Technical Market Report for Saturday, Aug. 21, 2021

The good news is that seasonality for the coming week looks to be better than last week.

The Negatives

The blue chips have been outperforming the secondaries. New lows exceeded new highs on the Nasdaq every day last week, and new lows exceeded new highs on the NYSE on both Thursday and Friday for the first time since May 13.

The first chart covers the past six 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 first trading day of each month. The OTC NH resumed its downward move last week.

The next chart is similar to the first one, except it shows the SPX in red and the NY NH in green. The information has been calculated with NYSE data. Similar action can be seen on the NYSE.

The next chart covers the past six months, showing the OTC in blue and a 10% trend (19-day EMA) of Nasdaq new lows (OTC NL) in brown. The OTC NL has been plotted on an inverted Y axis, so decreasing numbers of new lows move the indicator upward (up is good). The OTC NL hit its highest (lowest on the chart) level in over a year.

The next chart is similar to the one above, except is shows the SPX in red and the NY NL in blue. The information has been calculated with NYSE data. The NY NL also made a dash for the bottom.

The next chart covers the past six months, showing the OTC in blue, and a 40% trend (four-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. The OTC HL Ratio also made a dash for the bottom.

The next chart is similar to the previous one, except it shows the SPX in red and the NY HL Ratio in blue. The information has been calculated with NYSE data. The NY HL Ratio fell into negative territory for the first time since last March. 

The Positives

The market is oversold.

Seasonality

Next week includes the five trading days prior to the fourth Friday of August during the first 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 2020, while SPX data runs from 1953 to 2020. There are summaries for both the first year of the Presidential Cycle and all years combined. Prior to 1953 the market traded six days a week, so that data has been ignored.

Average returns for the coming week have been modest and mixed. 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   0.38%   0.00%   0.02%   0.36%   0.20%   0.95%

 1969-1   0.94%   1.49%   0.25%   0.24%   0.50%   3.42%

 1973-1  -1.00%  -0.54%  -0.76%   1.17%  -0.13%  -1.25%

 1977-1   0.20%  -0.11%  -0.19%  -0.61%  -0.25%  -0.95%

 1981-1  -2.90%  -1.48%   0.02%  -0.50%   0.37%  -4.50%

 1985-1  -0.28%   0.25%   0.44%  -0.27%  -0.06%   0.08%

 1989-1  -0.79%   0.01%   0.77%   0.87%   0.19%   1.04%

 1993-1  -0.01%   0.59%  -0.20%  -0.31%   0.37%   0.43%

 1997-1   0.48%   1.99%   1.75%  -1.34%  -0.50%   2.37%

   Avg:     -0.70%   0.27%   0.55%  -0.31%   0.07%  -0.12%

 2001-1   0.77%  -2.66%   1.57%  -0.92%   4.01%   2.77%

 2005-1   0.27%  -0.19%  -0.39%   0.26%  -0.64%  -0.69%

 2009-1  -0.14%   0.31%   0.01%   0.16%   0.05%   0.39%

 2013-1  -0.38%   0.68%  -0.38%   1.08%   0.52%   1.53%

 2017-1  -0.05%   1.35%  -0.30%  -0.11%  -0.09%   0.79%

   Avg:      0.09%  -0.10%   0.10%   0.09%   0.77%   0.96%

OTC Summary for PY1 1965 - 2017 

•  Avg:     -0.18%   0.13%   0.18%   0.01%   0.32%   0.45%
•  Win%:       43%     62%     57%     50%     57%     71%

OTC Summary for All Years 1963 - 2020

•  Avg:     -0.11%   0.06%   0.41%  -0.11%   0.17%   0.39%
•  Win%:       43%     57%     66%     48%     64%     60%

SPX PY1

   Year        Mon      Tue      Wed      Thur      Fri      Totals

 1953-1  -1.07%  -0.66%  -0.29%  -0.29%  -0.21%  -2.53%

 1957-1  -2.01%   0.85%   0.44%  -0.73%  -1.44%  -2.88%

 1961-1   0.21%   0.01%  -0.67%  -0.57%   0.12%  -0.91%

 1965-1  -0.15%   0.17%   0.12%   0.38%   0.07%   0.59%

 1969-1   0.61%   0.53%   0.00%   0.29%   0.60%   2.03%

 1973-1  -0.68%  -0.71%  -0.36%   1.37%  -0.28%  -0.66%

 1977-1   0.29%  -0.17%  -0.40%  -1.11%  -0.09%  -1.49%

   Avg:      0.05%  -0.03%  -0.33%   0.07%   0.08%  -0.09%

 1981-1  -2.89%  -0.29%  -0.14%  -1.16%   0.46%  -4.02%

 1985-1   0.15%   0.91%   0.57%  -0.95%  -0.10%   0.58%

 1989-1  -1.55%   0.15%   1.03%   1.98%  -0.28%   1.33%

 1993-1  -0.20%   1.00%   0.08%   0.20%  -0.11%   0.96%

 1997-1   1.30%   1.48%   1.44%  -1.52%  -0.16%   2.53%

   Avg:     -0.64%   0.65%   0.60%  -0.29%  -0.04%   0.28%

 2001-1   0.81%  -1.21%   0.70%  -0.28%   1.97%   1.99%

 2005-1   0.17%  -0.34%  -0.66%   0.23%  -0.60%  -1.20%

 2009-1  -0.05%   0.24%   0.01%   0.28%  -0.20%   0.27%

 2013-1  -0.59%   0.38%  -0.58%   0.86%   0.39%   0.47%

 2017-1   0.12%   0.99%  -0.35%  -0.21%   0.17%   0.72%

   Avg:      0.09%   0.01%  -0.17%   0.18%   0.35%   0.45%

SPX Summary for PY1 1953 - 2017 

•  Avg:     -0.33%   0.20%   0.06%  -0.07%   0.02%  -0.13%
•  Win%:       47%     65%     50%     47%     41%     59%

SPX Summary for All Years 1953 - 2020

•  Avg:     -0.14%   0.05%   0.25%  -0.13%   0.01%   0.03%
•  Win%:       44%     57%     59%     46%     51%     60%

Conclusion

New low numbers were awful when, as expected, the market was allowed to take a little dip last week.

The strongest sectors last week were utilities (same as the previous week) and healthcare, while the weakest were precious metals (same as the previous week) and energy. I expect the major averages to be higher on Friday, Aug. 27 than they were on Friday, Aug. 20.