Technical market report for August 29, 2020 

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

The Negatives

The bad news includes the presence of narrowing leadership, minimal new highs, and declining volume as the indices hit all time highs.

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. All of the new all time highs for the past two weeks have been unconfirmed by the OTC NH.

Just in case you thought the previous chart didn’t look too bad, the next chart is similar to the one above, except it covers the past nine months. It shows progressively lower highs for OTC NH accompanied by higher highs for the index.

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 performance has been awful, while the SPX hit its all time high.

The next chart is similar to the second one which covered the past nine months, yet this chart is displaying the SPX in red and the NY NH in green. Also, this one looks worse.

The Positives

The Fed announced last week they would be pouring money into the tech sector to make the US more competitive in that sector. An unintended consequence of that, of course, would be the tech-heavy OTC and SPX seeing a rise.

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. The NY HL Ratio recovered to a very strong 87% last Friday. 

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. The OTC HL Ratio finished the week at a very strong 85%.

Seasonality

Next week includes the last trading day of August and the first four trading days of September during the fourth year of the Presidential Cycle. The tables below show the daily change, on a percentage basis, for that period.

The OTC data covers the period from 1963 to 2019, while the SPX data runs from 1928 to 2019. There are summaries for both the fourth year of the Presidential Cycle and all years combined.

Report for the last day of August and first four days of September.

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 4 (PY4)

•           LastDay    Day1    Day2      Day3       Day4     Totals
•  1964-4 0.00% 1-0.12% 2 0.07% 3 0.39% 4 0.58% 5 0.92%
•  1968-4 0.28% 5 0.34% 2 0.24% 3-0.06% 4 0.55% 5 1.35%
•  1972-4 0.13% 4 0.58% 5-0.28% 2-0.54% 3-0.32% 4-0.44%
•  1976-4 0.47% 2 0.99% 3 0.10% 4 0.37% 5 0.21% 2 2.15%
•  1980-4 0.29% 5 0.45% 2 1.20% 3 0.28% 4 0.30% 5 2.53%
•  1984-4 0.03% 5-1.28% 2-0.31% 3 0.64% 4-0.21% 5-1.13%
•  1988-4 0.02% 3-0.95% 4 0.95% 5 0.22% 2 0.17% 3 0.40%
•  1992-4-0.08% 1 0.44% 2 1.00% 3 0.64% 4-0.25% 5 1.75%
•  1996-4-0.31% 5 0.07% 2 0.13% 3-1.58% 4 1.22% 5-0.47%
•  Avg  -   -0.01% -0.25% 0.59% 0.04% 0.24% 0.62%
•  2000-4 2.50% 4 0.66% 5-2.15% 2-3.14% 3 2.12% 4 0.00%
•  2004-4 0.09% 2 0.67% 3 1.24% 4-1.55% 5 0.76% 2 1.22%
•  2008-4-1.83% 5-0.77% 2-0.66% 3-3.20% 4-0.14% 5-6.60%
•  2012-4 0.60% 5 0.26% 2-0.19% 3 2.17% 4 0.02% 5 2.86%
•  2016-4-0.19% 3 0.27% 4 0.43% 5 0.50% 2 0.15% 3 1.16%
•  Avg  -   0.23% 0.22%-0.26%-1.04% 0.58%-0.27%

OTC summary for PY4 1964 - 2016

• Averages - 0.14% 0.12% 0.13%-0.35% 0.37% 0.41%
• % Winners -  64% 71% 64% 57% 71% 64%
• MDD 9/5/20086.46% --9/6/20005.22% --9/5/19961.69%

OTC summary for all years 1964 - 2016

• Averages - 0.11% 0.00% 0.09% 0.02% 0.18% 0.39%
• % Winners -  70% 59% 61% 60% 60% 61%
• MDD 8/31/19988.57% --9/7/20016.52% --9/5/20086.46%

