Technical Market Report for Feb. 20, 2021

The good news is that the Dow Jones Industrial Average (DJIA) closed at all-time highs last Wednesday. 

The Negatives

The DJIA, the bluest of the blue, hit an all-time high last Wednesday while the secondaries, represented by the Russell 2000 (R2K), led the rest of the market downward.

The first chart covers the past six months, showing the S&P 500 (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. The NY NH failed to confirm the recent SPX high, but only missed by a little. There are likely to be new SPX highs when this period of weakness is over.

The Positives

The recent index highs were confirmed by the breadth indicators, so there should at least be new highs for the blue chip indices in the near future.

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 confirmed the record OTC high, implying higher prices may lie ahead.

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 declined a bit to 96%, which is very strong..

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.

Seasonality

Next week includes the last five trading days of February 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 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 negative and weaker during the first year of the Presidential Cycle than other years.

The number following the year represents its position in the Presidential Cycle. The number following the daily return represents the day of the week;

• 1 = Monday, 2 = Tuesday, etc.

OTC Presidential Year 1 (PY1)

•     Year     Day5     Day4       Day3       Day2       Day1     Totals
•  1965-1 0.21% 5 0.61% 2 0.93% 3 0.54% 4 -0.15% 5 2.15%
•  1969-1 -1.88% 1 -0.74% 2 -0.90% 3 0.53% 4 -0.82% 5 -3.82%
•  1973-1 -0.22% 4 -1.08% 5 -0.87% 1 -1.21% 2 0.51% 3 -2.88%
•  1977-1 -0.25% 2 -0.40% 3 -0.96% 4 0.06% 5 -0.35% 1 -1.89%
•  1981-1 0.40% 1 0.46% 2 0.03% 3 1.10% 4 0.96% 5 2.94%
•  1985-1 -0.28% 5 -0.78% 1 0.37% 2 -0.31% 3 0.02% 4 -0.98%
•  1989-1 -0.96% 3 0.14% 4 -0.77% 5 -0.26% 1 0.19% 2 -1.65%
•  1993-1 -1.69% 1 -0.16% 2 1.70% 3 0.70% 4 0.55% 5 1.11%
•  1997-1 0.81% 1 0.19% 2 -0.53% 3 -2.08% 4 -0.28% 5 -1.89%
•  Avg --   -0.34% -0.03% 0.16% -0.17% 0.29% -0.09%
•  2001-1 -1.05% 4 0.78% 5 2.03% 1 -4.36% 2 -2.54% 3 -5.14%
•  2005-1 -1.37% 2 0.05% 3 1.01% 4 0.67% 5 -0.66% 1 -0.32%
•  2009-1 -3.71% 1 3.90% 2 -1.14% 3 -2.38% 4 -0.98% 5 -4.31%
•  2013-1 0.97% 5 -1.44% 1 0.43% 2 1.04% 3 -0.07% 4 0.93%
•  2017-1 -0.09% 3 -0.43% 4 0.17% 5 0.28% 1 -0.62% 2 -0.69%
•  Avg --    -1.05% 0.57% 0.50% -0.95% -0.97% -1.90%

OTC summary for PY1 1965 - 2017

• Averages --   -0.65% 0.08% 0.11% -0.41% -0.30% -1.17%
• % Winners --    29%    50%    57%    57%    36%    29%
• MDD 2/28/2001: 6.79% -- 2/27/2009: 4.44% -- 2/28/1969: 3.77%

OTC summary for all years 1963 - 2020

• Averages --   -0.16% 0.09% 0.16% -0.16% -0.14% -0.21%
• % Winners --   52%    55%    59%    60%    45%    53%
• MDD 2/27/2020: 10.55% -- 2/28/2001: 6.79% -- 2/27/2007: 4.64%

