The good news is:

• The market had another good week.

The Negatives

For the past 15 – 20 years I have been calculating and ranking averages of corporate and junk bond funds along with equity sector funds in the FastTrack database.  For the first time ever, Junk bond funds held the top rank.  Just another example of how bizarre this current market is.

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 1st 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 rose last week to its highest level since it went negative 8 months ago.  On the Nasdaq, new highs outnumbered new lows on Thursday and Friday of last week. 

The next chart is similar to the previous one 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 rose last week to its highest level in over a month, however, it finished the week in negative territory,

The Positives

New lows continued to decline last week.  

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

NY NL rose to its best level since January..  

The next chart is similar to the previous one except it shows the OTC in blue and OTC NL, in brown, has been calculated with Nasdaq data.

OTC NL ditto.

The next chart covers the last 6 months showing the OTC in blue and a 10% trend of Nasdaq new highs in green.

OTC NH continued to rise..

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

NY NH not as much enthusiasm here.

Seasonality

Next week includes the 5 trading days prior to the 2nd Friday of August during the 2nd 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 2nd 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 mixed, but weaker during the 2nd year of the Presidential Cycle.

Report for the week before the 2nd Friday of August.

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

Daily returns from Monday to 2nd Friday.


OTC Presidential Year 2 (PY2)

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1966-2   0.70%  -0.14%   0.44%   0.09%  -0.14%   0.95%

 1970-2  -0.87%  -1.71%  -0.44%  -0.98%  -1.28%  -5.29%

 1974-2   0.39%   1.23%   1.63%  -1.42%   0.04%   1.87%

 1978-2   0.39%   0.22%   0.88%  -0.05%   0.32%   1.76%


 1982-2  -1.35%  -0.04%  -0.34%  -0.58%  -0.44%  -2.75%

 1986-2  -1.08%   0.02%  -0.55%   0.09%   0.22%  -1.29%

 1990-2  -4.17%   0.51%   1.41%   1.29%  -1.20%  -2.17%

 1994-2   0.25%   0.30%   0.77%   0.00%   0.47%   1.79%

 1998-2  -0.41%  -2.53%   1.83%  -1.26%  -0.68%  -3.05%


 Avg     -1.35%  -0.35%   0.62%  -0.12%  -0.33%  -1.49%


 2002-2  -3.36%   4.44%   1.70%   2.78%  -0.79%   4.77%

 2006-2  -0.60%  -0.56%  -0.03%   0.56%  -0.68%  -1.31%

 2010-2   0.75%  -1.24%  -3.01%  -0.83%  -0.77%  -5.09%

 2014-2   0.72%  -0.71%   0.05%  -0.46%   0.83%   0.43%

 2018-2   0.61%   0.31%   0.06%   0.04%  -0.67%   0.35%


 Avg     -0.38%   0.45%  -0.25%   0.42%  -0.41%  -0.17%


OTC summary for PY2 1966 - 2018 

 Avg     -0.57%   0.01%   0.31%  -0.06%  -0.34%  -0.65%

 Win%       50%     50%     64%     46%     36%     50%


OTC summary for all years 1963 - 2021

 Avg     -0.31%   0.12%   0.14%   0.08%   0.01%   0.03%

 Win%       46%     53%     60%     64%     49%     58%


SPX PY2

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1954-2  -0.86%   0.83%   1.15%  -0.42%   0.42%   1.13%

 1958-2   0.95%  -0.40%  -0.61%   0.65%   0.59%   1.18%


 1962-2  -0.64%  -0.68%   0.26%  -0.07%   0.14%  -0.98%

 1966-2  -0.30%  -0.31%  -0.46%  -0.11%   0.18%  -0.99%

 1970-2  -1.40%  -0.50%  -0.53%  -0.88%   0.56%  -2.74%

 1974-2   0.89%   1.55%   2.65%  -1.31%  -0.87%   2.91%

 1978-2  -0.36%   0.44%   0.47%  -0.80%   0.29%   0.04%


 Avg     -0.36%   0.10%   0.48%  -0.63%   0.06%  -0.35%


 1982-2  -0.61%  -0.23%  -0.23%  -0.18%   1.40%   0.15%

 1986-2   0.46%   0.44%  -0.08%   0.08%  -0.07%   0.84%

 1990-2  -3.02%   0.12%   1.05%   0.47%  -1.30%  -2.68%

 1994-2   0.18%   0.01%   0.52%  -0.31%   0.67%   1.06%

 1998-2  -0.58%  -1.30%   1.42%  -0.86%  -1.13%  -2.45%


 Avg     -0.72%  -0.19%   0.54%  -0.16%  -0.09%  -0.62%


 2002-2  -3.43%   2.99%   2.00%   3.27%   0.35%   5.19%

 2006-2  -0.28%  -0.34%  -0.44%   0.46%  -0.40%  -0.99%

 2010-2   0.55%  -0.59%  -2.82%  -0.54%  -0.40%  -3.81%

 2014-2   0.72%  -0.97%   0.00%  -0.56%   1.15%   0.35%

 2018-2   0.35%   0.28%  -0.03%  -0.14%  -0.71%  -0.25%


 Avg     -0.42%   0.27%  -0.26%   0.50%   0.00%   0.10%


SPX summary for PY2 1954 - 2018

 Avg     -0.43%   0.08%   0.26%  -0.07%   0.05%  -0.12%

 Win%       41%     47%     53%     29%     59%  -     53%


SPX summary for all years 1953 - 2021

 Avg     -0.30%   0.17%   0.08%   0.08%   0.05%   0.08%

 Win%       42%     59%     54%     49%     52%     57%

Conclusion

The market had a good week as new lows continued to decline.

At a cycle bottom new lows quickly disappear.  Since the June 17 low,  new lows have declined slowly.  For that reason I believe the rally since the mid June low is a counter trend rally in an ongoing bear market.

The strongest sectors last week were Transportation and Technology while the weakest were Basic Materials and Energy.

I expect the major averages to be lower on Friday August 12 than they were on Friday August 5.

Last week the Dow Jones Industrial Average was down while the other indices were up, so I am calling last week's negative forecast a tie.

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