Technical market report for January 9, 2021

The good news is that all of the major averages closed at all time highs on Thursday or Friday last week.

The Negatives

The market is overbought.

The Positives

New highs have been expanding, while new lows have remained minimal.

The first chart covers the past six months, showing the NASDAQ composite (OTC) in blue and a 10% trend (19-day EMA) of NASDAQ new highs (OTC NH) in green. Dashed vertical lines have been drawn on the first trading day of each month. The OTC NH confirmed the all time OTC high hit on Friday, January 8. That implies higher highs ahead.

The next chart is similar to the first one, except it shows the S&P 500 (SPX) in red and the NY NH in green. The information has been calculated with NYSE data. The NY NH confirmed the SPX all time high set last Friday.

I am having difficulty with the program I use to generate the high low ratio charts, so I am unable to show them this week. Looking at the data, both the NYSE and OTC high low ratio numbers would put the indicators well into the 90’s, which is very strong.

Seasonality

Next week includes the five trading days prior to the second Friday of January, all during the first year of the Presidential Cycle. The tables below show the daily change on a percentage basis for that period.

The OTC data covers the period from 1963 to 2020, while the SPX data runs from 1953 to 2020. There are summaries for both the first year of the Presidential Cycle and all years combined. Prior to 1953, the market traded six days a week, so that data has been ignored.

Average returns for the coming week have been mixed, but mostly positive. The number following the year is the position in the Presidential Cycle.

OTC Presidential Year 1 (PY1)

•    Year     Mon    Tue    Wed    Thur    Fri   Totals
•  1965-1 0.31% 0.65% 0.55% 0.55% 0.31% 2.37%
•  1969-1 0.21% -1.10% -0.93% -1.97% -0.25% -4.04%
•  1973-1 0.35% 0.08% -0.02% 0.05% 0.57% 1.03%
•  1977-1 -0.23% -0.92% -0.40% 0.85% 0.37% -0.33%
•  1981-1 0.30% -0.05% -3.29% -0.74% 0.90% -2.87%
•  Avg --   0.19% -0.27% -0.82% -0.25% 0.38% -0.77%
•  1985-1 -0.06% -0.02% 0.54% 1.34% 0.60% 2.41%
•  1989-1 0.14% -0.18% 0.19% 0.44% 0.02% 0.61%
•  1993-1 0.77% -0.43% 1.08% 1.30% 0.21% 2.92%
•  1997-1 0.43% 0.86% -0.55% 0.44% 0.44% 1.62%
•  2001-1 -0.49% 1.89% 3.40% 4.61% -0.53% 8.88%
•  Avg --    0.16% 0.43% 0.93% 1.63% 0.15% 3.29%
•  2005-1 0.40% -0.83% 0.62% -1.05% 0.84% -0.02%
•  2009-1 -0.26% 1.50% -3.23% 1.12% -2.81% -3.67%
•  2013-1 -0.09% -0.23% 0.45% 0.51% 0.12% 0.77%
•  2017-1 0.20% 0.36% 0.21% -0.29% 0.48% 0.96%
•  Avg --   0.06% 0.20% -0.49% 0.07% -0.34% -0.49%

OTC summary for PY1 1965 - 2017 

•  Avg --  0.14% 0.11% -0.10% 0.51% 0.09% 0.76%
•  Win% --  64%    43%    57%    71%    79%    64%

OTC summary for all years 1963 - 2020

•  Avg --  0.33% -0.05% -0.04% 0.52% 0.13% 0.89%
•  Win% --  66%    55%    53%    74%    66%    66%

SPX PY1

•    Year     Mon     Tue     Wed     Thur     Fri     Totals
•  1953-1 0.45% -0.68% -0.42% -0.15% -0.95% -1.74%
•  1957-1 -0.51% -0.37% -0.19% 0.24% -0.19% -1.03%
•  1961-1 0.56% 0.27% 0.29% 0.30% 0.47% 1.90%
•  1965-1 0.04% 0.25% 0.27% 0.00% 0.43% 0.98%
•  1969-1 -1.46% -1.22% -0.41% 0.42% -0.29% -2.97%
•  1973-1 -0.02% -0.10% -0.25% 0.68% -0.78% -0.47%
•  1977-1 0.18% -1.03% -0.69% 0.77% -0.18% -0.95%
•  1981-1 1.20% 0.11% -2.20% -1.50% 0.32% -2.08%
•  Avg --  -0.01% -0.40% -0.66% 0.09% -0.10% -1.10%
•  1985-1 0.34% -0.15% 0.73% 1.89% -0.24% 2.57%
•  1989-1 0.11% -0.21% 0.58% 0.41% 0.25% 1.14%
•  1993-1 0.44% 0.02% 0.46% 0.67% 0.28% 1.87%
•  1997-1 -0.05% 0.75% -0.64% 0.86% 0.61% 1.53%
•  2001-1 -0.19% 0.38% 0.96% 1.03% -0.64% 1.54%
•  Avg --    0.13% 0.16% 0.42% 0.97% 0.05% 1.73%
•  2005-1 0.34% -0.61% 0.40% -0.86% 0.60% -0.13%
•  2009-1 -0.47% 0.78% -3.00% 0.34% -2.13% -4.48%
•  2013-1 -0.31% -0.32% 0.27% 0.76% 0.00% 0.38%
•  2017-1 -0.35% 0.00% 0.28% -0.21% 0.18% -0.10%
•  Avg --   -0.20% -0.05% -0.51% 0.01% -0.34% -1.08%

SPX summary for PY1 1953 - 2017 

•  Avg --  0.02% -0.13% -0.21% 0.35% -0.13% -0.12%
•  Win% --  53%     44%    53%    75%    47%    47%

SPX summary for all years 1953 - 2020

•  Avg --  0.09% -0.14% -0.21% 0.30% 0.01% 0.04%
•  Win% --  57%     42%    46%    73%    51%    53%

Conclusion

The market has been following its seasonal pattern pretty closely, and the seasonality for next week has typically been decent. Breadth has been strong, and the secondaries outperformed the blue chips last week.

The strongest sectors last week were banks and electronics, and the weakest sectors were utilities and precious metals. I expect the major averages to be higher on Friday, January 15 than they were on Friday, January 8.