Technical Market Report - Monday, February 25

The good news is: The breadth indicators have been strong and the secondaries are leading the way up.

The Negatives

The market is overbought; no change from last week.

The Positives

New highs continued to strengthen while new lows remain insignificant.

The first chart covers the past 6 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.

OTC NH continued its upward move.

The next chart is similar to the one above, except, it shows the S&P 500 (SPX) in red and NY NH, in green has been calculated with NYSE data.

NY NH moving sharply upward.

The next chart covers the past 6 months showing the SPX in red and a 40% trend (4 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.

 NY HL Ratio has been holding above 90%, very strong. 

The next chart is similar to the one above except it shows the Nasdaq composite (OTC) in blue and OTC HL Ratio, in red, has been calculated with Nasdaq data.

OTC HL Ratio continued to move upward, finishing the week at a strong 83%.

Seasonality

Next week includes the last 4 trading days of February and the first trading day of March 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 1928 to 2018. There are summaries for both the 3rd year of the Presidential Cycle and all years combined.

Average returns for the coming week have been weaker during the 3rd year of the Presidential Cycle than other years.

Report for the last 4 days of February and the first 1 day of March.
The number following the year represents its position in the Presidential Cycle.
The number following the daily return represents the day of the week;
1 = Monday, 2 = Tuesday etc.

Presidential Year 3 (PY3)
               Day4      Day3      Day2      Day1      Day1      Totals
 1963-3       0.10% 1  -0.58% 2   0.10% 3  -0.52% 4  -0.68% 5    -1.58%
 1967-3       0.50% 4   0.76% 5   0.02% 1  -0.86% 2   0.48% 3     0.90%
 1971-3       0.04% 2   0.92% 3   0.59% 4   0.11% 5   0.43% 1     2.09%
 1975-3      -1.46% 2   0.24% 3   0.40% 4   0.65% 5   1.14% 1     0.96%

 1979-3      -0.33% 5  -0.11% 1  -1.81% 2  -0.07% 3   0.63% 4    -1.69%
 1983-3       0.31% 3   0.89% 4   0.05% 5  -0.67% 1   0.44% 2     1.02%
 1987-3       0.52% 2   0.87% 3   0.24% 4   0.70% 5  -0.25% 1     2.08%
 1991-3       0.48% 1  -0.75% 2   0.69% 3   0.49% 4   0.81% 5     1.73%
 1995-3       0.43% 4  -0.03% 5  -0.83% 1   1.18% 2  -0.23% 3     0.51%

 Avg          0.28%     0.17%    -0.33%     0.33%     0.28%       0.73%

 1999-3       1.43% 2  -1.52% 3  -0.54% 4  -1.67% 5   0.31% 1    -1.98%
 2003-3       0.50% 2  -1.90% 3   1.55% 4   1.03% 5  -1.29% 1    -0.11%
 2007-3      -0.39% 5  -0.42% 1  -3.86% 2   0.34% 3  -0.49% 4    -4.82%
 2011-3      -1.21% 3   0.55% 4   1.58% 5   0.04% 1  -1.61% 2    -0.66%
 2015-3       0.14% 2  -0.02% 3   0.42% 4  -0.49% 5   0.90% 1     0.95%

 Avg          0.09%    -0.66%    -0.17%    -0.15%    -0.44%      -1.32%

OTC summary for PY3 1963 - 2015
Averages      0.08%    -0.08%    -0.10%     0.02%     0.04%      -0.04%
% Winners       71%       43%       71%       57%       57%         57%
MDD  3/1/2007  4.78% --  2/26/1999  3.68% --  2/28/1979  2.30%

OTC summary for all years 1963 - 2018
Averages      0.14%     0.16%    -0.08%    -0.14%     0.23%       0.31%
% Winners       55%       59%       61%       45%       64%         59%
MDD 3/2/2009  8.25% --  2/28/2001  6.79% --  3/1/2007  4.78%


SPX PY3
               Day4      Day3      Day2      Day1      Day1      Totals
 1931-3      -1.10% 3   1.11% 4  -0.77% 5  -0.55% 6  -2.29% 1    -3.60%
 1935-3      -0.11% 1  -1.02% 2   0.34% 3  -0.57% 4   0.57% 5    -0.78%

 1939-3       2.45% 5   0.80% 6  -0.08% 1   0.55% 2   0.00% 3     3.72%
 1943-3       0.55% 3   0.64% 4   0.00% 5   0.27% 6  -0.73% 1     0.74%
 1947-3      -1.28% 2  -1.10% 3   1.18% 4  -0.32% 5   0.06% 6    -1.46%
 1951-3       0.18% 6  -0.14% 1  -0.78% 2   0.18% 3   0.23% 4    -0.32%
 1955-3      -0.08% 3  -0.54% 4  -0.14% 5   0.52% 1   0.19% 2    -0.05%

 Avg          0.37%    -0.07%     0.04%     0.24%    -0.05%       0.53%

 1959-3      -0.07% 2  -0.43% 3   0.18% 4   0.13% 5   0.58% 1     0.38%
 1963-3      -0.70% 1   0.02% 2  -0.70% 3  -1.11% 4  -0.30% 5    -2.79%
 1967-3       0.13% 4  -0.05% 5  -1.09% 1   0.37% 2   1.04% 3     0.40%
 1971-3       0.39% 2   0.67% 3   0.20% 4  -0.18% 5   0.26% 1     1.33%
 1975-3      -2.35% 2   1.06% 3   0.50% 4   1.02% 5   1.76% 1     1.99%

