Technical Market Report - Monday, May 14

The good news is:
The secondaries outperformed the blue chips again last week.

The Negatives

The market is overbought. The Dow Jones Industrial Average (DJIA) has been up for 7 consecutive days and the Russell 2000 (R2K) has been up for 6 consecutive days. Seasonality for the coming week has been, on average, negative.

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 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 so fewer new lows move the indicator upward (up is good).

 I am calling this a negative because OTC NL moved slowly upward while the index was moving sharply upward.

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

NY NL also moved upward too slowly.

When the market is coming off a bottom or significant low, new lows disappear and the new low indicators move sharply upward. That is not what we saw last week.

The Positives

Last week advancing issues outnumbered declining issues and new highs outnumbered new lows every day on both the NYSE and Nasdaq.

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

OTC NH came to life last week.

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

Ditto for NY NH.

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 red. Dashed horizontal lines have been drawn at 10% levels for the indicator; the line is solid at the 50%, neutral, level.

NY HL Ratio moved sharply upward finishing the week at a comfortable 74%.

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

OTC HL Ratio moved sharply upward also ending the week at 74%.

Seasonality

Next week includes the 5 trading days prior to the 3rd Friday of May during the 2nd 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 2nd 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 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 2
 Year       Mon     Tue     Wed    Thur    Fri    Totals
 1966-2  -1.37%  -2.19%  -1.06%   1.75%  -0.29%  -3.16%
 1970-2  -0.69%  -1.33%  -1.34%  -2.32%  -1.88%  -7.56%
 1974-2  -1.33%  -0.02%   0.42%  -0.01%  -1.88%  -2.82%

 1978-2   0.34%   0.82%   0.88%  -0.15%  -0.07%   1.81%
 1982-2  -0.70%  -0.58%  -1.02%  -0.65%  -0.18%  -3.13%
 1986-2  -0.10%  -0.52%   0.18%  -0.69%   0.00%  -1.14%
 1990-2   0.80%   0.20%   0.10%   0.63%   0.58%   2.31%
 1994-2  -0.70%  -0.05%   1.46%   0.75%  -0.08%   1.37%

 Avg     -0.07%  -0.03%   0.32%  -0.02%   0.06%   0.24%

 1998-2  -0.87%   0.65%   0.32%  -0.04%  -1.00%  -0.94%
 2002-2   3.23%   4.02%   0.38%   0.28%   0.63%   8.55%
 2006-2  -0.23%  -0.42%  -1.50%  -0.70%   0.62%  -2.23%
 2010-2   0.31%  -1.57%  -0.82%  -4.11%   1.14%  -5.04%
 2014-2   1.77%  -0.33%  -0.71%  -0.76%   0.52%   0.48%

 Avg      0.84%   0.47%  -0.46%  -1.07%   0.38%   0.16%

OTC summary for Presidential Year 2 1966 - 2014 
 Avg      0.03%  -0.10%  -0.21%  -0.46%  -0.16%  -0.88%
 Win%       38%     31%     54%     31%     42%     38%

OTC summary for all years 1963 - 2017
 Avg      0.00%  -0.01%  -0.02%  -0.02%  -0.16%  -0.20%
 Win%       49%     45%     58%     51%     44%     49%


SPX Presidential Year 2
 Year       Mon     Tue     Wed    Thur    Fri    Totals
 1954-2   0.14%   0.03%  -0.45%   0.35%   0.59%   0.66%

 1958-2  -0.57%  -0.30%  -1.15%   0.51%   0.05%  -1.46%
 1962-2   0.72%   1.89%  -0.03%  -0.53%  -0.17%   1.87%
 1966-2  -1.24%  -0.92%   1.78%  -0.12%   0.48%  -0.02%
 1970-2  -1.06%  -0.95%  -1.70%  -1.42%   1.94%  -3.20%
 1974-2  -0.89%   0.03%  -0.26%  -0.81%  -1.68%  -3.61%

 Avg     -0.61%  -0.05%  -0.27%  -0.47%   0.12%  -1.28%

 1978-2   0.70%   0.60%   0.25%  -0.98%  -0.51%   0.06%
 1982-2  -1.10%  -0.75%  -0.82%  -0.26%   0.26%  -2.67%
 1986-2  -0.11%  -0.49%   0.48%  -1.31%  -0.71%  -2.15%
 1990-2   0.78%  -0.13%  -0.08%   0.13%   0.05%   0.75%
 1994-2   0.08%   1.10%   0.96%   0.61%  -0.34%   2.41%

 Avg      0.07%   0.06%   0.16%  -0.36%  -0.25%  -0.32%

 1998-2  -0.14%   0.83%   0.28%  -0.13%  -0.78%   0.06%
 2002-2   1.86%   2.11%  -0.57%   0.66%   0.76%   4.82%
 2006-2   0.00%   0.07%  -1.68%  -0.67%   0.41%  -1.88%
 2010-2   0.11%  -1.42%  -0.51%  -3.90%   1.50%  -4.22%
 2014-2   0.97%   0.04%  -0.47%  -0.94%   0.37%  -0.02%

 Avg      0.70%   0.33%  -0.59%  -1.00%   0.45%  -0.25%

SPX summary for Presidential Year 2 1954 - 2014 
 Avg      0.02%   0.11%  -0.25%  -0.55%   0.14%  -0.54%
 Win%       53%     56%     31%     31%     63%     44%

SPX summary for all years 1953 - 2017
 Avg     -0.02%   0.05%   0.02%  -0.06%  -0.09%  -0.10%
 Win%       52%     51%     49%     51%     52%     49%

Money supply (M2) and Interest Rates

The following charts were supplied by Gordon Harms.
M2 growth is declining.  

The yield curve is continuing to compress.

Conclusion

The market is overbought and seasonality for the coming week is negative.

I expect the major averages to be lower on Friday, May 18 than they were on Friday, May 11.

Last weeks negative forecast was a miss.