The good news is:

• The buildup of new lows on the NYSE has been minimal.  

The Negatives

New highs continued their decline. 

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 continued falling last week.

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

NY NH also continued falling.

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 into negative territory last week. 

The Positives

The market is oversold.

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

NY HL ratio fell last week, but remained in positive territory.  

Seasonality

Next week includes the last 2 trading days of February and the first 3 days of March 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 1928 to 2021.  There are summaries for both the 3rd year of the Presidential Cycle and all years combined. 

Average returns for the coming week have been modestly positive by all measures. 

Report for the last 2 days of February and first 3 days of March.

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 3 (PY3)

               Day2      Day1      Day1      Day2      Day3      Totals

 1963-3       0.10% 3  -0.52% 4  -0.68% 5  -0.23% 1   0.33% 2    -1.00%

 1967-3       0.02% 1  -0.86% 2   0.48% 3   0.56% 4   0.91% 5     1.10%

 1971-3       0.59% 4   0.11% 5   0.43% 1   0.06% 2   0.23% 3     1.41%

 1975-3       0.40% 4   0.65% 5   1.14% 1   0.51% 2  -0.42% 3     2.28%

 1979-3      -1.81% 2  -0.07% 3   0.63% 4   0.28% 5   0.85% 1    -0.12%


 Avg         -0.14%    -0.14%     0.40%     0.24%     0.38%       0.73%


 1983-3       0.05% 5  -0.67% 1   0.44% 2   0.60% 3   0.69% 4     1.11%

 1987-3       0.24% 4   0.70% 5  -0.25% 1  -0.08% 2   0.75% 3     1.36%

 1991-3       0.69% 3   0.49% 4   0.81% 5   0.96% 1   2.58% 2     5.55%

 1995-3      -0.83% 1   1.18% 2  -0.23% 3   0.23% 4   0.64% 5     0.98%

 1999-3      -0.54% 4  -1.67% 5   0.31% 1  -1.58% 2   0.27% 3    -3.19%


 Avg         -0.08%     0.01%     0.22%     0.03%     0.99%       1.16%


 2003-3       1.55% 4   1.03% 5  -1.29% 1  -0.95% 2   0.51% 3     0.85%

 2007-3      -3.86% 2   0.34% 3  -0.49% 4  -1.51% 5  -1.15% 1    -6.67%

 2011-3       1.58% 5   0.04% 1  -1.61% 2   0.39% 3   1.84% 4     2.24%

 2015-3       0.42% 4  -0.49% 5   0.90% 1  -0.56% 2  -0.26% 3     0.01%

 2019-3       0.07% 3  -0.29% 4   0.83% 5  -0.23% 1  -0.02% 2     0.36%


 Avg         -0.05%     0.13%    -0.33%    -0.57%     0.18%      -0.64%


OTC summary for PY3 1963 - 2019

Averages     -0.09%     0.00%     0.09%    -0.10%     0.52%       0.42%

% Winners       73%       53%       60%       53%       73%         73%

MDD  3/5/2007  6.54% --  3/2/1999  3.44% --  3/4/2003  2.22%


OTC summary for all years 1963 - 2022

Averages     -0.18%    -0.12%     0.33%    -0.02%     0.31%       0.32%

% Winners       60%       47%       64%       50%       67%         62%

MDD 3/2/2001  8.27% --  3/3/2009  7.33% --  3/5/2007  6.54%


SPX PY3

               Day2      Day1      Day1      Day2      Day3      Totals

 1931-3      -0.77% 5  -0.55% 6  -2.29% 1  -0.11% 2  -0.91% 3    -4.64%

 1935-3       0.34% 3  -0.57% 4   0.57% 5   0.00% 6  -0.80% 1    -0.45%

 1939-3      -0.08% 1   0.55% 2   0.00% 3  -0.16% 4   1.42% 5     1.74%


 1943-3       0.00% 5   0.27% 6  -0.73% 1  -0.73% 2   1.29% 3     0.11%

 1947-3       1.18% 4  -0.32% 5   0.06% 6  -0.19% 1   0.00% 2     0.72%

 1951-3      -0.78% 2   0.18% 3   0.23% 4   0.37% 5   0.05% 6     0.05%

 1955-3      -0.14% 5   0.52% 1   0.19% 2   0.87% 3   0.38% 4     1.82%

 1959-3       0.18% 4   0.13% 5   0.58% 1   0.93% 2   0.18% 3     2.00%


 Avg          0.09%     0.16%     0.07%     0.25%     0.38%       0.94%


 1963-3      -0.70% 3  -1.11% 4  -0.30% 5   0.97% 1   0.03% 2    -1.11%

 1967-3      -1.09% 1   0.37% 2   1.04% 3   0.55% 4   0.15% 5     1.02%

 1971-3       0.20% 4  -0.18% 5   0.26% 1  -0.02% 2  -0.03% 3     0.23%

 1975-3       0.50% 4   1.02% 5   1.76% 1   0.64% 2  -0.79% 3     3.13%

 1979-3      -1.58% 2   0.16% 3   0.64% 4   0.07% 5   1.12% 1     0.42%


 Avg         -0.53%     0.05%     0.68%     0.44%     0.10%       0.74%


 1983-3       0.09% 5  -1.12% 1   1.90% 2   0.94% 3   0.77% 4     2.59%

 1987-3      -0.37% 4   0.44% 5  -0.42% 1   0.40% 2   1.58% 3     1.63%

 1991-3       1.36% 3  -0.18% 4   0.93% 5  -0.31% 1   2.00% 2     3.80%

 1995-3      -0.88% 1   0.71% 2  -0.36% 3  -0.11% 4   0.06% 5    -0.58%

 1999-3      -0.67% 4  -0.54% 5  -0.17% 1  -0.87% 2   0.18% 3    -2.06%