SPX PY4

•            LastDay    Day1     Day2     Day3     Day4      Totals
•  1928-4 1.26% 5 0.00% 6 0.48% 2 0.48% 3-0.62% 4 1.60%
•  1932-4-0.94% 3 0.95% 4 4.37% 5 2.49% 6-1.66% 2 5.21%
•  1936-4 0.19% 1-0.25% 2 0.38% 3-0.37% 4 0.44% 5 0.38%
•  1940-4 0.57% 6 0.00% 2 2.08% 3 1.39% 4-0.73% 5 3.31%
•  1944-4-0.39% 4 0.31% 5-0.62% 2-2.43% 3-0.32% 4-3.45%
•  1948-4-0.06% 2 1.19% 3 0.50% 4 0.18% 5 0.49% 2 2.30%
•  1952-4 0.24% 5 0.48% 2 0.40% 3-0.04% 4-0.12% 5 0.96%
•  1956-4 1.21% 5 0.80% 2 0.27% 3 0.17% 4-0.60% 5 1.85%
•  Avg  -  0.31% 0.56% 0.53%-0.14%-0.26% 1.00%
•  1960-4 0.21% 3 0.23% 4-0.16% 5-0.89% 2-1.24% 3-1.85%
•  1964-4-0.20% 1 0.43% 2 0.16% 3 0.30% 4 0.24% 5 0.94%
•  1968-4 0.12% 5 0.47% 2 0.70% 3 0.72% 4 0.46% 5 2.47%
•  1972-4 0.47% 4 0.38% 5-0.25% 2-0.61% 3-0.24% 4-0.25%
•  1976-4 0.82% 2 1.12% 3-0.13% 4 0.37% 5 0.70% 2 2.87%
•  Avg  -  0.29% 0.52% 0.06%-0.02%-0.02% 0.83%
•  1980-4 0.25% 5 1.10% 2 1.93% 3-0.56% 4-0.43% 5 2.29%
•  1984-4 0.05% 5-1.08% 2-0.36% 3 0.83% 4-0.77% 5-1.33%
•  1988-4-0.38% 3-1.21% 4 2.37% 5 0.42% 2 0.11% 3 1.31%
•  1992-4-0.20% 1 0.49% 2 0.46% 3 0.00% 4-0.22% 5 0.54%
•  1996-4-0.82% 5 0.42% 2 0.13% 3-0.94% 4 0.96% 5-0.25%
•  Avg  -   -0.22%-0.06% 0.91%-0.05%-0.07% 0.51%
•  2000-4 1.00% 4 0.20% 5-0.90% 2-0.98% 3 0.69% 4 0.01%
•  2004-4 0.46% 2 0.15% 3 1.12% 4-0.42% 5 0.69% 2 2.01%
•  2008-4-1.37% 5-0.41% 2-0.20% 3-2.99% 4 0.44% 5-4.53%
•  2012-4 0.51% 5-0.12% 2-0.11% 3 2.04% 4 0.40% 5 2.73%
•  2016-4-0.24% 3 0.00% 4 0.42% 5 0.30% 2-0.01% 3 0.46%
•  Avg  -  0.07%-0.04% 0.07%-0.41% 0.44% 0.14%

SPX summary for PY4 1928 - 2016

• Averages - 0.12% 0.25% 0.57%-0.02%-0.06% 0.85%
• % Winners - 61% 65% 65% 52% 48% 74%
• MDD 9/4/20084.91% --9/7/19443.42% --9/7/19602.28%

SPX summary for all years 1928 - 2019

• Averages - 0.12%-0.08% 0.13% 0.24%-0.07% 0.34%
• % Winners - 63% 62% 54% 58% 45% 60%
• MDD 9/4/19467.76% --8/31/19986.78% --9/4/19315.74%

September

As measured by the major indices, September, over all years, has been the weakest month of the year. Yet, this is not always true during the fourth year of the Presidential Cycle.

Since 1963, over all years, the OTC in September has been up 60% of the time with no average gain or loss. During the fourth year of the Presidential Cycle, September has been up 71% time with an average gain of 0.4%. The best September ever for the OTC was 2010 (+12.0%), the worst was 2001 (-17.0%).

The average month has 21 trading days. The chart below has been calculated by averaging the daily percentage change of the OTC for each of the first 11 trading days and each of the last ten trading days.

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 first trading day and at five trading day intervals after that. The line is solid on the eleventh trading day, the dividing point.

In the chart below, the blue line shows the average of the OTC in September over all years since 1963, while the green line shows the average during the fourth year of the Presidential Cycle over the same period.

Since 1928, the SPX has been up 46% of the time in September with an average loss of -1.0%. During the fourth year of the Presidential Cycle, the SPX has been up 52% of the time with an average loss of -0.3%. The best September ever for the SPX was in 1939 (+16.5%), and the worst was in 1931 (-29.9%).

The chart below is similar to the one above, except it shows the average daily performance over all years for the SPX in September in red and the performance during the fourth year of the Presidential Cycle in green.

Since 1979, the Russell 2000 (R2K) has been up 56% of the time in September with an average loss of -0.4%. During the fourth year of the Presidential Cycle, the R2K has been up 70% of the time with an average gain of 0.8%. The best September ever for the R2K was in 2010 (+12.3%), and the worst was in 2001 (-13.6%)

The chart below is similar to those above, except it shows the daily performance over all years of the R2K in September in magenta and the performance during the fourth year of the Presidential Cycle in green.

Since 1885, the DJIA has been up 45% of the time in September with an average loss of -0.9%. During the fourth year of the Presidential Cycle, the DJIA has been up 42% of the time in September with an average gain of 0.2%. The best September ever for the DJIA was in 1939, up (+13.5%). The worst September was in 1931 (-30.7%).

The chart below is similar to those above, except it shows the daily performance over all years of the DJIA in September in grey and the performance during the fourth year of the Presidential Cycle in green.

Conclusion

Free money overcomes everything. Now the Fed is going to buy into the tech sector. The strongest sectors last week were transportation and leisure, and the weakest were biotech and utilities. 

I expect the major averages to be higher on Friday, September 7 than they were on Friday, August 28. Last week's negative forecast was a miss.