The good news is:

• The market had a sensational week.

The Negatives

• The market is overbought.

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.  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 has remained negative for over 6 months. 

The Positives

The next chart is similar to the previous 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 went positive hitting 52% on Friday,

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).  

NY NL continued moving upward.  The actual numeric level at 300 down from 434 last week is still frightfully high.

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.

OTC NL is also moving sharply upward. The numerical level at 487 down from 650 a week ago is still uncomfortably high.

Seasonality

Next week includes the last trading day of May and the first 3 trading days of June 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 2021 while SPX data runs from 1928 to 2021. There are summaries for both the 2nd year of the Presidential Cycle and all years combined.  

Average returns for the coming week have been positive by all measures.

Report for the Last day of May and first 3 days of June.

The number following the year represents its position in the Presidential Cycle.

The number following the daily return represents the day of the week;

1 = Monday, 2 = Tuesday etc.


OTC Presidential Year 2 (PY2)

               Day1      Day1      Day2      Day3      Totals

 1966-2       0.76% 2  -0.65% 3   0.43% 4   0.60% 5     1.13%

 1970-2       2.09% 5   4.79% 1   1.44% 2   2.00% 3    10.32%

 1974-2       0.14% 5   1.10% 1   0.85% 2   0.54% 3     2.62%

 1978-2       0.20% 3   0.08% 4   0.57% 5   0.88% 1     1.74%


 1982-2       0.10% 5  -0.66% 2   0.26% 3  -0.40% 4    -0.71%

 1986-2       0.55% 5  -0.20% 1   0.03% 2   0.01% 3     0.39%

 1990-2       0.04% 4   0.69% 5   0.75% 1  -0.21% 2     1.27%

 1994-2       0.28% 2   0.04% 3   0.54% 4   0.39% 5     1.26%

 1998-2      -0.87% 5  -1.80% 1   0.86% 2  -1.11% 3    -2.93%


 Avg          0.02%    -0.39%     0.49%    -0.27%      -0.15%


 2002-2      -0.99% 5  -3.29% 1   1.00% 2   1.09% 3    -2.20%

 2006-2       0.65% 3   1.88% 4  -0.02% 5  -2.24% 1     0.27%

 2010-2      -0.91% 5  -1.54% 2   2.64% 3   0.96% 4     1.16%

 2014-2      -0.13% 5  -0.13% 1  -0.07% 2   0.41% 3     0.09%

 2018-2      -0.27% 4   1.51% 5   0.69% 1   0.41% 2     2.34%


 Avg         -0.33%    -0.31%     0.85%     0.13%       0.33%


OTC summary for PY2 1966 - 2018

Averages      0.12%     0.13%     0.71%     0.24%       1.20%

% Winners       64%       50%       86%       71%         79%

MDD  6/3/2002  4.25% --  6/3/1998  2.91% --  6/1/2010  2.43%


OTC summary for all years 1963 - 2021

Averages      0.20%     0.16%     0.40%     0.14%       0.90%

% Winners       64%       59%       71%       59%         68%

MDD 6/3/2002  4.25% --  6/3/2011  3.62% --  6/5/1967  3.52%


Year  2

               Day1      Day1      Day2      Day3      Totals

 1930-2       0.45% 4  -0.37% 1  -0.90% 2   0.45% 3    -0.36%

 1934-2      -1.84% 4  -2.39% 5  -0.32% 6   1.50% 1    -3.05%

 1938-2      -1.38% 2   3.24% 3  -0.31% 4  -1.26% 5     0.28%


 1942-2      -0.37% 5   0.49% 1  -0.12% 2   0.73% 3     0.74%

 1946-2      -0.36% 5  -0.68% 1  -0.63% 2  -0.58% 3    -2.25%

 1950-2       0.32% 3  -0.05% 4   0.11% 5  -1.01% 1    -0.64%

 1954-2       0.48% 5   0.00% 2  -0.10% 3  -0.03% 4     0.34%

 1958-2       0.55% 4   0.50% 1   0.34% 2   0.09% 3     1.47%


 Avg          0.12%     0.05%    -0.08%    -0.16%      -0.07%


 1962-2       2.67% 4  -0.42% 5  -3.55% 1   0.52% 2    -0.78%

 1966-2      -1.37% 2  -0.03% 3  -0.16% 4   0.12% 5    -1.46%

 1970-2       2.60% 5   1.69% 1   0.00% 2   0.87% 3     5.16%

 1974-2      -0.17% 5   2.09% 1   1.17% 2   0.19% 3     3.27%

 1978-2       0.44% 3   0.06% 4   0.81% 5   1.84% 1     3.16%


 Avg          0.83%     0.68%    -0.35%     0.71%       1.87%


 1982-2      -0.69% 5  -0.18% 2   0.32% 3  -0.16% 4    -0.71%

 1986-2      -0.25% 5  -0.93% 1   0.19% 2  -0.64% 3    -1.64%

 1990-2       0.10% 4   0.53% 5   1.17% 1  -0.21% 2     1.60%

