The good news is:

• The Dow Jones Industrial Average (DJIA) and S&P 500 (SPX) closed at all time highs last Tuesday.

The Negatives

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

OTC NH failed to confirm the all time index high.  

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 last Tuesday.

The Positives

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 deeper into positive territory before retreating to a reasonably strong 65%.

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 finished the week at a very strong 87%.

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).  

New lows declined significantly last week and OTC NL moved sharply upward.

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 and NY NL surged.

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 are all solidly positive.

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

OTC HL & UD SI MoM’s have turned downward. 

Seasonality

Next week includes the 5 trading days prior to the 4th Friday of July during the 4th 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 4th 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; modestly positive on average over all years and negative during the 4th year of the Presidential Cycle. 

Report for the week before the 4th Friday of July.

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  -0.02%  -0.34%   0.02%   0.05%   0.10%  -0.19%


 Avg     -0.02%  -0.34%   0.02%   0.05%   0.10%  -0.19%


 1968-4   0.00%   0.00%   0.00%   0.00%   0.00%   0.00%

 1972-4   0.89%  -0.23%   0.14%  -0.23%  -0.16%   0.41%

 1976-4  -0.35%  -0.43%  -0.16%   0.14%  -0.07%  -0.87%

 1980-4   0.00%   0.00%   0.00%   0.00%   0.00%   0.00%

 1984-4  -1.01%  -0.59%  -0.19%   0.78%   0.99%  -0.02%


 Avg     -0.15%  -0.42%  -0.07%   0.23%   0.25%  -0.16%


 1988-4   0.05%  -0.88%   0.09%  -0.71%  -0.39%  -1.84%

 1992-4  -0.16%   1.22%   1.03%   0.23%   0.35%   2.67%

 1996-4  -1.48%  -2.99%  -0.64%   1.92%   1.60%  -1.59%

 2000-4  -2.76%   1.21%  -1.04%  -3.65%  -4.66% -10.90%

 2004-4   0.04%   1.76%  -2.23%   0.78%  -2.12%  -1.76%


 Avg     -0.86%   0.06%  -0.56%  -0.29%  -1.04%  -2.69%


 2008-4   0.00%   0.00%   0.00%   0.00%   0.00%   0.00%

 2012-4  -1.20%  -0.94%  -0.31%   1.37%   2.24%   1.16%

 2016-4   0.52%  -0.38%   1.06%  -0.31%   0.52%   1.40%

 2020-4   1.67%  -1.27%   1.35%   0.43%   1.49%   3.66%

 

OTC summary for PY4 1964 - 2020

 Avg     -0.32%  -0.32%  -0.07%   0.07%  -0.01%  -0.66%

 Win%       42%     25%     50%     67%     58%     42%


OTC summary for all years 1963 - 2023

 Avg     -0.25%  -0.01%   0.23%   0.07%   0.04%   0.08%

 Win%       46%     58%     60%     62%     62%     58%


SPX PY4

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1956-4  -0.04%   0.00%   0.22%   0.08%  -0.81%  -0.55%

 1960-4  -0.62%   0.00%  -0.16%  -0.92%  -0.69%  -2.39%


 1964-4  -0.46%  -0.28%   0.08%   0.21%   0.11%  -0.33%

 1968-4   0.00%   0.00%   0.00%   0.00%   0.00%   0.00%

 1972-4   1.18%  -0.30%  -0.07%  -0.23%   0.09%   0.68%

 1976-4  -0.37%  -0.55%   0.10%   0.11%   0.13%  -0.59%

 1980-4   0.00%   0.00%   0.00%   0.00%   0.00%   0.00%


 Avg      0.12%  -0.37%   0.04%   0.03%   0.11%  -0.08%


 1984-4  -0.40%  -0.76%   0.68%   0.84%   0.74%   1.10%

 1988-4  -0.57%  -0.75%   0.57%  -1.24%  -1.19%  -3.17%

 1992-4  -0.01%   1.45%   1.13%   0.40%   0.07%   3.04%

 1996-4  -0.78%  -1.09%  -0.04%   0.72%   0.75%  -0.43%

 2000-4  -1.07%   0.69%  -1.50%  -0.19%  -2.05%  -4.12%


 Avg     -0.57%  -0.09%   0.17%   0.11%  -0.34%  -0.72%


 2004-4  -0.04%   0.71%  -1.33%   0.27%  -0.97%  -1.37%

 2008-4   0.00%   0.00%   0.00%   0.00%   0.00%   0.00%

 2012-4  -0.89%  -0.90%  -0.03%   1.65%   1.91%   1.74%

 2016-4   0.24%  -0.14%   0.43%  -0.36%   0.46%   0.62%

 2020-4   0.74%  -0.65%   1.24%  -0.38%   0.77%   1.73%


 Avg      0.01%  -0.25%   0.08%   0.30%   0.54%   0.68%


SPX summary for PY4 1956 - 2020 

 Avg     -0.22%  -0.21%   0.10%   0.07%  -0.05%  -0.29%

 Win%       21%     25%     57%     57%     64%     43%


SPX summary for all years 1953 - 2020

 Avg     -0.18%   0.00%   0.34%   0.15%   0.03%   0.34%

 Win%       36%     56%     64%     60%     61%     61%

Conclusion

I incorrectly called the high a couple weeks ago a cycle top, so I am a little uneasy doing it again, but breadth deteriorated rapidly after Tuesday’s highs and seasonally for the coming week has been negative.  The rapid shrinkage of new lows is an event that typically occurs at bottoms.  On the other hand tops often culminate with a day that makes one skeptical of their bearhood.  If this was the cycle top, the big day lasted 2 weeks.

The strongest sectors last week were Utilities and Financials while the weakest were Electronics and Internet.

I expect the major averages to be lower on Friday July 26 than they were on Friday July 19. 

Last week the DJIA and Russell 2000 were up while OTC and SPX were down; so I am calling last week's negative forecast a tie.

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