Technical Market Report - Monday, August 5

The good news is:​  The current decline is likely to be short-lived.

The Negatives

New lows remained at threatening levels on both the NYSE and Nasdaq.

Hindenburg Omens were triggered on both Thursday and Friday last week when new highs and new lows both exceeded 2.8% of issues traded on the NYSE.

The first chart covers the past 6 months showing OTC in blue and a 10% trend (19 day EMA) of Nasdaq new lows (OTC NL) in brown. Dashed vertical lines have been drawn on the 1st trading day of each month. OTC NL has been plotted on an inverted Y-axis to decreasing new lows move the indicator upward (up is good).

For the past 3 weeks OTC NL has been moving downward (new lows increasing). This indicator should turn sharply upward when this period of weakness ends.

The next chart is similar to the one above except it shows the SPX in red and NY NL has been calculated with NYSE data.

The pattern is similar to the chart above.

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 returned to negative territory.

The Positives

New highs have remained pretty strong.

An abrupt price decline from a cycle high that was confirmed by breadth is usually followed by a return to new highs.  The cycle highs do not end until they are unconfirmed by breadth.  The cycle highs a week ago were confirmed by breadth.

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

 NY HL Ratio finished last week in positive territory.     

The next chart covers the past 6 months showing the SPX in red and a 10% trend (19 day EMA) of NYSE new highs (NY NH) in green.

NY NH held up well in spite of the price decline.

The next chart is similar to the one above except it shows the OTC in blue and OTC NH, in green, has been calculated with NASDAQ data.

Ditto OTC NH.

Seasonality

Next week includes the 5 trading days prior to the 2nd Friday of August during the 3rd 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 2018 while SPX data runs from 1953 to 2018. There are summaries for both the 3rd 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 modestly positive by all measures. 

Report for the week before the 2nd Friday of August.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday to 2nd Friday.

OTC Presidential Year 3 (PY3)
 Year       Mon     Tue     Wed    Thur    Fri    Totals
 1963-3   0.24%   0.33%   0.41%   0.03%   0.50%   1.51%
 1967-3   0.05%   0.23%   0.50%   0.72%  -0.13%   1.36%
 1971-3  -0.58%  -0.14%   1.01%   1.09%   0.22%   1.60%
 1975-3  -1.03%  -1.00%   0.09%  -0.81%  -0.05%  -2.80%

 1979-3  -0.15%   0.62%   0.53%   0.15%   0.55%   1.70%
 1983-3  -1.76%  -0.23%   0.81%   0.31%   0.68%  -0.18%
 1987-3   0.61%   0.69%  -0.03%   0.52%   0.01%   1.80%
 1991-3  -0.61%   0.52%   0.45%   0.38%  -0.21%   0.53%
 1995-3   0.42%   0.19%   0.80%  -0.45%   0.35%   1.31%

 Avg     -0.30%   0.36%   0.51%   0.18%   0.28%   1.03%

 1999-3  -1.14%  -1.15%   3.01%  -0.60%   3.46%   3.58%
 2003-3  -0.09%  -2.37%  -1.24%  -0.03%  -0.49%  -4.22%
 2007-3   1.44%   0.56%   2.01%  -2.16%  -0.45%   1.39%
 2011-3  -6.90%   5.29%  -4.09%   4.69%   0.61%  -0.39%
 2015-3   1.16%  -1.27%   0.15%  -0.21%   0.29%   0.11%

 Avg     -1.11%   0.21%  -0.03%   0.34%   0.68%   0.09%

OTC summary for PY3 1963 - 2015 
 Avg     -0.60%   0.16%   0.31%   0.26%   0.38%   0.52%
 Win%       43%     57%     79%     57%     64%     71%

OTC summary for all years 1963 - 2018
 Avg     -0.26%   0.14%   0.11%   0.03%   0.04%   0.04%
 Win%       46%     54%     60%     62%     50%     59%


SPX PY3
 Year       Mon     Tue     Wed    Thur    Fri    Totals
 1955-3  -0.59%  -1.32%  -0.02%   0.93%   0.19%  -0.81%

 1959-3  -2.09%   1.31%  -0.24%  -0.17%   0.24%  -0.94%
 1963-3   0.59%   0.66%  -0.30%   0.09%   0.66%   1.69%
 1967-3  -0.26%   0.12%   0.09%  -0.26%  -0.40%  -0.71%
 1971-3  -0.76%   0.01%   1.20%   1.42%  -0.32%   1.54%
 1975-3  -0.95%  -1.06%   0.02%   0.06%  -0.32%  -2.25%

 Avg     -0.70%   0.21%   0.16%   0.23%  -0.03%  -0.13%

 1979-3   0.25%   1.29%   0.31%  -0.46%   0.86%   2.26%
 1983-3  -1.58%   0.60%   0.88%   0.01%   0.38%   0.28%
 1987-3   1.55%   1.62%  -0.28%   0.68%  -0.20%   3.37%
 1991-3  -0.55%   1.44%  -0.02%  -0.32%  -0.57%   0.00%
 1995-3   0.20%   0.06%  -0.12%  -0.40%  -0.42%  -0.69%

 Avg     -0.03%   1.00%   0.15%  -0.10%   0.01%   1.04%

 1999-3  -0.19%  -1.26%   1.61%  -0.29%   2.27%   2.13%
 2003-3   0.27%  -1.77%   0.17%   0.73%   0.36%  -0.24%
 2007-3   2.42%   0.62%   1.41%  -2.96%   0.04%   1.51%
 2011-3  -6.66%   4.74%  -4.42%   4.63%   0.53%  -1.18%
 2015-3   1.28%  -0.96%   0.10%  -0.13%   0.39%   0.68%

 Avg     -0.58%   0.27%  -0.23%   0.39%   0.72%   0.58%

SPX summary for PY3 1955 - 2015 
 Avg     -0.44%   0.38%   0.02%   0.22%   0.23%   0.41%
 Win%       44%     69%     56%     50%     63%     50%

SPX summary for all years 1953 - 2018
 Avg     -0.27%   0.17%   0.06%   0.05%   0.06%   0.07%
 Win%       42%     59%     52%     48%     53%     56%

Conclusion

This decline is likely to be short-lived, but there have been no signs of a bottom yet. Look for a sharp decline in the number of new lows as a bottom marker.

I expect the major averages to be lower on Friday, August 9 than they were on Friday, August 2.