The good news is:

• For a 3rd week in a row the secondaries have outperformed the blue chips.

The Negatives

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 is deeply in negative territory and confirmed last Wednesday’s low. 

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, ditto. 

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.

No signs of life 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).  

NY NL confirmed last Wednesday’s low and turned up on Friday.

The Positives

The market is oversold and ripe for a rally.  The excuse for that rally was not, as I suggested last week, that Russia completed their military exercises on Ukraine’s border and going away.  But, the market appears to like this war.  When the market is as oversold as it was, any excuse for a rally will do.

New lows declined sharply on Friday.

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 did not confirm last Wednesday’s price low.  That is consistent with the secondaries outperforming the blue chips.

Seasonality

Next week includes the last trading day of February and the first 4 trading days of March 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 1928 to 2020.  There are summaries for both the 2nd year of the Presidential Cycle and all years combined.  

Average returns for the coming week have been positive by all measures. 

Report for the Last day of February and the first 4 days of March.

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 2 (PY2)

               Day1      Day1      Day2      Day3      Day4      Totals

 1966-2       0.35% 1   0.22% 2  -0.54% 3  -0.50% 4  -0.23% 5    -0.71%

 1970-2      -0.16% 5   0.48% 1   0.13% 2   0.47% 3   0.06% 4     0.98%

 1974-2       0.31% 4  -0.32% 5  -0.27% 1   0.97% 2   0.43% 3     1.13%

 1978-2      -0.73% 2   0.00% 3   0.24% 4   0.24% 5  -0.21% 1    -0.47%


 1982-2      -0.01% 5   0.39% 1   0.01% 2  -1.18% 3  -0.97% 4    -1.76%

 1986-2       0.26% 5   0.07% 1   0.34% 2  -0.32% 3   0.46% 4     0.81%

 1990-2       0.76% 3   0.32% 4   0.89% 5  -0.20% 1   0.51% 2     2.28%

 1994-2       1.11% 1  -0.49% 2  -0.66% 3   0.14% 4   0.76% 5     0.87%

 1998-2      -0.37% 5  -0.67% 1  -0.09% 2   0.15% 3  -2.72% 4    -3.70%


 Avg          0.35%    -0.07%     0.10%    -0.28%    -0.39%      -0.30%


 2002-2      -1.16% 4   4.11% 5   3.14% 1   0.37% 2   1.29% 3     7.76%

 2006-2      -1.12% 2   1.46% 3  -0.15% 4  -0.37% 5  -0.72% 1    -0.90%

 2010-2       0.18% 5   1.58% 1   0.32% 2   0.00% 3   0.51% 4     2.58%

 2014-2      -0.25% 5  -0.72% 1   1.75% 2   0.14% 3  -0.13% 4     0.78%

 2018-2      -0.78% 3  -1.27% 4   1.07% 5   1.00% 1   0.56% 2     0.59%


 Avg         -0.63%     1.03%     1.22%     0.23%     0.30%       2.16%


OTC summary for PY2 1966 - 2018

Averages     -0.11%     0.37%     0.44%     0.06%    -0.03%       0.73%

% Winners       43%       57%       64%       57%       57%         64%

MDD  3/5/1998  3.67% --  3/4/1982  2.14% --  3/1/2018  2.04%


OTC summary for all years 1963 - 2018

Averages     -0.13%     0.37%    -0.05%     0.34%    -0.25%       0.29%

% Winners       46%       66%       49%       68%       52%         58%