 Avg         -0.52%     0.25%    -0.18%     0.05%     0.67%       0.26%

 1979-3      -0.56% 5  -0.11% 1  -1.58% 2   0.16% 3   0.64% 4    -1.45%
 1983-3       0.90% 3   1.91% 4   0.09% 5  -1.12% 1   1.90% 2     3.69%
 1987-3       0.18% 2   0.40% 3  -0.37% 4   0.44% 5  -0.42% 1     0.22%
 1991-3       0.44% 1  -1.21% 2   1.36% 3  -0.18% 4   0.93% 5     1.33%
 1995-3       0.38% 4   0.28% 5  -0.88% 1   0.71% 2  -0.36% 3     0.13%

 Avg          0.27%     0.25%    -0.27%     0.00%     0.54%       0.78%

 1999-3      -0.07% 2  -1.40% 3  -0.67% 4  -0.54% 5  -0.17% 1    -2.85%
 2003-3       0.72% 2  -1.31% 3   1.17% 4   0.46% 5  -0.75% 1     0.29%
 2007-3      -0.36% 5  -0.13% 1  -3.47% 2   0.56% 3  -0.26% 4    -3.66%
 2011-3      -0.61% 3  -0.10% 4   1.06% 5   0.56% 1  -1.57% 2    -0.67%
 2015-3       0.28% 2  -0.08% 3  -0.15% 4  -0.30% 5   0.61% 1     0.37%

 Avg         -0.01%    -0.60%    -0.41%     0.15%    -0.43%      -1.30%

SPX summary for PY3 1931 - 2015
Averages     -0.03%    -0.03%    -0.21%     0.05%     0.09%      -0.14%
% Winners       50%       41%       41%       59%       55%         55%
MDD  2/27/2007  3.94% --  3/2/1931  3.58% --  3/1/1999  2.82%

SPX summary for all years 1928 - 2018
Averages     -0.05%     0.09%    -0.03%     0.02%     0.18%       0.20%
% Winners       44%       55%       54%       54%       64%         62%
MDD 3/2/2009  9.35% --  2/27/1933  6.27% --  2/26/1946  5.14%

March

Since 1963, over all years, the OTC in March has been up 63% of the time with an average gain of 0.8%. During the 3rd year of the Presidential Cycle March has been up 86% time with an average gain of 3.4%. The best March ever for the OTC was 2009 (+10.9%), the worst 1980 (-17.1%).

The average month has 21 trading days. The chart below has been calculated by averaging the daily percentage change for each of the 1st 11 trading days and each of the last 10. In months when there were more than 21 trading days some of the days in the middle were not counted. In months when there were less than 21 trading days some of the days in the middle of the month were counted twice. Dashed vertical lines have been drawn after the 1st trading day and at 5 trading day intervals after that. The line is solid on the 11th trading day, the dividing point.

In the chart below shows the average daily performance of the OTC during the month of March, over all years since 1963, in blue, while the black line shows the average during the 3rd year of the Presidential Cycle over the same period

Since 1928 the SPX has been up 60% of the time in March with an average gain of 0.6%. During the 3rd year of the Presidential Cycle, the SPX has been up 64% of the time with an average gain of 0.5%. The best March ever for the SPX was 1928 (+10.8%) the worst 1938 (-25.0%).

The chart below is similar the one above except it shows the average daily performance of the SPX, in March, over all years since 1928, in red and the average daily performance during the 3rd year of the Presidential Cycle in black.

The 3rd year plot turns sharply downward at the end of the month because of a large loss in 1939. The 20 year period from 1939 – 1955 had an average loss of 2.46% during the 3rd year of the Presidential Cycle. Every other 20 year period has had a positive average.

Since 1979 the Russell 2000 (R2K) has been up 73% of the time in March with an average gain of 1.4%. During the 3rd year of the Presidential Cycle, the R2K has been up 100% of the time with an average gain of 3.1%. The best March ever for the R2K 1979 (+9.7%), the worst 1980 (-18.5%)

The chart below is similar to those above except it shows the average daily performance of the R2K, in March, over all years since 1979, in magenta and the average daily performance during the 3rd year of the Presidential Cycle in black.

Since 1885 the Dow Jones Industrial Average (DJIA) has been up 59% of the time in March with an average gain of 0.7%. During the 3rd year of the Presidential Cycle, the DJIA has been up 58% of the time in March with an average gain of 0.9%. The best March for the DJIA 1920 (+12.6%), the worst 1938 (-23.7%).

The chart below is similar to those above except it shows the average daily performance over all years for the DJIA in March in grey and the average performance during the 3rd. year of the Presidential Cycle in black.

This chart appears to be in error. Prior to 1953, the market traded 6 days a week so 4-5 days in the middle of the month were not counted.

Conclusion

The market is overbought while the breadth indicators are strong.
The average seasonal pattern has been a little weak for the coming week.

I expect the major averages to be higher on Friday, March 1 than they were on Friday, February 22.