The good news is:

• New lows declined sharply on both the NYSE and Nasdaq last Friday.  

The Negatives

The first chart covers the past 6 months showing the Nasdaq composite (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 first 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 (equal numbers of new highs and new lows).

OTC HL Ratio rose last week coming just short of positive territory. 

The Positives

New highs increased and new lows decreased significantly last Friday.

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

NY HL ratio turned back upward last week.  

The next 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.  

OTC NH turned upward last week.

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 also turned upward.

Seasonality

Next week includes the last 5 trading days prior to the 2nd Friday of March 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 2021 while SPX data runs from 1953 to 2021.  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 positive by all measures. 

Report for the week before the 2nd Friday of March.

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  -0.23%   0.33%   0.07%   0.29%   0.52%   0.98%

 1967-3   0.44%   0.00%   0.49%   0.33%   1.16%   2.42%

 1971-3   1.15%   0.17%  -0.26%   0.12%   0.23%   1.41%

 1975-3   0.65%   0.21%  -1.21%   0.74%   1.86%   2.25%

 1979-3   0.85%  -0.23%   0.95%   1.15%   0.16%   2.87%


 Avg      0.57%   0.12%   0.01%   0.53%   0.79%   1.99%


 1983-3  -0.21%  -0.84%   0.72%   0.38%   0.04%   0.10%

 1987-3  -0.62%   0.61%   0.48%   0.24%  -0.12%   0.59%

 1991-3   0.96%   2.58%   0.16%   0.41%  -0.13%   3.98%

 1995-3  -0.13%  -0.81%   0.57%   0.05%   0.75%   0.44%

 1999-3   2.59%  -0.20%   0.55%   0.26%  -1.28%   1.93%


 Avg      0.52%   0.27%   0.49%   0.27%  -0.15%   1.41%


 2003-3  -2.06%  -0.54%   0.61%   4.81%  -0.03%   2.79%

 2007-3  -1.15%   1.90%  -0.44%   0.55%  -0.01%   0.85%

 2011-3  -1.40%   0.73%  -0.51%  -1.84%   0.54%  -2.48%

 2015-3   0.31%  -1.67%  -0.20%   0.89%  -0.44%  -1.12%

 2019-3  -0.23%  -0.02%  -0.93%  -1.13%  -0.18%  -2.48%


 Avg     -0.91%   0.08%  -0.29%   0.66%  -0.02%  -0.49%


OTC summary for PY3 1963 - 2019 

 Avg      0.06%   0.16%   0.07%   0.48%   0.20%   0.97%

 Win%       47%     50%     60%     87%     53%     80%


OTC summary for all years 1963 - 2022

 Avg     -0.26%   0.43%   0.00%   0.13%   0.10%   0.40%

 Win%       43%     56%     60%     63%     52%     65%


SPX PY3

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1955-3  -0.64%  -1.88%  -0.98%   0.64%  -1.73%  -4.59%

 1959-3  -0.11%   0.28%   0.07%   0.44%   0.12%   0.82%


 1963-3   0.97%   0.03%   0.17%   0.63%   0.11%   1.91%

 1967-3  -0.22%   0.07%   0.12%   0.29%   0.41%   0.68%

 1971-3   0.42%   0.08%  -0.16%   0.09%   0.18%   0.62%

 1975-3   0.77%  -0.69%  -0.91%   0.18%   1.22%   0.56%

 1979-3   1.12%  -0.19%   0.58%   1.16%  -0.04%   2.63%


 Avg      0.61%  -0.14%  -0.04%   0.47%   0.37%   1.28%


 1983-3   0.00%  -1.57%   1.06%  -0.70%  -0.37%  -1.57%

 1987-3  -0.81%   0.89%  -0.19%   0.31%  -0.46%  -0.26%

 1991-3  -0.31%   2.00%  -0.15%  -0.07%  -0.26%   1.22%

 1995-3   0.04%  -0.72%   0.21%   0.00%   1.33%   0.86%

 1999-3   0.56%  -0.23%   0.55%   0.85%  -0.24%   1.49%


 Avg     -0.13%   0.07%   0.30%   0.08%   0.00%   0.35%


 2003-3  -2.58%  -0.84%   0.43%   3.45%   0.16%   0.62%

 2007-3   0.00%   0.59%  -0.25%   0.71%   0.07%   1.13%

 2011-3  -0.83%   0.89%  -0.14%  -1.89%   0.71%  -1.26%

 2015-3   0.39%  -1.70%  -0.19%   1.26%  -0.61%  -0.84%

 2019-3  -0.39%  -0.11%  -0.65%  -0.81%  -0.21%  -2.18%


 Avg     -0.85%  -0.23%  -0.16%   0.54%   0.02%  -0.51%


SPX summary for PY3 1955 - 2019 

 Avg     -0.11%  -0.18%  -0.02%   0.39%   0.02%   0.11%

 Win%       47%     47%     47%     76%     53%     65%


SPX summary for all years 1953 - 2022

 Avg     -0.19%   0.25%   0.02%   0.03%   0.12%   0.23%

 Win%       49%     54%     54%     61%     48%     57%

Conclusion

2007 was the last time we had a down February during the 3rd year of the Presidential Cycle.  The next 3 months following that down February in 2007 were very strong.

The strongest sectors last week were Energy (for the 2nd week in a row) and Basic Materials while the weakest were Banks and Utilities.

I expect the major averages to be higher on Friday, March 10 than they were on Friday, March 3.

Last week's negative forecast was a miss.

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