 Avg         -0.09%    -0.14%     0.38%     0.01%     0.92%       1.08%


 2003-3       1.17% 4   0.46% 5  -0.75% 1  -1.54% 2   0.96% 3     0.30%

 2007-3      -3.47% 2   0.56% 3  -0.26% 4  -1.14% 5   0.00% 1    -4.32%

 2011-3       1.06% 5   0.56% 1  -1.57% 2   0.16% 3   1.72% 4     1.92%

 2015-3      -0.15% 4  -0.30% 5   0.61% 1  -0.45% 2  -0.44% 3    -0.72%

 2019-3      -0.05% 3  -0.28% 4   0.69% 5  -0.39% 1  -0.11% 2    -0.15%


 Avg         -0.29%     0.20%    -0.26%    -0.67%     0.43%      -0.59%


SPX summary for PY3 1931 - 2019

Averages     -0.20%     0.03%     0.11%    -0.01%     0.38%       0.32%

% Winners       39%       57%       57%       43%       65%         65%

MDD  3/4/1931  4.57% --  3/2/2007  4.29% --  3/4/2003  2.28%


SPX summary for all years 1328 - 2022

Averages     -0.08%     0.00%     0.23%     0.14%     0.25%       0.52%

% Winners       53%       52%       65%       54%       62%         67%

MDD 3/3/2009  8.96% --  2/28/2020  5.20% --  3/4/1931  4.57%

March

Since 1963, over all years, the OTC in March has been up 63% of the time with an average gain of 0.7%.  During the 3rd year of the Presidential Cycle March has been up 87% time with an average gain of 3.4%. The best March ever for the OTC was 2009 (+10.9%), the worst 1980 (-17.1%).

The average month has 21 trading days. The chart below has been calculated by averaging the daily percentage change for each of the 1st 11 trading days and each of the last 10.  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 1st trading day and at 5 trading day intervals after that. The line is solid on the 11th trading day, the dividing point.

In the chart below the blue line shows the average daily performance of the OTC in March over all years since 1963 in blue, while the black line shows the average during the 3rd year of the Presidential Cycle over the same period.

Since 1928 the SPX has been up 61% of the time in March with an average gain of 0.5%.  During the 3rd year of the Presidential Cycle the SPX has been up 65% of the time with an average gain of 0.6%. The best March ever for the SPX was 1928 (+10.8%) the worst 1938 (-25.0%).

The chart below is similar to the one above except it shows the average daily performance over all years since 1928 for the SPX in March in red and the average daily performance during the 3rd year of the Presidential Cycle, over the same period, in black. The 3rd year plot turns sharply downward at the end of the month because of a large loss in 1939. The 20 year period from 1939 – 1955 had an average loss of 2.46% during the 3rd year of the Presidential Cycle. Every other 20 year period has had a positive average. The only down year since 1955 was a -0.1% loss in 2011.

Since 1979 the Russell 2000 (R2K) has been up 70% of the time in March with an average gain of 0.8%.  During the 3rd year of the Presidential Cycle the R2K has been up 91% of the time with an average gain of 2.6%.  The best March ever for the R2K 1979 (+9.7%), the worst 2020 (-21.9%)

The chart below is similar to those above except it shows the average daily performance of the R2K, in March, over all years since 1979, in magenta and the average daily performance during the 3rd year of the Presidential Cycle in black.

Since 1885 the Dow Jones Industrial Average (DJIA) has been up 59% of the time in March with an average gain of 0.6%.  During the 3rd year of the Presidential Cycle the DJIA has been up 59% of the time in March with an average gain of 0.9%.  The best March for the DJIA 1920 (+12.6%), the worst 1938 (-23.7%).  During a 40 year period from the early 1920’s through the late 1950’s, average returns in March during the 3rd year of the Presidential Cycle were negative.

The chart below is similar to those above except it shows the average daily performance over all years for the DJIA in March in grey and the average performance during the 3rd. year of the Presidential Cycle in black.

Conclusion

The breadth numbers have been lousy, a little better on the NYSE then the Nasdaq, but not much. Seasonality next week is not going to be much help.

The strongest sectors last week were Energy (up from the bottom last week) and Utilities (for the 2nd week in a row) while the weakest were Electronics and Precious metals (for the 4th week).

I expect the major averages to be lower on Friday, March 3 than they were on Friday, February 24.

Last week's positive forecast was a miss.

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