The good news is:

• New lows declined significantly last Friday.

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.  Dashed horizontal lines have been drawn at 10% levels for the indicator; the line is solid at the 50%, neutral level (equal numbers of new highs and new lows).

OTC HL Ratio declined last week and has remained in negative territory for 8 months. 

The next chart is similar to the previous 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 declined last week remaining in deeply negative territory,

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 leveled off last week at a dangerously high value.  

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 ditto.

The Positives

New lows declined significantly as of Friday.  

Friday could have been a relief rally that will expire in another day or so, or it could be the beginning of a significant rally that lasts several weeks.

It is too soon to tell.

Seasonality

Next week includes the 5 trading days prior to the fourth Friday of July 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 2021 while SPX data runs from 1953 to 2021.  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 mixed..

Report for the week before the 4th Friday of July.

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

Daily returns from Monday through the 4th Friday.


OTC Presidential Year 2 (PY2)

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1966-2   0.42%   0.08%  -0.10%  -0.56%  -0.05%  -0.20%

 1970-2   0.01%   0.13%   0.46%   0.38%  -0.22%   0.76%

 1974-2   0.03%   1.39%   0.26%  -1.50%  -0.93%  -0.75%

 1978-2  -0.01%   0.16%   0.56%   0.52%   0.56%   1.79%


 1982-2  -0.05%   0.44%   0.42%   0.30%   0.03%   1.13%

 1986-2   0.00%   0.00%   0.00%   0.00%   0.00%   0.00%

 1990-2  -2.33%  -0.47%   0.65%   0.00%  -0.64%  -2.79%

 1994-2   0.17%  -0.46%  -0.91%   0.32%   0.23%  -0.64%

 1998-2   0.12%  -1.90%  -0.79%   2.02%  -2.46%  -3.01%


 Avg     -0.52%  -0.60%  -0.16%   0.66%  -0.71%  -1.33%


 2002-2  -2.77%  -4.18%   4.98%  -3.89%   1.78%  -4.08%

 2006-2   2.05%   0.58%  -0.17%  -0.77%   1.93%   3.63%

 2010-2   0.88%   1.10%  -1.58%   2.68%   1.05%   4.13%

 2014-2   0.00%   0.00%   0.00%   0.00%   0.00%   0.00%

 2018-2   0.28%  -0.01%   1.17%  -1.01%  -1.46%  -1.04%


 Avg      0.11%  -0.63%   1.10%  -0.75%   0.82%   0.66%


OTC summary for PY2 1966 - 2018 

 Avg     -0.10%  -0.26%   0.41%  -0.13%  -0.01%  -0.09%

 Win%       67%     58%     58%     50%     50%     42%


OTC summary for all years 1963 - 2021

 Avg     -0.25%  -0.08%   0.21%   0.05%   0.04%  -0.03%

 Win%       46%     56%     60%     62%     62%     56%


SPX PY2

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1954-2  -0.27%  -0.47%   0.64%   0.80%   0.13%   0.83%

 1958-2   0.00%   0.00%   0.00%   0.00%   0.00%   0.00%


 1962-2  -0.02%  -0.77%   0.18%   0.55%   0.76%   0.69%

 1966-2  -0.10%  -0.76%  -0.95%   0.01%  -0.13%  -1.93%

 1970-2  -0.22%   0.15%   0.35%   0.04%  -0.03%   0.30%

 1974-2   0.32%   1.00%   0.40%  -1.19%  -1.88%  -1.34%

 1978-2  -0.03%   0.74%   0.65%   0.46%   0.46%   2.28%


 Avg     -0.01%   0.07%   0.13%  -0.02%  -0.16%   0.00%


 1982-2  -0.31%   0.73%  -0.11%   0.04%  -0.27%   0.09%

 1986-2   0.00%   0.00%   0.00%   0.00%   0.00%   0.00%

 1990-2  -1.74%   0.14%   0.37%  -0.33%  -0.69%  -2.27%

 1994-2   0.23%  -0.30%  -0.50%   0.22%   0.11%  -0.23%

 1998-2   0.57%  -1.49%  -0.44%   1.57%  -1.94%  -1.73%


 Avg     -0.31%  -0.23%  -0.17%   0.38%  -0.70%  -1.03%


 2002-2  -3.29%  -2.70%   5.73%  -0.56%   1.69%   0.86%

 2006-2   1.66%   0.63%  -0.04%  -0.41%   1.22%   3.06%

 2010-2   0.60%   1.14%  -1.28%   2.25%   0.78%   3.49%

 2014-2   0.00%   0.00%   0.00%   0.00%   0.00%   0.00%

 2018-2   0.18%   0.48%   0.91%  -0.30%  -0.66%   0.61%


 Avg     -0.21%  -0.11%   1.33%   0.24%   0.76%   2.01%


SPX summary for PY2 1954 - 2018 

 Avg     -0.17%  -0.11%   0.42%   0.23%  -0.03%   0.34%

 Win%       43%     57%     57%     64%     50%     64%


SPX summary for all years 1953 - 2021

 Avg     -0.17%  -0.05%   0.34%   0.15%   0.03%   0.29%

 Win%       36%     54%     64%     60%     61%     59%

Money supply (M2) and Interest Rates

The following charts were supplied by Gordon Harms.

I am not clear about everything going on in the chart below, but here goes:

The chart appears to cover the past 7 years showing the SPX in red, M2 money supply in green, and an Advance – Decline line (ADL) of high yield (Junk) bonds in white and a FastTrack relative strength indicator called Accutrak as a histogram in yellow.  What is unclear to me are the components of Accutrack.  The pattern suggests it is the SPX/M2.

Treasury rates at their close last Friday and their changes from last month:

• 2yr yield 3.128% down from 3.192%
• 5yr yield 3.048% down from 3.348%
• 10yr yield 2.919% down from 3.236% 
• 30yr yield 3.081% down from 3.282%
• The 2 is inverted to (higher than) everything.
• The 5 is inverted to the 10 and the 10 is inverted to the 30.

A pretty ugly picture.

The next chart shows 1, 2, 5, 10 & 30 year treasury rates since 1998.

The next chart is a close-up showing just the past year from the chart above.

Conclusion

The market had a rough week until Friday when the indices jumped up and new lows disappeared. The first few days of next week should add clarity as to whether this was a one and done or the beginning of a multi week rally.

The strongest sectors last week were Electronics and Telecom while the weakest were Energy and Precious Metals (for the 4th week in a row).

I expect the major averages to be lower on Friday, July 22, than they were on Friday, July 15.

More By This Author:

Technical Market Report For Saturday, July 9
Technical Market Report For Saturday, July 2
Technical market report for Saturday, June 25