The good news is:

• Last week the secondaries outperformed the blue chips.

The Negatives

The markets were spooked last week by the Fed threatening to quit giving away money.

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 and dashed horizontal lines have been drawn at 10% levels for the indicator; the line is solid at the 50%, neutral level.

OTC HL Ratio turned sharply downward at the end of last week. 

The next chart is similar to the first 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 also confirmed its negative posture. 

The next chart covers the past 6 months showing the SPX in red and a 10% trend (19 day EMA) of NYSE new highs (NY NH) in green.

There is nothing to be happy about here.

The next chart is similar to the one above except it shows the OTC in blue and OTC NH, in green, has been calculated with Nasdaq data.

Ditto OTC NH.  

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).  

The upward move of NY NL was arrested last week.

The Positives

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

OTC NL is at a very high level, however its upward move continued.

Seasonality

Next week includes the 5 trading days prior to the 3rd Friday of February 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 2020 while SPX data runs from 1953 to 2020.  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 positive by all measures. 

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

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

Daily returns from Monday through 3rd Friday.


OTC Presidential Year 2 (PY2)

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1966-2   0.23%  -0.22%  -0.47%   0.50%   0.13%   0.19%

 1970-2  -0.17%  -0.10%  -0.17%   0.67%   0.02%   0.26%

 1974-2  -1.16%  -0.69%  -0.46%   0.14%   0.85%  -1.32%

 1978-2  -0.23%  -0.54%  -0.21%  -0.38%   0.08%  -1.29%


 1982-2   0.00%  -0.99%   0.30%   0.07%  -0.40%  -1.02%

 1986-2   0.00%   0.61%   0.15%   0.06%   0.72%   1.54%

 1990-2  -0.57%  -0.15%   0.19%   0.72%  -0.14%   0.04%

 1994-2   0.52%   0.59%   0.32%  -0.30%  -0.18%   0.95%

 1998-2   0.00%  -0.41%   0.72%   0.66%   0.06%   1.04%


 Avg     -0.03%  -0.07%   0.34%   0.24%   0.01%   0.51%


 2002-2   1.53%  -0.67%   1.36%  -0.85%  -2.07%  -0.71%

 2006-2  -0.98%   1.00%   0.63%   0.80%  -0.53%   0.92%

 2010-2   0.00%   1.40%   0.55%   0.69%   0.10%   2.74%

 2014-2   0.00%   0.68%  -0.82%   0.70%  -0.10%   0.46%

 2018-2   1.56%   0.45%   1.85%   1.57%  -0.23%   5.19%


 Avg      0.70%   0.57%   0.71%   0.58%  -0.57%   1.72%


 OTC summary for PY2 1966 - 2018

 Avg      0.08%   0.07%   0.28%   0.36%  -0.12%   0.64%

 Win%       44%     43%     64%     79%     50%     71%


OTC summary for all years 1963 - 2021

 Avg      0.14%  -0.04%   0.13%   0.15%  -0.14%   0.19%

 Win%       61%     52%     59%     61%     49%     59%


SPX PY2

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1954-2  -0.31%  -0.88%   0.19%   0.39%  -0.15%  -0.76%

 1958-2  -0.53%   0.15%  -0.05%  -0.58%  -0.07%  -1.09%


 1962-2  -0.03%  -0.01%  -0.04%   0.45%  -0.21%   0.16%

 1966-2  -0.17%  -0.51%  -0.01%  -0.54%  -0.27%  -1.50%

 1970-2  -0.08%  -0.12%   1.24%   0.37%   0.31%   1.72%

 1974-2  -1.81%   0.31%   0.04%  -0.03%   1.45%  -0.04%

 1978-2  -0.24%  -0.91%  -0.24%  -0.84%  -0.14%  -2.37%


 Avg     -0.47%  -0.25%   0.20%  -0.12%   0.23%  -0.41%


 1982-2   0.00%  -0.28%  -0.32%   0.11%  -0.53%  -1.02%

 1986-2   0.00%   1.22%  -1.21%   1.12%   1.08%   2.21%

 1990-2  -1.06%   0.28%   0.30%   0.87%  -0.65%  -0.26%

 1994-2   0.01%   0.49%   0.06%  -0.52%  -0.56%  -0.53%

 1998-2   0.00%   0.26%   0.91%  -0.37%   0.57%   1.38%


 Avg     -0.53%   0.40%  -0.05%   0.24%  -0.02%   0.36%


 2002-2   1.43%  -0.40%   0.99%  -0.18%  -1.10%   0.75%

 2006-2  -0.33%   1.00%   0.35%   0.73%  -0.17%   1.59%

 2010-2   0.00%   1.80%   0.42%   0.66%   0.22%   3.10%

 2014-2   0.00%   0.12%  -0.65%   0.60%  -0.19%  -0.13%

 2018-2   1.39%   0.26%   1.34%   1.21%   0.04%   4.24%


 Avg      0.83%   0.56%   0.49%   0.60%  -0.24%   1.91%


SPX summary for PY2 1954 - 2018 

 Avg     -0.14%   0.16%   0.20%   0.20%  -0.02%   0.44%

 Win%       25%     59%     59%     59%     35%     47%


SPX summary for all years 1953 - 2021

 Avg      0.10%   0.01%   0.21%  -0.01%   0.00%   0.27%

 Win%       50%     56%     59%     48%     48%     59%

Conclusion

Last week the Fed confirmed its determination to begin raising interest rates a month from now.

The strongest sectors last week were Precious metals (up from the bottom last week) and Leisure while the weakest were Electronics and Utilities.

I expect the major averages to be lower on Friday, February 18, than they were on Friday, February 11.

Last week the Russell 2000 was up while everything else was down; so I am calling last week's positive forecast a tie.