Technical Market Report For Saturday, Nov. 14

Technical market report for November 14, 2020

The good news is that the S&P 500 (SPX) and Russell 2000 (R2K) both closed at all time highs last Friday.

The Negatives

The bad news is that market is overbought.

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. The OTC NH was declining while the OTC was rising last week.

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 was declining when the SPX hit its all time high.

The Positives

New lows dropped to mostly single digits on both the NYSE and the OTC last week.

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 solid at the 50%, neutral level. The NY HL Ratio finished the week at a very strong 88%.

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 OTC HL Ratio rose to finish the week at very strong 89%.

Seasonality

Next week includes the five trading days prior to the third Friday of November, all during the fourth year of the Presidential Cycle. The tables below show the daily change on a percentage basis for that period.

The OTC data covers the period from 1963 to 2019, while the 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.

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

OTC Presidential Year 4 (PY4)

•    Year    Mon     Tue     Wed    Thur    Fri     Totals
•  1964-4 0.27% 0.29% 0.27% 0.13% 0.04% 1.02%
•  1968-4 0.00% 0.27% 0.31% 0.13% 0.57% 1.29%
•  1972-4 -0.26% 0.10% -0.34% -0.14% 0.05% -0.59%
•  1976-4 0.03% 0.44% 0.55% 0.90% 0.18% 2.11%
•  1980-4 -0.08% 1.08% 0.62% 0.72% -0.21% 2.12%
•  1984-4 -0.10% -0.57% -0.35% -0.39% -0.36% -1.77%
•  1988-4 -0.37% -0.06% -1.17% -0.10% 0.04% -1.66%
•  1992-4 -0.49% -1.09% 1.24% 0.58% 0.63% 0.87%
•  1996-4 0.41% -0.49% 0.18% 0.93% -0.68% 0.35%
•  Avg --  -0.13% -0.23% 0.10% 0.35% -0.12% -0.02%
•  2000-4 -2.06% 5.78% 0.87% -4.22% -0.16% 0.22%
•  2004-4 0.42% -0.74% 1.01% 0.22% -1.60% -0.69%
•  2008-4 -2.29% 0.08% -6.53% -5.07% 5.18% -8.63%
•  2012-4 -0.02% -0.70% -1.29% -0.35% 0.57% -1.78%
•  2016-4 -0.36% 1.10% 0.36% 0.74% -0.23% 1.61%
•  Avg  --  -0.86% 1.10% -1.12% -1.73% 0.75% -1.85%

OTC summary for PY4 1964 - 2016 

•  Avg  --   -0.38% 0.39% -0.30% -0.42% 0.29% -0.40%
•  Win% --    31% 57% 64% 57% 57% 57%

OTC summary for all years 1963 - 2019

•  Avg  --   -0.16% 0.12% -0.08% 0.08% 0.05% 0.01%
•  Win%  --    45% 55% 54% 56% 54% 58%

SPX PY4

•     Year    Mon     Tue      Wed     Thur    Fri     Totals
•  1956-4 0.32% -0.47% -0.56% -0.63% 0.04% -1.30%
•  1960-4 -0.50% 0.40% -0.20% -0.27% 0.49% -0.09%
•  1964-4 0.52% 0.44% 0.22% -0.05% 0.12% 1.25%
•  1968-4 0.00% 0.64% 0.49% 0.07% 0.55% 1.75%
•  1972-4 0.15% 0.92% -0.39% 0.55% 0.31% 1.54%
•  1976-4 0.67% 0.14% 0.57% 1.27% 0.03% 2.68%
•  Avg  --   0.21% 0.51% 0.14% 0.31% 0.30% 1.43%
•  1980-4 0.44% 1.42% -0.46% 0.96% -0.92% 1.44%
•  1984-4 -0.14% -0.83% 0.01% -0.06% -1.08% -2.10%
•  1988-4 -0.07% 0.23% -1.68% 0.30% 0.71% -0.53%
•  1992-4 -0.41% -0.34% 0.85% 0.18% 0.72% 1.00%
•  1996-4 0.15% -0.32% 0.21% 0.65% 0.24% 0.93%
•  Avg --  -0.01% 0.03% -0.21% 0.41% -0.07% 0.15%
•  2000-4 -1.08% 2.35% 0.50% -1.26% -0.34% 0.17%
•  2004-4 -0.03% -0.71% 0.55% 0.14% -1.12% -1.16%
•  2008-4 -2.58% 0.98% -6.12% -6.71% 6.32% -8.10%
•  2012-4 0.01% -0.40% -1.39% -0.16% 0.48% -1.45%
•  2016-4 -0.01% 0.75% -0.16% 0.47% -0.24% 0.81%
•  Avg  --  -0.74% 0.59% -1.32% -1.51% 1.02% -1.95%

SPX PY4 1956 - 2016

•  Avg  --   -0.17% 0.33% -0.47% -0.28% 0.40% -0.20%
•  Win% --    47% 63% 50% 56% 69% 56%

SPX summary for all years 1953 - 2019

•  Avg  --  -0.03% 0.01% -0.05% -0.03% 0.14% 0.05%
•  Win%  --    47% 46% 60% 52% 62% 54%

Money supply (M2) and Interest Rates

The following charts were supplied by Gordon Harms. M2 growth has smoothed at an increased rate.

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

• 2-year yield 0.181%, up from 0.145%.
• 5-year yield 0.406%, up from 0.322%.
• 10-year yield 0.895%, up from 0.746%.
• 30-year yield 1.649%, up from 1.532%.

A carefully managed yield curve.

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

Conclusion

Last Friday, the SPX and R2K closed at new all time highs unconfirmed by most of the breadth indicators. The strongest sectors last week were banks and transportation, while the weakest were internet and precious metals (down from the top last week). 

I expect the major averages to be lower on Friday, November 20 than they were on Friday, November 13. Last week's negative forecast was a miss.