MDD 3/5/2009  6.60% --  3/4/2021  6.37% --  3/6/1980  5.94%


SPX PY2

               Day1      Day1      Day2      Day3      Day4      Totals

 1930-2       0.87% 5   0.73% 6  -0.38% 1   0.77% 2  -0.76% 3     1.22%

 1934-2      -0.46% 3  -0.37% 4   3.26% 5   0.00% 6  -0.54% 1     1.89%

 1938-2      -1.73% 1   1.06% 2  -0.96% 3  -0.97% 4  -0.98% 5    -3.58%


 1942-2       0.00% 6  -1.40% 1   1.53% 2  -1.05% 3  -1.53% 4    -2.44%

 1946-2       0.76% 4  -0.41% 5  -0.64% 6  -0.06% 1   1.05% 2     0.71%

 1950-2      -0.35% 2   0.12% 3  -0.06% 4   0.35% 5   0.23% 6     0.29%

 1954-2       0.93% 5   0.38% 1   0.27% 2   0.00% 3   0.34% 4     1.92%

 1958-2       0.39% 5   0.71% 1   0.53% 2   0.29% 3   1.28% 4     3.21%


 Avg          0.35%    -0.12%     0.33%    -0.09%     0.28%       0.74%


 1962-2       0.10% 3   0.34% 4  -0.06% 5  -0.21% 1  -0.33% 2    -0.16%

 1966-2       0.09% 1  -1.27% 2  -1.01% 3   0.36% 4  -0.26% 5    -2.09%

 1970-2       0.67% 5   0.23% 1   0.58% 2  -0.21% 3  -0.04% 4     1.23%

 1974-2      -0.19% 4  -0.72% 5   0.00% 1   1.87% 2   0.68% 3     1.65%

 1978-2      -0.78% 2   0.17% 3   0.15% 4   0.15% 5  -0.63% 1    -0.93%


 Avg         -0.02%    -0.25%    -0.07%     0.39%    -0.12%      -0.06%


 1982-2      -0.09% 5   0.18% 1  -0.56% 2  -1.56% 3  -0.94% 4    -2.97%

 1986-2       0.07% 5  -0.66% 1  -0.46% 2  -0.02% 3   0.35% 4    -0.72%

 1990-2       0.49% 3   0.26% 4   0.84% 5  -0.54% 1   1.26% 2     2.31%

 1994-2       0.23% 1  -0.58% 2   0.08% 3  -0.39% 4   0.37% 5    -0.28%

 1998-2       0.06% 5  -0.15% 1   0.41% 2  -0.45% 3  -1.17% 4    -1.31%


 Avg          0.15%    -0.19%     0.06%    -0.59%    -0.03%      -0.59%


 2002-2      -0.28% 4   2.26% 5   1.95% 1  -0.67% 2   1.45% 3     4.71%

 2006-2      -1.04% 2   0.83% 3  -0.16% 4  -0.15% 5  -0.70% 1    -1.22%

 2010-2       0.14% 5   1.02% 1   0.23% 2   0.04% 3   0.37% 4     1.81%

 2014-2       0.28% 5  -0.74% 1   1.53% 2  -0.01% 3   0.17% 4     1.23%

 2018-2      -1.11% 3  -1.33% 4   0.51% 5   1.10% 1   0.26% 2    -0.57%


 Avg         -0.40%     0.41%     0.81%     0.07%     0.31%       1.19%


SPX summary for PY2 1930 - 2018

Averages     -0.04%     0.03%     0.33%    -0.06%     0.00%       0.26%

% Winners       57%       57%       57%       35%       52%         52%

MDD  3/4/1938  3.55% --  3/4/1982  3.03% --  3/5/1942  2.56%


SPX summary for all years 1928 - 2021

Averages      0.00%     0.25%     0.12%     0.26%     0.04%       0.65%

% Winners       53%       65%       54%       63%       52%         64%

MDD 3/5/2009  9.34% --  3/6/2008  4.63% --  3/6/1980  4.41%

Conclusion

The market is rallying from a seriously oversold condition.  

New lows declined by about 90% on Friday so this rally should have some legs.

The strongest sectors last week were Precious metals (for the 3rd week in a row) and Utilities (up from the bottom for the previous 2 weeks) while the weakest were Banks and Retail.

I expect the major averages to be higher on Friday March 4 than they were on Friday February 25.

Last week the Dow Jones Industrial Average and OTC were down while the SPX and Russell 2000 were up so I am calling last week's positive forecast a tie.