Technical Market Report For Saturday, Sept. 18

Technical Market Report for Saturday, Sept. 18, 2021

The good news is that the secondaries, as measured by the Russell 2000, were the strongest sector of the market last week. 

The Negatives

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 continued downward as prices stabilized.

The next chart is similar to the first one, except it shows the SPX in red and the NY NH in green. The NY NH information has been calculated with NYSE data. Similar action was seen in the NY NH.

Seeing minimal new highs implies narrowing leadership. That is not good.

The Positives

New lows remained at low levels. 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). The OTC NL’s recovery was broken, but it appears to have stabilized on Friday.

The next chart is similar to the one above, except is shows the 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 fell to the neutral line, which is where it stabilized.

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, but it remained in comfortably positive territory. 

Seasonality

Next week includes the five trading days prior to the fourth Friday of September 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 1928 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 negative by all measures. 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%   0.26%  -0.22%   0.26%  -0.69%  -0.09%

 1969-1   0.40%   0.41%   0.77%  -0.17%  -0.27%   1.14%

 1973-1   0.21%   0.10%   0.75%   0.59%  -0.06%   1.58%

 1977-1  -0.39%  -0.12%  -0.47%  -0.29%   0.10%  -1.17%

 1981-1   0.08%  -0.62%  -1.78%   0.22%  -2.92%  -5.03%

 1985-1   0.00%   0.00%   0.00%   0.00%   0.00%   0.00%

 1989-1  -0.15%   0.03%  -0.07%   0.06%   0.23%   0.11%

 1993-1   0.01%  -0.90%   1.63%   0.90%   0.32%   1.97%

 1997-1   0.54%   0.47%  -0.59%  -0.50%   0.20%   0.11%

   Avg:     0.12%  -0.26%  -0.20%   0.17%  -0.54%  -0.71%

 2001-1   0.00%   0.00%   0.00%   0.00%   0.00%   0.00%

 2005-1  -0.70%  -0.65%  -1.16%   0.20%   0.29%  -2.02%

 2009-1   0.24%   0.39%  -0.69%  -1.12%  -0.79%  -1.97%

 2013-1  -0.25%   0.08%  -0.19%   0.70%  -0.15%   0.18%

 2017-1   0.10%   0.10%  -0.08%  -0.51%   0.07%  -0.33%

   Avg:    -0.15%  -0.02%  -0.53%  -0.18%  -0.15%  -1.04%

OTC Summary for PY1 1965 - 2017 

•  Avg:      0.03%  -0.04%  -0.18%   0.03%  -0.31%  -0.46%
•  Win%:       67%     67%     25%     58%     50%     50%

OTC Summary for All Years 1963 - 2020

•  Avg:     -0.26%  -0.08%   0.02%  -0.32%  -0.11%  -0.75%
•  Win%:       39%     52%     53%     39%     48%     43%

SPX PY1

   Year       Mon      Tue       Wed      Thur      Fri      Totals

 1953-1  -0.31%   1.40%   0.13%   0.04%   0.26%   1.52%

 1957-1  -2.29%   0.68%  -1.21%   0.26%  -0.05%  -2.61%

 1961-1  -0.65%  -0.79%   0.42%   0.04%  -0.40%  -1.38%

 1965-1   0.03%  -0.30%   0.46%  -0.40%   0.18%  -0.03%

 1969-1   0.46%   0.00%  -0.14%  -0.76%  -0.64%  -1.08%

 1973-1   0.15%   0.64%   0.72%   0.23%  -0.60%   1.15%

 1977-1  -0.65%   0.04%  -0.82%  -0.01%  -0.05%  -1.50%

   Avg:    -0.13%  -0.10%   0.13%  -0.18%  -0.30%  -0.57%

 1981-1   0.84%  -0.48%  -0.88%  -0.55%  -1.95%  -3.02%

 1985-1   0.00%   0.00%   0.00%   0.00%   0.00%   0.00%

 1989-1   0.48%  -0.05%  -0.02%  -0.22%   0.39%   0.58%

 1993-1  -0.82%  -0.46%   0.72%   0.34%  -0.02%  -0.25%

 1997-1   0.52%  -0.37%  -0.78%  -0.70%   0.78%  -0.55%

   Avg:     0.26%  -0.34%  -0.24%  -0.28%  -0.20%  -0.81%

 2001-1   0.00%   0.00%   0.00%   0.00%   0.00%   0.00%

 2005-1  -0.56%  -0.79%  -0.91%   0.37%   0.06%  -1.83%

 2009-1  -0.34%   0.66%  -1.01%  -0.95%  -0.61%  -2.25%

 2013-1  -0.47%  -0.26%  -0.27%   0.35%  -0.41%  -1.06%

 2017-1   0.15%   0.11%   0.06%  -0.30%   0.06%   0.08%

   Avg:   -0.31%  -0.07%  -0.53%  -0.14%  -0.22%  -1.27%

SPX Summary for PY1 1953 - 2017 

•  Avg:     -0.23%   0.00%  -0.24%  -0.15%  -0.20%  -0.82%
•  Win%:       47%     43%     40%     47%     40%     27%

SPX Summary for All Years 1953 - 2020

•  Avg:     -0.41%  -0.04%  -0.07%  -0.21%  -0.12%  -0.85%
•  Win%:       30%     46%     51%     40%     41%     35%

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: 0.222%, up from 0.213%.
• 5-year yield: 0.860%, up from 0.776%.
• 10-year yield: 1.371%, up from 1.286%.
• 30-year yield: 1.906%, down from 1.930%.

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 market had its largest volume day in a long time. Downside volume exceeded upside volume by more than 2 to 1 on the NYSE. The recent times in which downside volume was even close to what we saw last Friday were the June and July bottoms.

The strongest sectors last week were energy and electronics, while the weakest were precious metals and utilities.

I expect the major averages to be higher on Friday, Sept. 24 than they were on Friday, Sept. 17. Last week the Russell 2000 was up a little while the other major indices were down a little, so I am calling last week's positive forecast a tie.