Technical Market Report - Monday, November 4

The good news is:​ The Dow Jones Industrial Average (DJIA), S&P 500 (SPX) and Nasdaq composite (OTC) all closed at all-time highs last Friday.

The Negatives

The market is overbought.
In the month of October the:
OTC was up 3.7% vs an average of 0.8%
SPX was up 2.0% vs an average of 0.4%
DJIA was up 0.5% vs an average of 0.3%
Russell 2000 (R2K) was up 2.6% vs an average of  -0.4%

The R2K was the only one of what I consider to be the major indices that has not hit a new high recently. The R2K has been very strong for the past several weeks, but it is 1.6% off its previous highs so a new high, in the next few days, is not a sure thing.

The first 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. Dashed vertical lines have been drawn on the 1st trading day of each month.

OTC NH did not confirm the new high in the OTC. Last week, I said this was OK because it is moving sharply upward. If the upward move lasts a few more days it is likely we will see a confirmation. Seasonality for next week is weak so confirmation is not a sure thing.

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

NY NH is far from confirming the new SPX high.

The Positives

For the third week breadth was strong and the secondaries outperformed the blue chips.

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 rose a little; finishing the week at 68%.

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 slightly finishing the week at a strong 82%.

Seasonality

Next week includes the 5 trading days prior to the 2nd Friday of November 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 mixed and weaker during the 3rd year of the Presidential Cycle than other years.

Report for the week before the 2nd Friday of November.
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   0.06%   0.00%  -0.93%  -0.20%   0.11%  -0.96%
 1967-3  -0.42%   0.00%  -0.48%  -0.62%   0.08%  -1.45%
 1971-3  -0.03%   0.28%  -0.81%  -1.07%   0.16%  -1.47%
 1975-3   0.32%   0.70%   1.63%  -0.06%  -0.30%   2.28%

 1979-3  -0.56%  -0.33%  -1.12%   0.47%   0.81%  -0.74%
 1983-3  -0.75%  -0.57%   0.53%   0.77%   1.48%   1.46%
 1987-3  -1.83%  -1.64%   0.83%   1.95%  -0.32%  -1.00%
 1991-3  -0.63%   0.25%   0.12%   1.08%   0.51%   1.32%
 1995-3  -0.34%  -1.71%   0.38%   1.69%  -0.16%  -0.14%

 Avg     -0.82%  -0.80%   0.15%   1.19%   0.47%   0.18%

 1999-3   1.34%  -0.61%   0.99%   1.32%   0.74%   3.78%
 2003-3  -1.48%  -0.56%   2.19%  -0.29%  -1.89%  -2.02%
 2007-3  -0.54%   1.07%  -2.70%  -1.92%  -2.52%  -6.62%
 2011-3   0.34%   1.20%  -3.88%   0.13%   2.04%  -0.17%
 2015-3  -1.01%  -0.24%  -0.32%  -1.22%  -1.54%  -4.33%

 Avg     -0.27%   0.17%  -0.74%  -0.40%  -0.63%  -1.87%

OTC summary for PY3 1963 - 2015 
 Avg     -0.39%  -0.18%  -0.26%   0.14%  -0.06%  -0.72%
 Win%       29%     42%     50%     50%     57%     29%

OTC summary for all years 1963 - 2018
 Avg      0.04%   0.14%  -0.13%   0.11%  -0.10%   0.05%
 Win%       50%     61%     55%     54%     60%     50%


SPX PY3
 Year       Mon     Tue     Wed    Thur    Fri    Totals
 1955-3   0.43%   0.00%   1.04%   0.25%   1.16%   2.88%

 1959-3  -0.17%  -0.03%   0.02%  -0.56%  -0.56%  -1.31%
 1963-3  -0.51%   0.00%  -0.87%   0.34%   0.41%  -0.63%
 1967-3  -0.33%   0.00%  -0.37%   0.49%   0.68%   0.47%
 1971-3  -0.07%   0.07%  -1.11%  -1.38%   0.00%  -2.49%
 1975-3   0.01%   0.59%   1.47%  -0.16%  -0.08%   1.83%

 Avg     -0.22%   0.21%  -0.17%  -0.25%   0.11%  -0.43%

 1979-3  -0.67%  -0.61%  -1.31%   0.43%   1.21%  -0.96%
 1983-3  -0.33%  -0.09%   1.37%   0.27%   1.14%   2.36%
 1987-3  -2.89%  -1.71%   1.21%   2.74%  -1.16%  -1.81%
 1991-3  -0.27%  -0.40%   0.32%   0.96%  -0.21%   0.41%
 1995-3  -0.36%  -0.36%   0.92%   0.26%  -0.09%   0.37%

 Avg     -0.90%  -0.64%   0.50%   0.93%   0.18%   0.07%

 1999-3   0.49%  -0.85%   0.60%   0.58%   1.06%   1.88%
 2003-3  -0.58%  -0.05%   1.15%  -0.01%  -0.76%  -0.26%
 2007-3  -0.50%   1.20%  -2.94%  -0.06%  -1.43%  -3.71%
 2011-3   0.63%   1.17%  -3.67%   0.86%   1.95%   0.94%
 2015-3  -0.98%   0.15%  -0.32%  -1.40%  -1.12%  -3.67%

 Avg     -0.19%   0.33%  -1.04%  -0.01%  -0.06%  -0.97%

SPX summary for PY3 1955 - 2015 
 Avg     -0.38%  -0.07%  -0.16%   0.23%   0.15%  -0.23%
 Win%       25%     38%     56%     63%     47%     50%

SPX summary for all years 1953 - 2018
 Avg      0.03%   0.11%  -0.05%   0.18%  -0.06%   0.20%
 Win%       55%     53%     58%     56%     55%     56%

Conclusion

The market is overbought. New blue-chip highs were not confirmed by the secondaries and some of the breadth indicators. Seasonality for the next several weeks has been negative.

I expect the major averages to be lower on Friday, November 8 than they were on Friday, November 1.