Technical market report for Feb. 27, 2021

The good news is that the market is due for a bounce (at the least). 

The Negatives

Hints that the era of free money could be winding down sent the market spiraling downward. The decline was led by the secondaries.

The Positives

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

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 actually rose last week as prices were declining.

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. After confirming the record OTC high, the OTC NH has been following the index downward.

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 remained well into positive territory at 72%.

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. The OTC HL Ratio fell a little further, but remained positive at 64%.

Seasonality

Next week includes the first five trading days of March 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 positive by all measures.

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     Day1      Day2     Day3     Day4     Day5     Totals
•  1965-1 0.25% 1 -0.23% 2 -0.12% 3 0.21% 4 -0.10% 5 0.00%
•  1969-1 -0.13% 1 -0.16% 2 0.40% 3 0.07% 4 -1.87% 5 -1.70%
•  1973-1 -0.73% 4 0.49% 5 0.37% 1 1.13% 2 0.30% 3 1.55%
•  1977-1 0.60% 2 0.05% 3 0.36% 4 0.57% 5 0.10% 1 1.68%
•  1981-1 0.53% 1 -0.36% 2 0.20% 3 0.15% 4 0.42% 5 0.95%
•  1985-1 1.05% 5 -0.03% 1 0.01% 2 -0.57% 3 -0.79% 4 -0.34%
•  1989-1 0.02% 3 0.68% 4 0.36% 5 0.56% 1 -0.02% 2 1.61%
•  1993-1 -0.19% 1 1.23% 2 0.91% 3 -0.47% 4 0.09% 5 1.58%
•  1997-1 0.17% 1 0.40% 2 0.96% 3 -1.03% 4 -0.27% 5 0.22%
•  Avg --   0.32% 0.38% 0.49% -0.27% -0.11% 0.81%
•  2001-1 1.47% 4 -3.01% 5 1.19% 1 2.87% 2 0.88% 3 3.40%
•  2005-1 0.95% 2 -0.18% 3 -0.44% 4 0.59% 5 0.95% 1 1.87%
•  2009-1 -3.99% 1 -0.14% 2 2.48% 3 -4.00% 4 -0.44% 5 -6.09%
•  2013-1 0.30% 5 0.39% 1 1.32% 2 -0.05% 3 0.30% 4 2.26%
•  2017-1 1.35% 3 -0.73% 4 0.16% 5 -0.37% 1 -0.26% 2 0.16%
•  Avg --   0.02% -0.73% 0.94% -0.19% 0.29% 0.32%

OTC summary for PY1 1965 - 2017

• Averages --  0.12% -0.11% 0.58% -0.02% -0.05% 0.51%
• % Winners --    71%    43%    86%    57%    50%    79%
• MDD 3/6/2009: 6.10% -- 3/2/2001: 3.01% -- 3/7/1969: 1.87%

OTC summary for all years 1963 - 2020

• Averages --  0.32% -0.02% 0.40% -0.21% -0.10% 0.38%
• % Winners --    65%    50%    69%    53%    47%    62%
• MDD 3/7/1980: 7.49% -- 3/6/2009: 6.10% -- 3/6/2020: 4.91%

SPX PY1

•      Year     Day1      Day2     Day3      Day4     Day5     Totals
•  1929-1 0.94% 5 -0.23% 6 -1.09% 1 -0.67% 2 -1.58% 3 -2.63%
•  1933-1 1.94% 3 -2.08% 4 3.36% 5 16.61% 3 1.76% 4 21.60%
•  1937-1 0.00% 1 1.38% 2 1.15% 3 -0.92% 4 1.31% 5 2.92%
•  1941-1 -0.20% 6 -1.31% 1 0.51% 2 -0.61% 3 1.95% 4 0.33%
•  1945-1 0.14% 4 -0.63% 5 0.00% 6 0.49% 1 0.49% 2 0.49%
•  1949-1 0.62% 2 -0.27% 3 -0.14% 4 0.14% 5 0.95% 6 1.30%
•  1953-1 0.12% 1 0.27% 2 -0.85% 3 0.04% 4 0.19% 5 -0.23%
•  1957-1 1.11% 5 0.73% 1 0.36% 2 0.25% 3 -0.27% 4 2.18%
•  Avg --   0.36% -0.24% -0.02% 0.06% 0.66% 0.82%
•  1961-1 -0.02% 3 0.66% 4 0.16% 5 0.16% 1 -0.91% 2 0.05%
•  1965-1 -0.21% 1 0.17% 2 -0.16% 3 -0.32% 4 -0.21% 5 -0.72%
•  1969-1 0.25% 1 0.96% 2 0.39% 3 -1.01% 4 -0.05% 5 0.54%
•  1973-1 -0.56% 4 1.11% 5 0.36% 1 1.26% 2 0.31% 3 2.47%
•  1977-1 0.84% 2 -0.27% 3 0.49% 4 0.32% 5 0.05% 1 1.43%
•  Avg --   0.06% 0.53% 0.25% 0.08% -0.16% 0.75%
•  1981-1 0.56% 1 -1.10% 2 0.23% 3 -0.71% 4 -0.06% 5 -1.08%
•  1985-1 1.13% 5 -0.64% 1 0.09% 2 -0.87% 3 -0.63% 4 -0.91%
•  1989-1 -0.61% 3 0.99% 4 0.42% 5 1.25% 1 -0.32% 2 1.74%
•  1993-1 -0.31% 1 1.33% 2 0.30% 3 -0.43% 4 -0.27% 5 0.62%
•  1997-1 0.57% 1 -0.55% 2 1.40% 3 -0.43% 4 0.80% 5 1.79%
•  Avg --   0.27% 0.01% 0.49% -0.24% -0.10% 0.43%
•  2001-1 0.10% 4 -0.57% 5 0.59% 1 1.00% 2 0.65% 3 1.77%
•  2005-1 0.57% 2 -0.03% 3 0.03% 4 0.96% 5 0.26% 1 1.79%
•  2009-1 -4.66% 1 -0.64% 2 2.38% 3 -4.25% 4 0.12% 5 -7.06%
•  2013-1 0.23% 5 0.46% 1 0.96% 2 0.11% 3 0.18% 4 1.94%
•  2017-1 1.37% 3 -0.59% 4 0.05% 5 -0.33% 1 -0.29% 2 0.21%
•  Avg --    -0.48% -0.27% 0.80% -0.50% 0.18% -0.27%