 1994-2      -0.18% 2   0.25% 3   0.00% 4   0.54% 5     0.61%

 1998-2      -0.62% 5   0.02% 1   0.18% 2  -0.94% 3    -1.36%


 Avg         -0.33%    -0.06%     0.37%    -0.28%      -0.30%


 2002-2       0.23% 5  -2.48% 1   0.00% 2   0.88% 3    -1.36%

 2006-2       0.81% 3   1.23% 4   0.20% 5  -1.78% 1     0.46%

 2010-2      -1.24% 5  -1.72% 2   2.58% 3   0.41% 4     0.04%

 2014-2       0.18% 5   0.07% 1  -0.04% 2   0.19% 3     0.41%

 2018-2      -0.69% 4   1.08% 5   0.45% 1   0.07% 2     0.92%


 Avg         -0.14%    -0.36%     0.64%    -0.05%       0.09%


SPX summary for PY2 1930 - 2018

Averages     -0.01%     0.09%     0.06%     0.08%       0.21%

% Winners       48%       52%       57%       61%         57%

MDD  6/2/1934  4.49% --  6/4/1962  3.96% --  6/1/2010  2.93%


SPX summary for all years 1928 - 2021

Averages      0.01%    -0.01%     0.23%     0.20%       0.42%

% Winners       56%       52%       63%       53%         59%

MDD 6/1/1932  9.28% --  6/2/1931  8.34% --  6/2/1934  4.49%

June

Since 1963, over all years, the OTC, in June, has been up 58 of the time in June with an average gain of 0.7%.  During the 2nd year of the Presidential Cycle the OTC in June has been up 50% of the time with an average loss of -1.1%.  The best June ever for the OTC was 2000 (+16.6%), the worst 2002 (-9.4%).

The average month has 21 trading days.  The charts below have been calculated by averaging the daily percentage change for each of the 1st 11 trading days and each of the last 10.  In months when there were more than 21 trading days some of the days in the middle were not counted.  In months when there were less than 21 trading days some of the days in the middle of the month were counted twice.  Dashed vertical lines have been drawn after the 1st trading day and at 5 trading day intervals after that.  The line is solid on the 11th trading day, the dividing point.

In the chart below the blue line shows the average daily performance of the OTC in June over all years since 1963, while the grey line shows the average during the 2nd year of the Presidential Cycle over the same period.

Since 1928 the SPX has been up 57% of the time in June with an average gain of 0.8%.  During the 2nd year of the Presidential Cycle the SPX has been up 43% of the time with an average loss of -1.0%.  The best June ever for the SPX was 1938 (+24.7%) the worst 1930 (-16.5%).

The chart below is similar to the one above except it shows the average daily performance over all years since 1928 for the SPX in June in red and the average daily performance during the 2nd/year of the Presidential Cycle, over the same period, in grey.

Since 1979 the Russell 2000 (R2K) has been up 62% of the time in June with an average gain of 0.6%.  During the 2nd year of the Presidential Cycle the R2K has been up 44% of the time with an average loss of -1.7%.  The best June ever for the R2K, 2000 (+8.6%), the worst 2010 (-7.9%)

The chart below is similar to those above except it shows the average daily performance of the R2K, over all years since 1979, in June in magenta and the average daily performance during the 2nd year of the Presidential Cycle in grey.

Since 1885 the Dow Jones Industrial Average (DJIA) has been up 47% of the time in June with an average gain of 0.2%.  During the 2nd year of the Presidential Cycle the DJIA has been up 38% of the time in June with an average loss of -0.9%.  The best June ever for the DJIA 1938 (+24.3%), the worst 1930 (-17.7%)

The chart below is similar to those above except it shows the average daily performance over all years for the DJIA in June in light grey and the average performance during the 2nd year of the Presidential Cycle in dark grey.

Conclusion

There are no hints of this rally faltering so it is likely to continue for a little while.  The signal for a turn around will be new lows increasing.

The strongest sectors last week were Utilities and Banks while the weakest were Precious metals and Retail (for the 2nd week in a row).

I expect the major averages to be higher on Friday June 3 than they were on Friday May 27.

Last week's overly pessimistic forecast was a miss.