Technical Market Report For Saturday, March 19
The good news is:
- The market had good week led by the Nasdaq composite (OTC) with an 8.18% gain.
The Negatives
Bear market rallies are often violent, but short lived.
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 1st trading day of each month and dashed horizontal lines have been drawn at 10% levels for the indicator; the line is solid at the 50%, neutral level.
OTC HL Ratio has been in negative territory for over 3 months.
The next chart is similar to the first one 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 moved upward last week, but remains in negative territory.
The next chart covers the past 6 months showing the SPX in red and a 10% trend (19 day EMA) of NYSE new highs (NY NH) in green.
NY NH continued moving downward as prices rallied.
The next chart is similar to the one above except it shows the OTC in blue and OTC NH, in green, has been calculated with Nasdaq data.
Nothing encouraging here.
The next chart covers the past 6 months showing the SPX in red and a 10% trend (19 day EMA) of NYSE new lows (NY NL), in blue. NY 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 last week, but remained at uncomfortably high levels.
The next chart is similar to the previous one except it shows the OTC in blue and OTC NL, in brown, has been calculated with Nasdaq data.
Nasdaq new lows also declined last week, but remain at uncomfortable levels.
The Positives
This could be the start of a new uptrend.
Seasonality
Next week includes the 5 trading days prior to the 4th Friday of March during the 2nd 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 2nd 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 a little weaker during the 2nd year of the Presidential Cycle then other years.
Report for the week before the 4th Friday of March. The number following the year is the position in the Presidential Cycle. Daily returns from Monday through the 4th Friday. OTC Presidential Year 2 (PY2) Year Mon Tue Wed Thur Fri Totals 1966-2 0.56% 0.56% 0.60% -0.03% 0.53% 2.22% 1970-2 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 1974-2 -1.20% -0.65% 0.21% 0.43% 0.09% -1.11% 1978-2 -0.09% 0.36% 0.38% 0.09% 0.02% 0.77% 1982-2 1.21% 0.64% -0.06% 0.57% -0.36% 1.99% 1986-2 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 1990-2 0.17% -0.64% -0.18% -1.09% 0.63% -1.11% 1994-2 -0.82% -0.12% 0.15% -1.36% -0.41% -2.57% 1998-2 0.18% 1.12% 0.63% 0.25% -0.27% 1.91% Avg 0.18% 0.25% 0.14% -0.41% -0.10% 0.06% 2002-2 0.47% 0.20% -2.55% 1.96% -0.93% -0.85% 2006-2 0.33% -0.86% 0.40% -0.14% 0.55% 0.28% 2010-2 0.88% 0.83% -0.68% -0.06% -0.10% 0.88% 2014-2 -1.18% 0.19% -1.43% -0.54% 0.11% -2.85% 2018-2 -1.83% 0.27% -0.26% -2.42% -2.42% -6.66% Avg -0.27% 0.13% -0.91% -0.24% -0.56% -1.84% OTC summary for PY2 1966 - 2018 Avg -0.11% 0.16% -0.23% -0.19% -0.21% -0.59% Win% 58% 67% 50% 42% 50% 50% OTC summary for all years 1963 - 2021 Avg -0.01% -0.07% 0.03% 0.24% -0.10% 0.09% Win% 51% 43% 51% 55% 53% 53% SPX PY2 Year Mon Tue Wed Thur Fri Totals 1954-2 -0.07% -0.71% -0.49% -0.19% 0.53% -0.93% 1958-2 0.38% -0.33% -0.33% -0.31% 0.07% -0.52% 1962-2 -0.13% -0.27% -0.21% -0.16% 0.07% -0.69% 1966-2 0.76% 0.29% -0.37% 0.18% 0.28% 1.14% 1970-2 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 1974-2 -1.24% -0.84% 0.35% -0.24% -0.07% -2.03% 1978-2 -0.55% 0.71% 0.16% -0.26% -0.22% -0.16% Avg -0.29% -0.03% -0.02% -0.12% 0.01% -0.44% 1982-2 1.95% 0.69% -0.51% 0.21% -1.12% 1.22% 1986-2 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 1990-2 0.47% -0.57% -0.54% -1.19% 0.46% -1.37% 1994-2 -0.53% 0.06% -0.06% -0.89% -0.81% -2.24% 1998-2 -0.34% 0.92% -0.33% -0.10% -0.49% -0.34% Avg 0.39% 0.27% -0.36% -0.49% -0.49% -0.68% 2002-2 -0.05% 0.41% -1.58% 0.15% -0.42% -1.49% 2006-2 -0.17% -0.60% 0.60% -0.26% 0.10% -0.33% 2010-2 0.51% 0.72% -0.55% -0.17% 0.07% 0.58% 2014-2 -0.49% 0.44% -0.70% -0.19% 0.46% -0.47% 2018-2 -1.42% 0.15% -0.18% -2.52% -2.10% -6.07% Avg -0.32% 0.22% -0.48% -0.60% -0.38% -1.56% SPX summary for PY2 1954 - 2018 Avg -0.06% 0.07% -0.32% -0.39% -0.21% -0.91% Win% 33% 60% 20% 20% 53% 20% SPX summary for all years 1953 - 2021 Avg 0.00% 0.01% 0.06% 0.07% -0.16% -0.01% Win% 42% 45% 43% 42% 52% 38%
Money supply (M2) and Interest Rates
The following charts were supplied by Gordon Harms.
M2 growth continued to level off. Perhaps the Fed has quit calculating M2.
Treasury rates at their close last Friday and their changes from last month:
2yr yield 1.944% up from 1.470%
5yr yield 2.144% up from 1.819%
10yr yield 2.153% up from 1.928%
30yr yield 2.427% up from 2.245%
The next chart is a close up showing just the past year from the chart above.
Conclusion
The violent rally looks to me like a counter trend rally in a bear market; as such it is unlikely to last much longer.
The strongest sectors last week were Transportation and Retail while the weakest were Energy and Utilities.
I expect the major averages to be lower on Friday March 25 than they were on Friday March 18.
Last week's negative forecast was a miss.
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