SPX PY1

•    Year     Day5      Day4      Day3      Day2      Day1      Totals
•  1929-1 1.10% 4 0.20% 1 0.16% 2 1.20% 3 1.35% 4 4.01%
•  1933-1 -4.70% 4 3.87% 5 -5.25% 6 -1.07% 1 2.35% 2 -4.80%
•  1937-1 -2.12% 2 0.56% 3 -0.39% 4 0.33% 5 0.17% 6 -1.46%
•  1941-1 0.82% 1 0.91% 2 0.20% 3 -0.70% 4 0.40% 5 1.64%
•  1945-1 -0.21% 5 -0.28% 6 -0.21% 1 0.78% 2 0.70% 3 0.78%
•  1949-1 -0.95% 3 -1.23% 4 -0.28% 5 0.49% 6 1.18% 1 -0.80%
•  1953-1 0.23% 5 0.47% 2 0.62% 3 0.15% 4 -0.19% 5 1.29%
•  1957-1 -0.34% 4 -0.23% 1 0.16% 2 -0.09% 3 -0.35% 4 -0.85%
•  Avg --   -0.09% -0.07% 0.10% 0.13% 0.35% 0.41%
•  1961-1 0.06% 2 0.37% 4 0.40% 5 0.73% 1 0.22% 2 1.79%
•  1965-1 0.19% 5 0.50% 2 0.61% 3 0.03% 4 0.26% 5 1.59%
•  1969-1 -1.19% 1 -0.63% 2 0.48% 3 -0.31% 4 -0.01% 5 -1.67%
•  1973-1 -0.22% 4 -1.12% 5 -0.86% 1 -1.15% 2 0.70% 3 -2.64%
•  1977-1 0.00% 2 -0.30% 3 -0.59% 4 -0.12% 5 0.34% 1 -0.67%
•  Avg --  -0.23% -0.24% 0.01% -0.16% 0.30% -0.32%
•  1981-1 0.61% 1 0.03% 2 0.89% 3 1.23% 4 0.90% 5 3.66%
•  1985-1 -0.46% 5 -0.07% 1 1.08% 2 -0.25% 3 0.26% 4 0.56%
•  1989-1 -1.71% 3 0.39% 4 -1.68% 5 0.24% 1 0.36% 2 -2.40%
•  1993-1 0.23% 1 -0.10% 2 1.40% 3 0.33% 4 0.24% 5 2.10%
•  1997-1 1.06% 1 0.21% 2 -0.78% 3 -1.32% 4 -0.54% 5 -1.35%
•  Avg --   -0.05% 0.09% 0.18% 0.05% 0.24% 0.51%
•  2001-1 -0.20% 4 -0.56% 5 1.75% 1 -0.77% 2 -1.43% 3 -1.20%
•  2005-1 -1.45% 2 0.56% 3 0.79% 4 0.93% 5 -0.64% 1 0.19%
•  2009-1 -3.47% 1 4.01% 2 -1.07% 3 -1.58% 4 -2.36% 5 -4.46%
•  2013-1 0.88% 5 -1.83% 1 0.61% 2 1.27% 3 -0.09% 4 0.84%
•  2017-1 -0.11% 3 0.04% 4 0.15% 5 0.10% 1 -0.26% 2 -0.07%
•  Avg --    -0.87% 0.45% 0.45% -0.01% -0.95% -0.94%

SPX summary for PY1 1929 - 2017

• Averages --   -0.52% 0.25% -0.08% 0.02% 0.16% -0.17%
• % Winners --   39%    57%    61%    57%    61%    48%
• MDD 2/27/1933: 7.21% -- 2/27/2009: 4.92% -- 2/27/1973: 3.30%

SPX summary for all years 1928 - 2020

• Averages --   -0.21% -0.08% 0.08% -0.07% 0.01% -0.28%
• % Winners --    47%     44%    54%    53%    53%    47%
• MDD 2/28/2020: 11.49% -- 2/27/1933: 7.21% -- 2/26/1934: 6.47%

Conclusion

Last week, the DJIA made a new all-time high, unconfirmed by any of the broad based indices. Seasonality has been weak and that weakness continues. Huge piles of cash are looking for somewhere to go, so the market's rise is likely to continue.

The strongest sectors last week were banks and electronics, while the weakest were biotech and precious metals; same as previous week. I expect the major averages to be higher on Friday, Feb. 26 than they were on Friday, Feb. 19. Last week, the DJIA was up while everything else was down, so I am calling last week's positive forecast a tie.