Technical market report for Saturday, April 3, 2021

The good news is that the S&P 500 (SPX) closed at an all-time high last Thursday and new lows have disappeared. 

The Negatives

New highs are much lower than they were at the index highs a few weeks ago, but they are still at comfortably high levels.

The first chart covers the past six months, showing the SPX in red and a 10% trend (19-day EMA) of NYSE new highs (NY NH) in green. Dashed vertical lines have been drawn on the first trading day of each month. This is a significant non-confirmation of the new SPX high.

The next chart is similar to the first one, except it shows the Nasdaq composite (OTC) in blue and the OTC NH in green. The information has been calculated with Nasdaq data. The OTC NH is not confirming the rally.

New highs will need to recover if this rally is to be significantly extended.

The Positives

The strongest indication that the recent pull back is over is the rapid decline in the number of new lows.

The next chart covers the past six months, showing the SPX in red and a 10% trend (19-day EMA) of NYSE new lows (NY NL) in blue. The NY NL has been plotted on an inverted Y axis, so decreasing numbers of new lows move the indicator upward (up is good). It is too early to be sure, but as long as the NY NL continues to move upward, risk will be limited.

New low charts are the easiest way to assess market risk. The next chart is similar to the one above, except it covers the past three years and the dashed vertical lines have been drawn on the first trading day of the year. Bottoms are easy to spot.

The next charts are similar to the previous two, except they show the OTC in blue and the OTC NL in brown. The information has been calculated with Nasdaq data. This is similar to the previous chart.

This is a three-year chart of OTC NL.

The next chart covers the past six months, showing the SPX in red, and a 40% trend (four-day EMA) of NYSE new highs divided by new highs + new lows (NY HL Ratio) in blue. Dashed horizontal lines have been drawn at 10% levels for the indicator; the line is solid at the 50%, neutral level. The NY HL Ratio rose to a strong 87%.

The next chart is similar to the one above, except it shows the OTC in blue and the OTC HL Ratio in red. The information has been calculated with Nasdaq data. The OTC HL Ratio finished the week at 67% and has been rising sharply.

Seasonality

Next week includes the five trading days prior to the second Friday of April, all during the first year of the Presidential Cycle. The tables below show the daily change on a percentage basis for that period. The program counts Fridays, and with Good Friday usually falling in April, various years are often off by a week.

OTC data covers the period from 1963 to 2020, while SPX data runs from 1928 to 2020. There are summaries for both the first year of the Presidential Cycle and all years combined. 

Average returns for the coming week have been historically mixed, but much stronger during the first year of the Presidential Cycle than other years. The number following the year is the position in the Presidential Cycle.

OTC Presidential Year 1 (PY1)

•   Year    Mon      Tue      Wed      Thur      Fri      Totals
•  1965-1 0.37% 0.18% 0.16% 0.55% 0.57% 1.84%
•  1969-1 0.29% -0.21% -0.53% -0.70% 0.15% -1.00%
•  1973-1 0.65% 0.70% 0.42% 0.26% -0.32% 1.71%
•  1977-1 0.36% 0.73% 0.04% 0.95% 0.27% 2.35%
•  1981-1 -0.65% 0.23% 0.49% 0.52% 0.58% 1.18%
•  1985-1 0.16% 0.43% 0.37% -0.08% -0.11% 0.78%
•  1989-1 0.10% 0.58% 0.52% -0.44% 0.92% 1.69%
•  1993-1 1.02% 0.11% 0.02% -0.54% -0.53% 0.08%
•  1997-1 1.19% 0.48% -0.64% -1.09% -2.34% -2.40%
•  Avg -- 0.36%   0.37%   0.15%  -0.32%  -0.29%   0.26%
•  2001-1 -2.64% 0.71% 8.12% 4.94% -0.86% 10.28%
•  2005-1 0.32% 0.41% -0.01% 0.98% -0.96% 0.74%
•  2009-1 0.05% -1.67% 0.07% 2.68% 0.16% 1.28%
•  2013-1 0.57% 0.48% 1.83% 0.09% -0.16% 2.82%
•  2017-1 0.89% -0.12% 0.23% 0.92% -0.11% 1.81%
•  Avg --  -0.16%  -0.04%   2.05%   1.92%  -0.39%   3.39%

OTC summary for PY1 1965 - 2017 

•  Avg -- 0.19% 0.22% 0.79% 0.65% -0.19% 1.65%
•  Win% --  86%   79%   79%   64%   43%   86%

OTC summary for all years 1963 - 2020

•  Avg -- 0.01% 0.05% 0.01% 0.15% -0.26% -0.03%
•  Win% --  60%   53%   57%   55%   52%   60%

SPX PY1

•   Year      Mon      Tue      Wed      Thur      Fri      Totals
•  1953-1 -0.20% 0.36% 0.40% -0.20% -1.16% -0.80%
•  1957-1 -0.22% 0.90% 0.42% -0.09% 0.22% 1.23%
•  1961-1 0.86% 0.14% -0.47% -0.08% 0.17% 0.62%
•  1965-1 0.00% -0.03% 0.06% 0.57% 0.60% 1.19%
•  1969-1 -0.08% -0.04% -0.89% 0.15% 0.46% -0.40%
•  1973-1 1.45% 1.22% 0.42% -0.09% -0.44% 2.55%
•  1977-1 0.64% 1.28% 0.01% 0.84% 0.04% 2.81%
•  Avg -- 0.72%   0.51%  -0.17%   0.28%   0.16%   1.36%
•  1981-1 -1.15% -0.01% 0.75% -0.18% -0.12% -0.72%
•  1985-1 0.21% 0.15% 0.26% -0.46% 0.15% 0.32%
•  1989-1 -0.02% 0.46% 0.17% -0.87% 1.67% 1.42%
•  1993-1 1.48% 0.19% -0.12% -0.06% 0.12% 1.61%
•  1997-1 0.56% 0.52% -0.72% -0.30% -2.73% -2.66%
•  Avg -- 0.22%   0.26%   0.07%  -0.37%  -0.18%  -0.01%
•  2001-1 -0.32% 1.03% 3.89% 1.26% -0.86% 4.99%
•  2005-1 0.27% 0.45% 0.23% 0.60% -0.83% 0.71%
•  2009-1 0.25% -2.01% 1.25% 1.55% 0.50% 1.55%
•  2013-1 0.63% 0.35% 1.22% 0.36% -0.28% 2.28%
•  2017-1 0.86% -0.29% -0.17% 0.76% -0.30% 0.85%
•  Avg -- 0.34%  -0.09%   1.28%   0.90%  -0.36%   2.08%

SPX summary for PY1 1953 - 2017 

•  Avg -- 0.33% 0.28% 0.39% 0.22% -0.17% 1.03%
•  Win% --  63%   71%   71%   47%   53%   76%

SPX summary for all years 1953 - 2020

•  Avg -- 0.12% 0.13% 0.05% -0.01% -0.06% 0.23%
•  Win% --  60%   56%   56%   54%   51%   57%

Conclusion

It is a little early to be sure, but it looks like the low of a week ago will serve as the bottom for a while.

The strongest sectors last week were electronics and transportation, while the weakest were precious metals and energy services (similar to the previous week). I expect the major averages to be higher on Friday, April 9 than they were on Thursday, April 1.