The good news is:

• Seasonality for next week has been super strong.  

The Negatives

New highs declined sharply from their highs of the previous week and new lows outnumbered new highs on the Nasdaq last Friday for the first time since December 30 last year.

The Positives

The first chart covers the last 6 months showing the Nasdaq composite (OTC) in blue and a 10% trend (19 day EMA) of Nasdaq new highs (OTC NH) in green.  Dashed vertical lines have been drawn on the 1st trading day of the month.

OTC NH fell from last weeks high.

The next chart is similar to the one above except it shows the S&P 500 (SPX) in red and NY NH, in green, and has been calculated with NYSE data.

NY NH also declined after hitting its highest level since last April.

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 (equal numbers of new highs and new lows).

OTC HL Ratio fell after hitting its highest level in over a year, but remained in positive territory. 

The next chart is similar to the first one except it shows the SPX in red and NY HL ratio, in blue, has been calculated with NYSE data.

NY HL ratio also fell after hitting its highest level in over a year.  Although, at 84% it is still very strong.  

Seasonality

Next week includes the 5 trading days prior to the 3rd Friday of February during the 3rd 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 3rd 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 stronger during the 3rd year of the Presidential Cycle than other years. 

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

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

Daily returns from Monday through 3rd Friday.

OTC Presidential Year 3 (PY3)

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1963-3   0.13%  -0.23%   0.26%   0.68%   0.65%   1.49%

 1967-3   0.08%  -0.20%   0.60%   0.33%  -0.08%   0.73%

 1971-3   0.00%   0.14%  -0.44%  -0.31%  -0.71%  -1.33%

 1975-3   0.00%  -1.08%   0.55%   0.97%   0.29%   0.73%

 1979-3   0.23%   0.68%  -0.22%   0.26%   0.51%   1.46%

 Avg      0.15%  -0.14%   0.15%   0.39%   0.13%   0.62%


 1983-3   0.79%   0.15%   0.00%  -0.03%   0.88%   1.80%

 1987-3   0.00%   1.38%  -0.26%  -0.01%   0.05%   1.16%

 1991-3   1.67%  -0.03%   0.90%  -0.82%   0.99%   2.72%

 1995-3  -0.13%   0.15%   0.63%  -0.29%  -0.80%  -0.43%

 1999-3   0.00%  -0.34%  -2.80%   0.52%   1.02%  -1.62%

 Avg      0.78%   0.26%  -0.31%  -0.13%   0.43%   0.73%


 2003-3   0.00%   2.78%  -0.91%  -0.23%   1.34%   2.97%

 2007-3  -0.38%   0.39%   1.16%   0.35%  -0.03%   1.48%

 2011-3   0.28%  -0.46%   0.76%   0.21%   0.08%   0.87%

 2015-3   0.00%   0.11%   0.14%   0.37%   0.63%   1.26%

 2019-3   0.13%   1.46%   0.08%   0.09%   0.61%   2.37%

 Avg      0.01%   0.86%   0.25%   0.16%   0.53%   1.79%


OTC summary for PY3 1963 - 2019 

 Avg      0.31%   0.33%   0.03%   0.14%   0.36%   1.04%

 Win%       78%     60%     67%     60%     73%     80%


OTC summary for all years 1963 - 2022

 Avg      0.13%   0.00%   0.13%   0.10%  -0.16%   0.15%

 Win%       59%     53%     58%     60%     48%     58%


SPX PY3

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1955-3   4.68%  -5.14%  -0.33%   0.19%   0.14%  -0.46%

 1959-3   0.15%  -0.39%   0.39%   0.95%   0.91%   2.01%

 1963-3  -0.62%   0.11%   0.49%   0.30%   0.09%   0.37%

 1967-3   0.10%   0.67%   0.11%  -0.46%   0.03%   0.46%

 1971-3   0.00%   0.23%  -0.47%  -0.65%  -0.84%  -1.72%

 1975-3   0.00%  -0.70%   0.63%   0.95%   0.50%   1.37%

 1979-3   0.34%   0.74%  -0.06%  -0.14%  -0.06%   0.82%

 Avg     -0.06%   0.21%   0.14%   0.00%  -0.06%   0.26%


 1983-3   0.87%  -0.42%  -0.59%   0.01%   0.38%   0.26%

 1987-3   0.00%   2.07%  -0.02%   0.05%  -0.03%   2.07%

 1991-3   2.57%  -0.84%   0.96%  -1.30%   1.33%   2.72%

 1995-3   0.04%   0.19%   0.41%   0.14%  -0.67%   0.11%

 1999-3   0.00%   0.96%  -1.44%   1.09%   0.15%   0.76%

 Avg      1.16%   0.39%  -0.14%   0.00%   0.23%   1.18%


 2003-3   0.00%   1.95%  -0.71%  -0.95%   1.32%   1.61%

 2007-3  -0.33%   0.76%   0.76%   0.10%  -0.09%   1.21%

 2011-3   0.24%  -0.32%   0.63%   0.31%   0.19%   1.04%

 2015-3   0.00%   0.16%  -0.03%  -0.11%   0.61%   0.63%

 2019-3   0.07%   1.29%   0.30%  -0.27%   1.09%   2.49%

 Avg     -0.01%   0.77%   0.19%  -0.18%   0.63%   1.40%


SPX summary for PY3 1955 - 2019 

 Avg      0.74%   0.08%   0.06%   0.01%   0.30%   0.93%

 Win%       82%     65%     53%     59%     71%     88%


SPX summary for all years 1953 - 2022

 Avg      0.09%   0.03%   0.21%  -0.04%  -0.01%   0.25%

 Win%       49%     57%     60%     47%     47%     59%

Conclusion

The market sold off last week ahead of what has been one of the strongest weeks of the 3rd year of the Presidential Cycle.

The strongest sectors last week were Energy (up from the bottom last week) and Banks while the weakest were Biotech and Precious metals (for the 2nd week).

I expect the major averages to be higher on Friday, February 17, than they were on Friday, February 10.

Last week’s positive forecast was a miss.

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