The good news is:

• Seasonality continues to be very strong.  

The Negatives

The market is overbought.

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 turned upward and is at its highest level in over a year.

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 moved sharply upward 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 hitting its highest level in over a year. 

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 moved upward hitting its highest level in over a year.

Seasonality

Next week includes the 5 trading days prior to the 2nd 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 2nd Friday of February.

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

Daily returns from Monday to 2nd Friday.


OTC Presidential year 3 (PY3)

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1963-3  -0.42%  -0.03%  -0.03%   0.42%  -0.93%  -1.00%

 1967-3   0.21%   0.31%  -0.13%   0.95%   0.83%   2.16%

 1971-3   0.84%  -0.08%  -0.07%   0.75%   0.59%   2.04%

 1975-3  -0.42%   0.01%   1.07%   1.80%   0.52%   2.99%

 1979-3  -1.18%  -0.02%  -1.21%   0.50%   0.28%  -1.63%


 Avg     -0.19%   0.04%  -0.07%   0.88%   0.26%   0.91%


 1983-3   0.15%  -0.37%   0.11%   1.35%   0.73%   1.98%

 1987-3  -0.28%  -0.56%   0.62%   0.78%   0.81%   1.37%

 1991-3   1.70%   1.74%   1.63%  -0.96%   0.41%   4.52%

 1995-3   0.88%   0.02%   0.62%   0.21%   0.64%   2.36%

 1999-3   1.32%  -3.91%  -0.06%   4.16%  -3.48%  -1.97%


 Avg      0.75%  -0.62%   0.58%   1.11%  -0.18%   1.65%


 2003-3   1.11%  -0.09%  -1.27%  -0.12%   2.56%   2.18%

 2007-3  -0.21%   0.04%   0.77%  -0.07%  -1.16%  -0.64%

 2011-3   0.53%   0.47%  -0.29%   0.05%   0.68%   1.44%

 2015-3  -0.39%   1.30%   0.28%   1.18%   0.75%   3.12%

 2019-3   1.15%   0.74%  -0.36%  -1.18%   0.14%   0.49%


 Avg      0.44%   0.49%  -0.17%  -0.03%   0.59%   1.32%


OTC summary for PY3 1963 - 2019 

 Avg      0.33%  -0.03%   0.11%   0.65%   0.22%   1.29%

 Win%       60%     53%     47%     73%     80%     73%


OTC summary for all years 1963 - 2022

 Avg     -0.14%   0.06%   0.10%   0.14%   0.00%   0.16%

 Win%       39%     60%     57%     65%     61%     58%


SPX PY3

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1955-3   0.00%  -1.35%   0.80%   0.90%   0.19%   0.53%

 1959-3  -1.45%   1.38%   0.06%  -0.64%   0.78%   0.12%


 1963-3  -0.21%  -0.09%   0.44%  -0.35%   0.00%  -0.21%

 1967-3  -0.21%  -0.26%   0.89%  -0.41%   0.15%   0.15%

 1971-3   0.54%   0.06%  -0.12%   0.53%   0.53%   1.54%

 1975-3  -0.34%   0.28%   1.71%   1.36%   0.60%   3.61%

 1979-3  -1.42%  -0.04%  -0.91%   0.50%   0.23%  -1.64%


 Avg     -0.33%  -0.01%   0.40%   0.33%   0.38%   0.69%


 1983-3   0.54%  -0.84%  -0.48%   1.72%   0.09%   1.04%

 1987-3  -0.66%  -1.12%   0.90%  -0.69%   1.48%  -0.10%

 1991-3   1.54%   0.84%   1.94%  -0.43%   0.79%   4.68%

 1995-3   0.52%  -0.07%   0.08%  -0.21%   0.26%   0.59%

 1999-3   0.36%  -2.23%   0.61%   2.49%  -1.91%  -0.68%


 Avg      0.46%  -0.68%   0.61%   0.58%   0.14%   1.11%


 2003-3   0.76%  -0.81%  -1.27%  -0.16%   2.14%   0.66%

 2007-3  -0.10%   0.07%   0.14%  -0.12%  -0.71%  -0.71%

 2011-3   0.62%   0.42%  -0.28%   0.07%   0.55%   1.39%

 2015-3  -0.42%   1.07%   0.00%   0.96%   0.41%   2.01%

 2019-3   0.68%   0.47%  -0.22%  -0.94%   0.07%   0.06%


 Avg      0.31%   0.24%  -0.33%  -0.03%   0.49%   0.68%


SPX summary for PY3 1955 - 2019 

 Avg      0.05%  -0.13%   0.25%   0.27%   0.35%   0.77%

 Win%       50%     47%     59%     47%     88%     71%


SPX summary for all years 1953 - 2022

 Avg     -0.27%  -0.03%   0.13%  -0.07%   0.06%  -0.17%

 Win%       38%     53%     57%     43%     55%     57%

Conclusion

The market is overbought.  Aside from that, everything looks good.

The strongest sectors last week were Internet (for the 2nd week) and Retail while the weakest were Energy and Precious metals.

I expect the major averages to be higher on Friday, February 10 than they were on Friday, February 3.

Last week the Dow Jones Industrial Average was down slightly while all of the other major indices were up; so I am calling last week's positive forecast a tie.

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