The good news is:

Both the NASDAQ composite (OTC) and S&P 500 have been up for 7 consecutive days.

 

The Negatives

The market is overbought.

The first chart covers the last 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 1^st trading day of each month.  

OTC NH failed to confirm the all time index high last month and has continued to deteriorate. 

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 also failed to confirm the SPX all time high and also has failed to respond to the recent rally.

 

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 (equal numbers of new highs and new lows).

OTC HL Ratio rose, but finished the week in negative territory.

 

The Positives

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 rose sharply into positive territory last week. 

The next chart covers the past 6 months showing the OTC in blue and a 10% trend (19 day EMA) of NASDAQ new lows (OTC NL) in brown.  OTC NL has been plotted on an inverted Y axis so decreasing numbers of new lows move the indicator upward (up is good).  

OTC New lows disappeared last week.

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

NYSE new lows also disappeared last week.

Summation indices are running totals of oscillator values.

Short term momentum indicators applied to summation indices make them nearly binary.

The next chart covers the past 6 months showing the SPX in red and momentum of summation indices of oscillators of advancing and declining issues, new highs and new lows and upside and downside volume on the NYSE.  

NY SI MoM’s all all turned upward last week.

The next chart is similar to the NYSE chart above; except it shows the OTC, in blue and the SI MoM’s have been generated from NASDAQ breadth data. 

OTC SI MoM’s all turned upward last week. 

 

Seasonality

Next week includes the 5 trading days prior to the 4^th Friday of August during the 4^th 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 2023 while SPX data runs from 1953 to 2023.  There are summaries for both the 4^th 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 4th Friday of August.

The number following the year is the position in the Presidential Cycle.

Daily returns from Monday through the 4th Friday.

 

OTC Presidential Year 4 (PY4)

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1964-4   0.56%  -0.05%  -0.51%   0.12%   0.46%   0.59%

 

 Avg      0.56%  -0.05%  -0.51%   0.12%   0.46%   0.59%

 

 1968-4   0.69%   0.69%   0.00%  -0.50%   0.06%   0.94%

 1972-4  -0.11%   0.00%  -0.14%  -0.53%  -0.07%  -0.85%

 1976-4  -0.65%  -0.52%   0.47%  -0.39%  -0.07%  -1.17%

 1980-4  -1.47%  -0.54%   0.79%   1.26%   0.99%   1.03%

 1984-4  -0.06%   1.24%   0.21%   0.10%   0.26%   1.75%

 

 Avg     -0.32%   0.22%   0.33%  -0.01%   0.24%   0.34%

 

 1988-4  -0.98%  -0.05%   0.67%  -0.53%   0.10%  -0.79%

 1992-4  -1.47%  -0.21%   0.83%   0.80%   0.05%  -0.01%

 1996-4  -0.25%  -0.55%   0.19%   1.53%  -0.08%   0.84%

 2000-4   0.58%   0.13%   1.33%   1.05%  -0.26%   2.84%

 2004-4   0.04%  -0.10%   1.30%  -0.42%   0.49%   1.31%

 

 Avg     -0.42%  -0.16%   0.86%   0.49%   0.06%   0.84%

 

 2008-4  -1.45%  -1.35%   0.20%  -0.36%   1.44%  -1.52%

 2012-4  -0.01%  -0.29%   0.21%  -0.66%   0.54%  -0.22%

 2016-4   0.12%   0.30%  -0.81%  -0.11%   0.13%  -0.37%

 2020-4   0.60%   0.76%   1.73%  -0.34%   0.60%   3.36%

 

OTC summary for PY4 1964 - 2020

 Avg     -0.26%  -0.04%   0.46%   0.07%   0.31%   0.52%

 Win%       40%     36%     79%     40%     73%     53%

 

OTC summary for all years 1963 - 2023

 Avg     -0.10%   0.07%   0.42%  -0.12%   0.13%   0.39%

 Win%       44%     58%     68%     48%     64%     61%

 

SPX PY4

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1956-4  -1.17%  -0.75%  -0.98%   1.22%  -0.10%  -1.78%

 1960-4   0.32%   0.98%   0.55%  -0.48%  -0.33%   1.04%

 

 1964-4  -0.19%  -0.57%  -0.15%   0.47%   0.35%  -0.09%

 1968-4   0.32%  -0.04%   0.00%  -0.26%  -0.01%   0.01%

 1972-4  -0.04%   0.62%  -0.13%  -1.10%  -0.32%  -0.97%

 1976-4  -0.40%  -0.68%   0.75%  -0.70%   0.16%  -0.86%

 1980-4  -1.85%  -0.64%   0.95%   1.37%   0.45%   0.27%

 

 Avg     -0.43%  -0.26%   0.36%  -0.05%   0.13%  -0.33%

 

 1984-4   0.49%   1.75%  -0.46%   0.04%   0.23%   2.05%

 1988-4  -1.25%   0.04%   1.57%  -0.75%   0.19%  -0.19%

 1992-4  -1.00%   0.22%   0.46%   0.00%   0.32%   0.00%

 1996-4   0.21%  -0.14%  -0.09%   0.85%  -0.55%   0.28%

 2000-4   0.52%  -0.09%   0.52%   0.16%  -0.12%   0.99%

 

 Avg     -0.21%   0.36%   0.40%   0.06%   0.01%   0.63%

 

 2004-4  -0.24%   0.05%   0.80%   0.01%   0.24%   0.86%

 2008-4  -1.51%  -0.93%   0.62%   0.25%   1.13%  -0.44%

 2012-4   0.00%  -0.35%   0.02%  -0.81%   0.65%  -0.49%

 2016-4  -0.06%   0.20%  -0.52%  -0.14%  -0.16%  -0.68%

 2020-4   1.00%   0.36%   1.02%   0.17%   0.67%   3.22%

 

 Avg     -0.16%  -0.14%   0.39%  -0.10%   0.51%   0.49%

 

 SPX summary for PY4 1956 - 2020

 Avg     -0.29%   0.00%   0.31%   0.02%   0.17%   0.19%

 Win%       35%     47%     63%     59%     59%     53%

 

SPX summary for all years 1953 - 2023

 Avg     -0.14%   0.04%   0.27%  -0.13%  -0.01%   0.01%

 Win%       45%     56%     61%     45%     52%     61%

 

Money supply (M2) and Interest Rates

The following charts were supplied by Gordon Harms.

The first chart, made with FastTrack, covers the past 2 years showing the SPX in red and M2 money supply in green.

Money supply has been increasing for the past several months.

Treasury rates at their close last Friday and their changes from last month:

2yr yield 4.060% down from 4.464%

5yr yield 3.763% down from 4.106%

10yr yield 3.885% down from 4.187% 

30yr yield 4.142% down from 4.397%

All rates declined from their levels of a month ago.

All the rates, except the 30 year, are inverted (shorter term maturities yield more than longer term maturities) relative to the 2 year.

The next chart covers the past 15 months showing the 30 year yield over the 5 year yield on top, The 1, 2, 5, 10 & 30 year treasury rates in the middle group and the SPX with a 50 day simple moving average on the bottom.

 

Conclusion

The blue chip averages have been up for 7 consecutive days.  That has been so fast that the breadth indicators have not kept up.  This could be a blow off top in the making.

Seasonality for the coming week has been modestly positive.

The strongest sectors last week were Utilities (for the 5^th week in a row) and Banks while the weakest were Leisure and Energy.

I expect the major averages to be higher on Friday August 23 than they were on Friday August 16. 

 

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