet. Seasonally, the next two weeks appear weak.

The strongest sectors last week were utilities (same as the previous week) and electronics, while the weakest were energy (same as the last three weeks) and banks. I expect the major averages to be lower on Friday, Dec. 10 than they were on Friday, Dec. 3.