Technical Market Report - Saturday, Jan. 11
The good news is:
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The S&P 500 (SPX), NASDAQ composite (OTC) and Dow Jones Industrial Average closed at all time highs last Thursday.
The Negatives
The market is overbought and the Russell 2000 (R2K) has been underperforming the blue chips for the past month and has been down for three consecutive weeks.
The Positives
New highs have been numerous and increasing while new lows are practically non existent.
The first chart covers the past six months showing the SPX in red and a 10% trend (19 day EMA) of NYSE new highs (NY NH) in green. Dashed vertical lines have been drawn on the 1st trading day of each month.
I have been considering this chart a negative because it has not been confirming the new index highs. I have changed my mind about that because the values are so high. Thirty years ago I developed a timing program I called MIRAT and one of the rules built into that program was a NO SELL FILTER that was imposed when the value of NY NH was above 130.The current value of NY NH is 171.
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.
I never developed a rule for OTC NH, however, the indicator is moving upward and the value at 189 is strong enough the non confirmation should be overlooked.
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.
I do not consider the HL Ratio’s predictive, but a read on market strength that might not be reflected in prices.
OTC HL Ratio rose to its highest level since June 2018.
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 at 93% is very strong.
The high levels of the HL ratios imply higher prices before this cycle is over.
Seasonality
Next week includes the five trading days prior to the third Friday of January during the fourth 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 2018 while SPX data runs from 1953 to 2018.There are summaries for both the fourth 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 positive.
Report for the week before the third Friday of January.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday through 3rd Friday.
OTC Presidential Year 4 (PY4)
Year Mon Tue Wed Thur Fri Totals
1964-4-0.19% 0.14% 0.38% 0.14% -0.22% 0.25%
1968-4 0.43% 0.18%-0.85% 0.36% 0.16% 0.28%
1972-4 0.16% 0.62%-0.18% -0.11% -0.09% 0.40%
1976-4 0.49% -1.56% 2.70% 0.13% 0.68% 2.44%
1980-4 0.34% 0.36% 0.66% -0.12% 0.21% 1.47%
1984-4-0.20% 0.20% 0.12% -0.25% -0.73%-0.85%
1988-4 0.11% -0.05%-1.96% 0.17% 1.00% -0.73%
1992-4 0.31% 1.31% 0.81% -0.55% -0.08% 1.81%
1996-4-1.95% 0.74% 0.24% 0.89% 1.12% 1.05%
Avg -0.27% 0.51%-0.02% 0.03% 0.31% 0.55%
2000-4 0.00% 1.64% 0.50% 0.92% 1.10% 4.15%
2004-4 1.19% -0.73% 0.70% -0.10% 1.49% 2.56%
2008-4 1.57% -2.45%-0.95% -1.99% -0.29%-4.11%
2012-4 0.00% 0.64% 1.53% 0.67% -0.06% 2.78%
2016-4 0.00% -0.26%-0.12% 0.01% 2.66% 2.30%
Avg1.38% -0.23% 0.33% -0.10% 0.98% 1.53%
OTC summary for PY4 1964 - 2016
Avg0.21% 0.06% 0.26% 0.01% 0.50% 0.99%
Win% 73% 64% 64% 57% 57% 79%
OTC summary for all years 1963 - 2019
Avg -0.05% 0.24% 0.06% 0.21% 0.08% 0.55%
Win% 57% 58% 60% 65% 60% 68%
SPX PY4
Year Mon Tue Wed Thur Fri Totals
1956-4-1.19% 0.75%-0.67% -1.02% -1.14%-3.28%
1960-4-0.84% -1.07%-0.35% 0.25% 0.30%-1.72%
1964-4-0.03% 0.18% 0.37% -0.12% 0.01% 0.42%
1968-4-0.31% -0.62%-0.19% -0.08% -0.33%-1.54%
1972-4 0.30% 0.34%-0.16% 0.00% -0.22% 0.25%
1976-4 1.45% -0.79% 1.63% -0.54% 0.40% 2.17%
Avg0.12% -0.39% 0.26% -0.12% 0.03%-0.08%
1980-4 0.42% 0.69%-0.08% -0.32% 0.33% 1.05%
1984-4 0.10% 0.39%-0.17% -0.30% -0.50%-0.48%
1988-4-0.07% -1.02%-2.68% 0.21% 1.38%-2.17%
1992-4-0.18% 1.47% 0.08% -0.61% 0.16% 0.91%
1996-4-0.33% 1.44%-0.34% 0.31% 0.59% 1.66%
Avg -0.01% 0.59%-0.64% -0.14% 0.39% 0.19%
2000-4 0.00% -0.69% 0.05% -0.71% -0.29%-1.63%
2004-4 0.48% -0.53% 0.83% 0.14% 0.69% 1.60%
2008-4 1.09% -2.49%-0.56% -2.91% -0.60%-5.48%
2012-4 0.00% 0.36% 1.11% 0.49% 0.07% 2.03%
2016-4 0.00% 0.05%-1.17% 0.52% 2.03% 1.43%
Avg0.78% -0.66% 0.05% -0.49% 0.38%-0.41%
SPX summary for PY4 1956- 2016
Avg0.07% -0.10%-0.14% -0.31% 0.18% -0.30%
Win% 46% 56% 38% 40% 63% 56%
SPX summary for all years 1953 - 2019
Avg -0.10% 0.12%-0.05% 0.05% -0.02% 0.02%
Win% 43% 60% 55% 58% 57% 51%
Conclusion
The weakness in the R2K is a concern, otherwise breadth has been robust. The market is overdue for a pull back, but, when it comes it will be short lived.
I expect the major averages to be higher on Friday, January 17, than they were on Friday, January 10.
Last week the R2K was down slightly while everything else was up; so I am calling last weeks positive forecast a tie.