The good news is:
- All of the major indices closed at all time highs last Friday.
The Negatives
The market is overbought.
The S&P 500 (SPX) has been up for 7 consecutive days and the NASDAQ composite (OTC) has been up for 10 consecutive days.
The first chart covers the past 6 months showing the SPX in blue and a 10% trend (19 day EMA) of NYSE new highs (NY NH) in green. Dashed vertical lines have been drawn on the 1st trading day of each month.
NY NH rose, but is a long way from confirming the new SPX all time high.
The Positives
There has been a massive jump in volume on the NASDAQ that has pushed the tech sector upward taking all of the major indices to all time highs.
The next chart is similar to the first one except it shows the OTC in blue and OTC NH, in green, has been calculated with NASDAQ data.
OTC NH shot up to confirm the new all time high for the OTC.
The next chart covers the past 6 months showing the OTC in blue and a 10% trend (19 day EMA) of NASDAQ new lows (OTC NL), in brown. OTC NL has been plotted on an inverted Y axis so decreasing numbers of new lows move the indicator upward (up is good).
The sharp upward move of OTC_NL resumed as the index moved to an all time high.
The next chart is similar to the one above except is shows the SPX in red and NY NL has been calculated with NYSE data.
NY NL also resumed its move upward.
The next chart covers the past 6 months showing the OTC in blue and a 40% trend (4 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.
OTC HL Ratio moved sharply upward as the index moved to an all time high.
The next chart is similar to the previous one except it shows the SPX in red and NY HL ratio, in blue, has been calculated with NYSE data.
NY HL Ratio also resumed its upward move as the index moved to an all time high.
The chart below covers the past 6 months showing the OTC in blue and a 5% trend (39 day EMA) of NASDAQ upside volume (OTC UV) in green.
There was a big spike in volume on the NASDAQ for the past 2 weeks that pushed the indices to new highs.
The next chart is similar to the previous one except it shows the SPX in red and NY UV, in green, has been calculated with NYSE data.
NY UV saw little change while OTC UV exploded.
Seasonality
Next week includes the 5 trading days prior to the 2nd Friday of November during the 1st 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 1st 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.
Average returns for the coming week have been positive by all measures.
Report for the week before the 2nd Friday of November.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday to 2nd Friday.
OTC Presidential Year 1 (PY1)
Year Mon Tue Wed Thur Fri Totals
1965-1 -0.13% -0.27% -0.36% 0.09% -0.04% -0.70%
1969-1 0.79% 0.38% -0.21% 0.44% -0.37% 1.03%
1973-1 -1.66% -0.77% 0.40% 0.55% -1.44% -2.91%
1977-1 0.66% 0.37% 0.50% 1.30% 0.96% 3.78%
1981-1 -0.03% -0.01% 0.08% 0.47% -0.41% 0.10%
1985-1 0.04% 0.35% 0.50% 0.25% 0.86% 2.00%
1989-1 -1.09% 0.31% 1.03% 0.00% 0.47% 0.72%
1993-1 0.42% 0.47% 0.87% 0.32% 0.04% 2.12%
1997-1 -0.73% -0.36% -2.73% 1.04% 1.66% -1.13%
Avg -0.28% 0.15% -0.05% 0.42% 0.52% 0.76%
2001-1 2.74% 2.31% 0.13% -0.53% 0.04% 4.70%
2005-1 0.41% -0.28% 0.17% 0.96% 0.26% 1.52%
2009-1 1.97% -0.14% 0.74% -0.83% 0.88% 2.62%
2013-1 0.37% 0.08% -0.20% -1.90% 1.60% -0.04%
2017-1 0.32% -0.27% 0.31% -0.57% 0.01% -0.20%
Avg 1.16% 0.34% 0.23% -0.57% 0.56% 1.72%
OTC summary for PY1 1965 - 2017
Avg 0.29% 0.15% 0.09% 0.11% 0.32% 0.97%
Win% 64% 50% 71% 71% 71% 64%
OTC summary for all years 1963 - 2020
Avg 0.02% 0.11% -0.09% 0.10% -0.07% 0.05%
Win% 50% 60% 55% 53% 61% 50%
SPX PY1
Year Mon Tue Wed Thur Fri Totals
1953-1 0.20% -1.18% 0.00% 0.37% 0.33% -0.28%
1957-1 -0.17% 0.00% 0.15% 0.59% -1.18% -0.61%
1961-1 0.78% 0.00% 1.23% -0.14% 0.42% 2.29%
1965-1 -0.15% -0.33% -0.11% 0.30% 0.48% 0.20%
1969-1 0.07% -0.26% -0.18% -0.48% -0.36% -1.22%
1973-1 -1.45% -0.53% 0.80% 1.15% -1.61% -1.63%
1977-1 0.78% 0.18% 0.56% 1.86% 1.34% 4.72%
Avg 0.00% -0.23% 0.46% 0.54% 0.06% 0.87%
1981-1 0.51% -0.48% 0.18% 0.22% -1.23% -0.81%
1985-1 -0.15% 0.59% 0.20% -0.07% 0.57% 1.14%
1989-1 -1.48% 0.66% 1.00% -0.47% 0.75% 0.46%
1993-1 0.14% 0.03% 0.74% -0.23% 0.59% 1.26%
1997-1 -0.69% 0.29% -1.93% 1.18% 1.27% 0.13%
Avg -0.33% 0.22% 0.04% 0.13% 0.39% 0.44%
2001-1 1.44% 1.45% -0.27% 0.25% 0.16% 3.02%
2005-1 0.22% -0.35% 0.17% 0.84% 0.31% 1.19%
2009-1 2.22% -0.01% 0.50% -1.03% 0.57% 2.27%
2013-1 0.36% -0.28% 0.43% -1.32% 1.34% 0.53%
2017-1 0.13% -0.02% 0.14% -0.38% -0.09% -0.21%
Avg 0.87% 0.16% 0.19% -0.33% 0.46% 1.36%
SPX summary for PY1 1953 - 2017
Avg 0.16% -0.02% 0.23% 0.16% 0.22% 0.73%
Win% 65% 40% 75% 53% 71% 65%
SPX summary for all years 1953 - 2020
Avg 0.05% 0.10% -0.03% 0.16% -0.03% 0.23%
Win% 56% 51% 60% 56% 57% 57%
Conclusion
Simultaneous index record highs with confirmations by many of the breadth indicators suggest this rally has a way to go.
The strongest sectors last week were Electronics and Transportation (same as last week) while the weakest were Energy (same as last week) and Internet.
I expect the major averages to be higher on Friday November 12 than they were on Friday November 5.
Last week's negative forecast was a miss.
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