The good news is:

• The market is oversold and ready to bounce.  

The Negatives

There were 18 new lows on the NYSE a week ago Friday.

Last Friday there were 209 new lows on the NYSE.

There were 66 new lows on the Nasdaq a week ago Friday.

Last Friday there were 547 new lows on the Nasdaq.

All of the major indices were down about 4.5% for the week except the Russell 2000 (R2K) which was down 8%.

The Yield curve has been inverted for quite a while and some are calling it the steepest inversion ever.

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 first 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 fell into deeply negative territory. 

The next chart is similar to the one above 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 fell into negative territory for the first time in over 2 months.  

The next chart covers the last 6 months showing the OTC in blue and a 10% trend (19 day EMA) of Nasdaq new lows (OTC NL) in brown.  OTC NL has been plotted on an inverted Y axis so decreasing numbers of new lows move the indicator upward (up is good).  

OTC NL and the NYSE version of it are the best indicators I have of cycle bottoms.

OTC NL moved sharply downward last week.

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

NY NL also turned sharply downward.

The Positives

The market is oversold and could have a significant bounce.

Seasonality

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

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

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   0.19%   0.10%   0.10%   0.13%  -0.26%   0.26%

 1967-3   0.28%  -0.48%   0.28%   0.31%   0.61%   1.01%

 1971-3   0.60%   0.41%  -0.06%   0.36%  -0.10%   1.21%

 1975-3   0.26%  -0.12%  -0.67%   0.15%   0.18%  -0.19%

 1979-3  -0.05%   0.39%  -0.08%   0.20%   0.55%   1.02%


 Avg      0.26%   0.06%  -0.08%   0.23%   0.20%   0.66%


 1983-3  -0.69%  -0.03%   0.16%  -0.25%   0.38%  -0.44%

 1987-3  -0.26%   0.91%   0.09%   0.42%   0.60%   1.77%

 1991-3  -1.68%  -1.23%   1.47%  -0.08%  -0.32%  -1.84%

 1995-3   0.01%   0.74%  -0.11%   0.24%  -0.12%   0.76%

 1999-3   2.10%   0.29%  -0.39%   1.40%  -1.68%   1.71%


 Avg     -0.10%   0.14%   0.24%   0.35%  -0.23%   0.39%


 2003-3   3.88%   0.59%  -0.25%   0.41%   1.36%   5.99%

 2007-3   0.62%  -2.15%   0.90%   0.29%  -0.25%  -0.60%

 2011-3  -0.54%  -1.25%  -1.89%   0.73%   0.29%  -2.65%

 2015-3   1.19%   0.16%   0.92%   0.19%   0.68%   3.14%

 2019-3   2.02%   0.44%   0.69%  -0.16%   0.76%   3.74%


 Avg      1.43%  -0.44%   0.07%   0.29%   0.57%   1.92%


OTC summary for PY3 1963 - 2019 

 Avg      0.53%  -0.08%   0.08%   0.29%   0.18%   0.99%

 Win%       67%     60%     53%     80%     60%     67%


OTC summary for all years 1963 - 2022

 Avg     -0.30%   0.22%   0.03%   0.17%  -0.09%   0.02%

 Win%       53%     57%     65%     72%     53%     58%


SPX PY3

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1955-3  -2.40%   2.15%   0.76%   0.39%   0.17%   1.06%

 1959-3  -1.08%   0.82%  -0.23%  -0.09%   0.09%  -0.49%


 1963-3   0.28%   0.24%   0.37%  -0.02%   0.05%   0.92%

 1967-3  -0.52%  -0.09%   0.95%   1.01%   0.18%   1.53%

 1971-3   1.14%   0.50%  -0.09%   0.07%  -0.18%   1.44%

 1975-3   1.47%  -1.02%  -0.93%  -0.87%  -0.26%  -1.61%

 1979-3   0.13%   0.17%  -0.13%   0.15%   0.83%   1.15%


 Avg      0.50%  -0.04%   0.03%   0.07%   0.12%   0.69%


 1983-3  -0.27%   0.35%  -1.03%  -0.14%   0.21%  -0.88%

 1987-3  -0.57%   1.47%   0.11%   0.44%   1.39%   2.84%

 1991-3  -0.53%  -0.79%   1.23%  -0.29%   0.02%  -0.35%

 1995-3   0.10%   0.58%  -0.20%   0.72%   0.02%   1.21%

 1999-3   0.98%  -0.07%  -0.66%   1.45%  -1.31%   0.39%


 Avg     -0.06%   0.31%  -0.11%   0.44%   0.07%   0.64%


 2003-3   3.54%   0.46%   0.84%   0.19%   2.30%   7.33%

 2007-3   0.27%  -2.04%   0.67%   0.37%  -0.38%  -1.11%

 2011-3  -0.60%  -1.12%  -1.95%   1.34%   0.43%  -1.90%

 2015-3   1.35%  -0.33%   1.22%  -0.49%   0.90%   2.65%

 2019-3   1.47%   0.30%   0.69%  -0.09%   0.50%   2.87%


 Avg      1.21%  -0.55%   0.29%   0.26%   0.75%   1.97%


SPX summary for PY3 (1955 - 2019) 

 Avg      0.28%   0.09%   0.09%   0.24%   0.29%   1.00%

 Win%       59%     59%     53%     59%     76%     65%


SPX summary for all years 1953 - 2022

 Avg     -0.11%   0.29%   0.10%   0.19%  -0.02%   0.45%

 Win%       62%     56%     60%     57%     57%     63%

Conclusion

It is difficult to put a happy face on 4 consecutive big down days with rapidly increasing new lows. The market is oversold and should bounce.

The strongest sectors last week were Energy (for the 3rd week in a row) and Electronics while the weakest were Banks and Basic materials.

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

Last week's positive forecast was a miss.

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