SPX summary for PY1 1929 - 2017

• Averages --  0.17% -0.04% 0.48% 0.52% 0.19% 1.33%
• % Winners --   65%    43%    78%    52%    57%    74%
• MDD 3/5/2009: 7.15% -- 3/6/1929: 3.52% -- 3/2/1933: 2.08%

SPX summary for all years 1928 - 2020

• Averages --  0.23% 0.13% 0.28% 0.05% -0.02% 0.64%
• % Winners --   65%    54%    63%    52%    51%    62%
• MDD 3/5/2009: 7.15% -- 3/7/1980: 5.95% -- 3/6/1942: 5.12%

March

Since 1963, over all years, the OTC in March has been up 62% of the time with an average gain of 0.7%. During the first year of the Presidential Cycle, March has seen the OTC up 57% of the time with an average loss of (-0.1%). The best March ever for the OTC was 2009 (+10.9%), and the worst was 1980 (-17.1%). 

The average month has 21 trading days. The chart below has been calculated by averaging the daily percentage change for each of the first 11 trading days and each of the last 10. In months where there were more than 21 trading days, some of the days in the middle were not counted. In months where there were less than 21 trading days, some of the days in the middle of the month were counted twice.

Dashed vertical lines have been drawn after the first trading day and at five trading day intervals after that. The line is solid on the eleventh trading day, the dividing point. The blue line shows the average of all years since 1963, while the green line shows the average during the first year of the Presidential Cycle.

Since 1928, the SPX has been up 60% of the time in March with an average gain of 0.5%. During the first year of the Presidential Cycle, the SPX has been up 48% of the time with an average gain of 0.5%. The best March ever for the SPX was 1928 (+10.8%), and the worst was 1938 (-25.0%).

The chart below is similar to the one above, except it shows the daily performance over all years of the SPX in March in red, and the performance during the first year of the Presidential Cycle in green.

Since 1979, the R2K been up 69% of the time in March with an average gain of 0.8% (brought down by a 21.9% loss in 2020). During the first year of the Presidential Cycle, the R2K has been up 50% of the time with an average gain off 1.1%. The best March ever for the R2K was 1979 (+9.7%), and the worst was 2020 (-21.9%).

The chart below is similar to those above, except it shows the average daily performance of the R2K over all years since 1979 for February in magenta, and the average daily performance during the first year of the Presidential Cycle in green.

Since 1885, the DJIA in March has been up 59% of the time with an average gain of 0.6%. During the first year of the Presidential Cycle, the DJIA has been up 53% of the time in March with an average gain of 0.4%. The best March ever for the DJIA was 1920 (+12.6%), and the worst was 1938 (-23.7%).

The chart below is similar to those above, except it shows the average daily performance over all years for the DJIA in February in grey, and the average performance during the first year of the Presidential Cycle in green.

Conclusion

Last week the market was spooked over the idea that the Modern Monetary Theory (MMT) might be failing. The recent all-time highs were confirmed by everything that matters, so this period of weakness will not last long. Seasonality next week has historically been strong.

The strongest sectors last week were banks and energy, while the weakest were biotech and precious metals; same as the previous week. I expect the major averages to be higher on Friday, Mar. 5 than they were on Friday, Feb. 26. Last week's positive forecast was a miss.