Technical market report for August 8, 2020

The good news is the NASDAQ composite (OTC) closed at an all time high last Thursday.

The Negatives

Leadership is narrow; there have been very few new highs considering the indices are at, or near, their all time highs.

The Positives

The number of new lows has remained insignificant. The Fed is pushing free money out the door and the Federal Government is giving it away. For the time being, i.e. until after the election, the market has nowhere to go but up.

The first chart covers the past six months, showing the S&P 500 (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 vertical lines have been drawn on the first 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.

The NY HL Ratio at 93% is extremely strong. 

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 is also at 93%.

The next 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.  

I have been calling these new high charts a negative for their non-confirmations, but, at least, they are moving upward. And, over the next months the scale will change.

The next chart is similar to the one above, except it shows the SPX in red and NY NH in green. The information has been calculated with NYSE data. NY NH performance has been pitiful, but, it is moving upward.

Narrowing leadership is a sign of a mature market .Money is going into large cap issues that can be exited quickly.  

Seasonality

Next week includes the five trading days 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 2019, while SPX data runs from 1953 to 2019. 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.

Returns for next week have been positive by all measures.

OTC Presidential Year Four (PY4)

 Year     Mon     Tue     Wed    Thur    Fri     Totals

 1964-4 0.10% 0.17% 0.72% 0.47% 0.12% 1.58%

 1968-4-0.97% 0.40% 0.00% 0.42%-0.08%-0.23%

 1972-4 0.02%-0.27% 0.11% 0.07% 0.64% 0.57%

 1976-4-0.34% 0.61%-0.09% 0.09%-0.09% 0.19%

 1980-4-0.35% 0.37% 0.54% 1.03% 0.37% 1.95%

 1984-4 1.23%-0.07%-0.43% 0.93% 0.84% 2.50%

 1988-4-0.01%-0.88%-1.49% 0.16%-0.04%-2.27%

 1992-4-0.10%-0.27%-0.13% 0.02% 0.38%-0.10%

 1996-4-0.39% 0.75% 1.08%-0.32%-0.02% 1.11%

 Avg    0.07%  -0.02%  -0.09% 0.37% 0.31% 0.64%

 2000-4 2.00%-0.37% 0.13%-2.43% 0.78% 0.11%

 2004-4-0.13% 1.92%-1.45%-1.68% 0.27%-1.07%

 2008-4-1.10% 2.81% 1.21%-0.95% 2.48% 4.45%

 2012-4 0.74% 0.87%-0.15% 0.25% 0.07% 1.78%

 2016-4-0.15% 0.24%-0.40% 0.46% 0.09% 0.23%

 Avg       0.27% 1.09%-0.13%-0.87% 0.74% 1.10%

OTC summary for PY4 1964 - 2016 

 Avg      0.04% 0.45%-0.03%-0.11% 0.42% 0.77%

 Win%      36% 64% 46% 71% 71% 71%

OTC summary for all years 1963 - 2019

 Avg     -0.32% 0.16% 0.11% 0.07% 0.02% 0.03%

 Win%      46% 54% 61% 63% 49% 58%

SPX PY4

 Year       Mon   Tue    Wed    Thur     Fri     Totals

 1956-4-1.57% 0.61% 0.41%-0.08%-0.47%-1.10%

 1960-4 0.14% 0.58% 0.41% 0.37% 0.68% 2.18%

 1964-4-0.10%-0.02% 0.50% 0.29%-0.07% 0.60%

 1968-4 0.23% 0.41% 0.00%-0.22%-0.03% 0.39%

 1972-4 0.16% 0.07% 0.15% 0.17% 0.81% 1.37%

 1976-4-0.29% 0.89%-0.34% 0.15% 0.03% 0.45%

 Avg      0.03% 0.39% 0.18% 0.16% 0.28% 1.00%

 1980-4-0.19%-0.20% 0.67% 1.44% 0.25% 1.97%

 1984-4 0.15% 0.07%-0.59% 2.34%-0.07% 1.90%

 1988-4-0.43%-1.29%-1.72% 0.32%-0.08%-3.20%

 1992-4 0.13%-0.12%-0.27%-0.01% 0.52% 0.25%

 1996-4-0.34% 0.33% 0.27%-0.24%-0.07%-0.06%

 Avg      -0.14%-0.24%-0.33% 0.77% 0.11% 0.17%

 2000-4 1.12% 0.24%-0.67%-0.86% 0.79% 0.62%

 2004-4 0.12% 1.30%-0.30%-1.17% 0.15% 0.09%

 2008-4-0.90% 2.87% 0.34%-1.79% 2.39% 2.91%

 2012-4 0.23% 0.51% 0.06% 0.04% 0.22% 1.07%

 2016-4-0.09% 0.04%-0.29% 0.47%-0.08% 0.06%

 Avg      0.10% 0.99%-0.17%-0.66% 0.69% 0.95%

SPX summary for PY4 1956 - 2016 

 Avg     -0.10% 0.39%-0.09% 0.08% 0.31% 0.59%

 Win%      50% 75% 53% 56% 56% 81%

SPX summary for all years 1953 - 2019

 Avg -0.31% 0.19% 0.06% 0.08% 0.05% 0.06%

 Win%     42% 60% 53% 49% 52% 55%

Conclusion

The Federal Government is going to give away more money. Currently, they are arguing about how much. Liquidity is not and will not be a problem until some time after the election.

The strongest sectors last week were banks (up from the bottom last week) and retail. The weakest were energy and health care. I expect the major averages to be higher on Friday, August 14 than they were on Friday, August 7.