The good news is:

• The market had another good week.

The Negatives

By my measures there are no negatives.  New lows have decreased to non threatening levels, new highs are increasing and Seasonality for next week is strong. 

There is a remarkable amount of liquidity coming from somewhere.  

The Positives

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 finished the week at a positive level for the first time since mid November last year. 

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 also rose finishing the week in positive territory,

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 rising.  

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 ditto.

The next chart covers the last 6 months showing the OTC in blue and a 10% trend of Nasdaq new highs in green.

OTC NH continued to rise..

The next chart is similar to the one above except it shows the SPX in red and NY NH has been calculated with NYSE data.

NY NH also continued rising.

Seasonality

Next week includes the 5 trading days prior to the 3rd Friday of August 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 1953 to 2021.  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 positive by all measures and stronger during the 2nd year of the Presidential Cycle than other years.

Report for the week before the 3rd Friday of August.

The number following the year is the position in the Presidential Cycle.

Daily returns from Monday through 3rd Friday.


OTC Presidential Year 2 (PY2)

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1966-2  -0.10%  -0.30%  -1.28%  -0.67%  -1.14%  -3.49%

 1970-2  -0.85%   0.62%   0.76%   1.08%   0.41%   2.02%

 1974-2  -0.47%  -2.19%  -2.28%  -0.55%  -1.53%  -7.01%

 1978-2   0.08%  -0.12%   0.62%   1.03%   0.42%   2.04%


 1982-2   0.34%   1.63%   3.52%  -1.83%   1.24%   4.90%

 1986-2   1.11%   0.91%   0.97%   0.69%   0.17%   3.85%

 1990-2   0.07%   0.50%   0.27%  -2.23%  -2.18%  -3.58%

 1994-2   0.17%   0.36%   0.97%  -0.07%   0.04%   1.47%

 1998-2   1.55%   2.04%  -0.67%  -0.56%  -1.90%   0.47%


 Avg      0.65%   1.09%   1.01%  -0.80%  -0.53%   1.42%


 2002-2   0.06%  -2.87%   5.12%   0.80%   1.19%   4.30%

 2006-2   0.55%   2.22%   1.63%   0.38%   0.29%   5.07%

 2010-2   0.39%   1.26%   0.28%  -1.66%   0.04%   0.31%

 2014-2   0.70%  -0.27%   1.02%   0.43%   0.27%   2.14%

 2018-2  -0.25%   0.65%  -1.23%   0.42%   0.13%  -0.28%


 Avg      0.29%   0.20%   1.37%   0.07%   0.38%   2.31%

OTC summary for PY2 1966 - 2018 

 Avg      0.24%   0.32%   0.69%  -0.20%  -0.18%   0.87%

 Win%       71%     64%     71%     50%     71%     71%


OTC summary for all years 1963 - 2021

 Avg      0.23%   0.00%   0.10%  -0.15%  -0.06%   0.14%

 Win%       66%     48%     58%     53%     56%     53%

SPX PY2

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1954-2   1.07%   0.23%  -0.10%   0.23%   0.16%   1.59%

 1958-2   0.27%  -0.93%   0.17%   0.21%  -0.86%  -1.14%


 1962-2   0.14%   1.08%   0.70%  -0.03%   0.63%   2.52%

 1966-2  -0.52%  -1.34%  -0.55%  -1.26%  -0.67%  -4.34%

 1970-2   0.20%   1.15%   1.00%   0.88%   2.06%   5.30%

 1974-2  -1.37%  -1.58%  -2.24%  -0.56%  -0.83%  -6.58%

 1978-2   0.01%  -0.12%   0.77%   0.41%  -0.33%   0.74%

 Avg     -0.31%  -0.16%  -0.06%  -0.11%   0.17%  -0.47%


 1982-2   0.23%   4.76%  -0.47%   0.58%   3.54%   8.64%

 1986-2   1.60%   1.11%   0.96%   0.24%   0.37%   4.27%

 1990-2   0.06%   1.09%   0.20%  -2.26%  -1.37%  -2.28%

 1994-2  -0.16%   0.82%   0.03%  -0.43%   0.11%   0.38%

 1998-2   1.98%   1.61%  -0.28%  -0.59%  -0.95%   1.76%


 Avg      0.74%   1.88%   0.09%  -0.49%   0.34%   2.55%


 2002-2  -0.53%  -2.17%   4.00%   1.16%  -0.16%   2.30%

 2006-2   0.12%   1.37%   0.77%   0.16%   0.37%   2.78%

 2010-2   0.01%   1.22%   0.15%  -1.69%  -0.37%  -0.68%

 2014-2   0.28%  -0.16%   0.67%   0.43%  -0.01%   1.21%

 2018-2  -0.40%   0.64%  -0.76%   0.79%   0.33%   0.60%


 Avg     -0.11%   0.18%   0.97%   0.17%   0.03%   1.24%


SPX summary for PY2 1954 - 2018 

 Avg      0.18%   0.52%   0.30%  -0.10%   0.12%   1.00%

 Win%       71%     65%     65%     59%     47%     71%


SPX summary for all years 1953 - 2021

 Avg      0.16%   0.01%  -0.08%  -0.08%   0.04%   0.06%

 Win%       65%     49%     54%     52%     59%     51%

Money supply (M2) and Interest Rates

The following charts were supplied by Gordon Harms.

The first chart covers the past 5 years showing the SPX in red, M2 money supply in green, and an Advance–Decline line (ADL) of high yield (Junk) bonds in white and a FastTrack relative strength indicator called Accutrak as a histogram in yellow.  The components of Accutrack are SPX/M2.

Treasury rates at their close last Friday and their changes from last month:

2yr yield 3.257% up from 3.128%

5yr yield 2.976% down from 3.048%

10yr yield 2.838% down from 2.919% 

30yr yield 3.114% up from 3.081%

The 2 is inverted to (higher than) everything.

The 5 is inverted to the 10.

A pretty ugly picture.

The next chart shows 1, 2, 5, 10 & 30 year treasury rates since 1998.

The next chart is a close up showing just the past year from the chart above.

The last chart covers the past 3 years showing the 2 year treasury rate in red, the 10 year in green, the SPX in yellow, the high yield bond AD line in white and on the bottom a relative strength indicator of the 2 yr and 10 yr treasuries with several moving averages.  Gordon likes to stuff a lot of information in his charts.

Conclusion

Everything went positive, not in the way it usually does at a cycle bottom, but slowly.  Even Seasonality for next week is positive.  I wonder where all of the liquidity is coming from.

The strongest sectors last week were Transportation and Finance while the weakest were Precious metals and Energy.

I expect the major averages to be higher on Friday, August 19, than they were on Friday, August 12.

Last week's negative forecast was a miss.

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