Technical Market Report - Monday, May 13

The good news is:​ The highs of a week ago were confirmed implying a return to the previous highs or higher.

The Negatives

The first 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 vertical lines have been drawn on the 1st trading day of each month.  Dashed horizontal lines have been drawn at 10% levels for the indicator; the line is solid at the 50%, neutral, level.

OTC HL Ratio fell into modestly negative territory last week.

It is as low as it has been at any time since early January and is a level from which prices have recovered quickly since the late December bottom.  As long as OTC HL Ratio does not go significantly lower this will be positive.

The Positives

The market is oversold and due for, at least, a bounce.

The all-time highs for both the OTC & SPX last week were confirmed by most of the breadth indicators so higher highs are likely.

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 fell sharply finishing the week at a modestly positive 58%.  

The next chart covers the past 6 months showing the OTC in blue and a 10% trend (19 day EMA) of NASDAQ new highs (OTC NH) in green.

The OTC all-time high of a week ago was confirmed by OTC NH. The implication of that confirmation is higher index highs ahead.

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

 NY NH fell sharply last week after confirming the SPX high of a week earlier. 

Seasonality

Next week includes the 5 trading days prior to the 3rd Friday of May 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 negative by all measures.

Report for the week before the 3rd Friday of May.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday through 3rd Friday.

OTC Presidential Year 3 (PY3)
 Year       Mon     Tue     Wed    Thur    Fri    Totals
 1963-3  -0.06%   0.09%   0.06%   0.18%  -0.06%   0.21%
 1967-3  -0.35%  -0.52%   0.78%   0.23%   0.03%   0.16%
 1971-3  -1.44%  -0.69%  -0.06%   0.36%   0.12%  -1.71%
 1975-3  -0.63%   1.28%  -0.53%  -0.14%  -0.42%  -0.45%

 1979-3  -0.54%   0.02%   0.26%   0.84%   0.44%   1.02%
 1983-3  -1.43%   0.47%   0.83%  -0.23%   0.24%  -0.11%
 1987-3  -0.24%  -0.39%   0.33%   0.18%  -0.89%  -1.01%
 1991-3   0.10%  -1.04%  -2.19%   0.77%  -0.08%  -2.44%
 1995-3   0.48%   0.60%   0.42%  -0.90%   0.06%   0.66%

 Avg     -0.32%  -0.07%  -0.07%   0.13%  -0.05%  -0.38%

 1999-3   1.34%  -0.13%   0.74%  -1.37%  -0.87%  -0.28%
 2003-3   1.40%  -0.11%  -0.31%   1.07%  -0.83%   1.22%
 2007-3  -0.62%  -0.83%   0.88%  -0.32%   0.75%  -0.13%
 2011-3  -1.63%   0.03%   1.14%   0.30%  -0.71%  -0.87%
 2015-3  -0.20%  -0.35%   0.11%   1.39%  -0.05%   0.90%

 Avg      0.06%  -0.28%   0.51%   0.21%  -0.34%   0.17%

OTC summary for PY3 1963 - 2015 
 Avg     -0.27%  -0.11%   0.18%   0.17%  -0.16%  -0.20%
 Win%       29%     43%     71%     64%     43%     43%

OTC summary for all years 1963 - 2018
 Avg      0.01%  -0.02%   0.00%  -0.02%  -0.17%  -0.21%
 Win%       50%     45%     59%     50%     44%     48%

SPX PY3
 Year       Mon     Tue     Wed    Thur    Fri    Totals
 1955-3  -1.12%  -0.14%   0.84%   0.56%   0.67%   0.81%

 1959-3   0.42%   0.16%   0.56%   0.69%  -0.36%   1.46%
 1963-3  -0.06%  -0.38%   0.31%  -0.26%   0.06%  -0.33%
 1967-3  -0.82%   0.46%  -0.39%  -0.27%  -0.50%  -1.51%
 1971-3  -1.49%   0.14%   0.24%   0.24%  -0.32%  -1.19%
 1975-3   0.09%   1.07%   0.75%  -0.93%  -1.07%  -0.09%

 Avg     -0.37%   0.29%   0.29%  -0.11%  -0.44%  -0.33%

 1979-3  -0.47%   0.08%   0.29%   1.54%  -0.01%   1.43%
 1983-3  -0.91%   0.19%  -0.27%  -0.78%   0.09%  -1.68%
 1987-3  -0.61%   0.59%   0.23%   0.09%  -2.31%  -2.01%
 1991-3   0.27%  -1.36%  -0.82%   0.98%   0.05%  -0.88%
 1995-3   0.42%   0.09%  -0.21%  -1.42%  -0.08%  -1.21%

 Avg     -0.26%  -0.08%  -0.16%   0.08%  -0.45%  -0.87%

 1999-3   0.13%  -0.46%   0.82%  -0.39%  -0.64%  -0.55%
 2003-3   1.25%  -0.30%  -0.32%   0.79%  -0.25%   1.17%
 2007-3  -0.18%  -0.13%   0.86%  -0.09%   0.66%   1.12%
 2011-3  -0.62%  -0.04%   0.88%   0.22%  -0.77%  -0.33%
 2015-3  -0.51%  -0.29%  -0.03%   1.08%   0.08%   0.32%

 Avg      0.01%  -0.24%   0.44%   0.32%  -0.18%   0.35%

SPX summary for PY3 1955 - 2015 
 Avg     -0.26%  -0.02%   0.23%   0.13%  -0.29%  -0.22%
 Win%       38%     50%     63%     56%     38%     38%

SPX summary for all years 1953 - 2018
 Avg     -0.02%   0.04%   0.03%  -0.06%  -0.09%  -0.10%
 Win%       52%     50%     50%     50%     52%     48%

Conclusion

Confirmations of the index highs a week ago imply higher prices ahead. The market is oversold and likely to have, at least, a bounce in the next week.

I expect the major averages to be higher on Friday, May 17 than they were on Friday, May 10. 

Last weeks positive forecast was a miss.