Technical market report for Feb. 6, 2021

The good news is that the NASDAQ composite (OTC), S&P 500 (SPX), and Russell 2000 (R2K) closed at all time highs last Friday.

The Negatives

The market is overbought.

The first chart covers the past six 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 first trading day of each month. The OTC NH failed to confirm the record OTC high.

The next chart is similar to the first one, except it shows the SPX in red and the NY NH in green. The information has been calculated with NYSE data. The NY NH also failed to confirm Friday’s record high in the SPX.

The Positives

The secondaries, as measured by the R2K, led the market up last week.

The next chart covers the past six months, showing the SPX in red and a 40% trend (four-day EMA) of NYSE new highs divided by new highs + new lows (NY HL Ratio) in blue. Dashed horizontal lines have been drawn at 10% levels for the indicator; the line is solid at the 50%, neutral level. New highs did not exceed their recent highs, but new lows returned to low single digits.

The next chart is similar to the one above, except it shows the OTC in blue and the OTC HL Ratio in red. The information has been calculated with NASDAQ data. NASDAQ new highs returned to their previous high levels, while new lows returned to single digits.

Seasonality

Next week includes the five trading days prior to the second Friday of February, all during the first 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 2020, while SPX data runs from 1953 to 2020. There are summaries for both the first year of the Presidential Cycle and all years combined. Prior to 1953 the market traded six days a week, so that data has been ignored. Average returns for the coming week have been mostly negative and worse during the first year of the Presidential Cycle than other years.

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

OTC Presidential Year 1 (PY1)

•   Year      Mon     Tue     Wed      Thur     Fri     Totals
•  1965-1 -0.33% -0.25% 0.53% -1.38% -0.59% -2.03%
•  1969-1 0.00% 0.25% -0.23% 0.32% 0.00% 0.34%
•  1973-1 -0.36% -0.38% 0.21% -1.01% -0.82% -2.36%
•  1977-1 -0.13% -0.02% -0.62% 0.31% -0.21% -0.67%
•  1981-1 -0.48% -0.12% -0.45% -0.61% -0.37% -2.03%
•  1985-1 0.84% 0.69% 0.62% 0.96% 0.40% 3.51%
•  1989-1 -0.09% 0.79% -0.30% -0.39% -0.99% -0.98%
•  1993-1 -0.36% -0.89% 0.41% 0.12% -0.77% -1.49%
•  1997-1 -1.65% -0.29% 2.07% 0.86% -0.26% 0.74%
•  Avg --   -0.35% 0.04% 0.47% 0.19% -0.40% -0.05%
•  2001-1 -0.65% 0.81% -2.13% -1.75% -3.56% -7.28%
•  2005-1 -0.22% 0.22% -1.64% 0.03% 1.15% -0.46%
•  2009-1 -0.01% -4.20% 0.38% 0.73% -0.48% -3.57%
•  2013-1 -1.51% 1.29% -0.10% -0.11% 0.91% 0.49%
•  2017-1 -0.06% 0.19% 0.15% 0.58% 0.33% 1.18%
•  Avg --   -0.49% -0.34% -0.67% -0.10% -0.33% -1.93%

OTC summary for PY1 1965 - 2017 

•  Avg --  -0.39% -0.14% -0.08% -0.10% -0.40% -1.04%
•  Win% --   08%   50%   50%   57%   31%   36%

OTC summary for all years 1963 - 2020

•  Avg --   -0.15% 0.03% 0.08% 0.17% 0.04% 0.17%
•  Win% --   39%   59%   57%   66%   61%   59%

SPX PY1

•    Year    Mon     Tue     Wed     Thur     Fri     Totals
•  1953-1 -0.46% -0.27% 0.08% 0.00% 0.39% -0.27%
•  1957-1 -0.20% -1.44% -0.16% -0.46% -0.69% -2.94%
•  1961-1 -0.74% -0.18% 0.91% -0.31% -0.84% -1.15%
•  1965-1 -0.39% 0.33% -0.89% -1.06% 0.74% -1.28%
•  1969-1 0.00% 0.12% -0.98% 1.05% -0.10% 0.09%
•  1973-1 -0.10% 0.19% -0.69% -0.44% 1.34% 0.30%
•  1977-1 0.01% -0.28% -0.86% 0.09% -0.60% -1.64%
•  Avg --  -0.31% 0.04% -0.50% -0.13% 0.11% -0.74%
•  1981-1 -1.02% -0.02% -0.77% -0.59% -0.39% -2.80%
•  1985-1 0.96% 0.14% -0.10% 0.77% 0.20% 1.98%
•  1989-1 -0.31% 1.21% -0.33% -0.87% -1.36% -1.66%
•  1993-1 -0.24% -0.56% 0.20% 0.32% -0.69% -0.97%
•  1997-1 -0.52% 0.53% 1.67% 1.13% -0.41% 2.39%
•  Avg --   -0.23% 0.26% 0.13% 0.15% -0.53% -0.21%
•  2001-1 0.36% -0.15% -0.84% -0.62% -1.33% -2.59%
•  2005-1 -0.11% 0.05% -0.86% 0.42% 0.69% 0.20%
•  2009-1 0.15% -4.91% 0.80% 0.17% -1.00% -4.79%
•  2013-1 -1.15% 1.04% 0.05% -0.18% 0.57% 0.33%
•  2017-1 -0.21% 0.02% 0.07% 0.58% 0.36% 0.81%
•  Avg --   -0.19% -0.79% -0.16% 0.07% -0.14% -1.21%

SPX summary for PY1 1953 - 2017 

•  Avg --  -0.25% -0.25% -0.16% 0.00% -0.18% -0.82%
•  Win% --   25%   53%   41%   50%   41%   41%

SPX summary for all years 1953 - 2020

•  Avg --  -0.29% -0.04% 0.11% -0.05% 0.08% -0.17%
•  Win% --   38%   53%   57%   43%   55%   57%

Conclusion

All-time highs being confirmed by the secondaries is a good thing. However, Seasonality for the next two weeks appears historically lousy, and most of the market has been up for five consecutive days, so it is overbought.

The strongest sectors last week were banks (up from the bottom last week) and internet, while the weakest were electronics and precious metals. I expect the major averages to be lower on Friday, Feb. 12 than they were on Friday, Feb. 5.