Technical Market Report for Saturday, July 17, 2021

The good news is that the Nasdaq composite (OTC), S&P 500 (SPX), and Dow Jones Industrial Average (DJIA) all closed at all-time highs last Monday.

The Negatives

New highs continued to deteriorate while new lows rose to threatening levels on the Nasdaq. New lows increased on the NYSE, but remained below threatening levels.

The first chart covers the past six months, showing the 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. Not only did the OTC NH fail to confirm the all-time index high, but it also hit a new six-month low by the end of the week.

The next chart is similar to the first one, except it shows the SPX in red and the NY NH in green. The information has been calculated with NYSE data. Similar action was seen in the NY NH and the SPX.

The next chart covers the past six months, showing the OTC in blue, and a 40% trend (four-day EMA) of Nasdaq new highs divided by new highs + new lows (OTC HL Ratio) in red. Dashed horizontal lines have been drawn at 10% levels for the indicator; the line is solid at the 50% neutral level. The OTC HL Ratio continued its decline, finishing the week at 40% negative territory.

The Positives

There are not many bright spots in the market breadth data. NYSE new lows increased a little, but they have not reached threatening levels. The next chart is similar to the previous one, except it shows the SPX in red and the NY HL ratio in blue. The information has been calculated with NYSE data. The NY HL Ratio finished the week at a comfortable 76%. 

Seasonality

Next week includes the five trading days prior to the fourth Friday of July 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 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 modestly 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  -1.67%   0.12%  -1.20%  -0.46%  -0.42%  -3.63%

 1969-1   0.00%   0.00%   0.00%   0.00%   0.00%   0.00%

 1973-1   0.07%   0.50%   0.83%  -0.02%   0.17%   1.55%

 1977-1   0.59%   0.36%   0.05%   0.26%   0.40%   1.67%

 1981-1   0.68%  -0.24%   0.02%   0.52%   0.76%   1.74%

 1985-1  -0.30%  -0.20%  -0.82%   0.24%   0.06%  -1.02%

 1989-1  -0.74%   0.11%   0.59%   0.75%   0.08%   0.79%

 1993-1  -0.56%   0.87%  -0.26%  -0.65%   0.68%   0.08%

 1997-1   0.00%   0.00%   0.00%   0.00%   0.00%   0.00%

   Avg:    -0.23%   0.14%  -0.12%   0.21%   0.39%   0.40%

 2001-1  -2.01%  -1.47%   1.28%   1.95%   0.30%   0.04%

 2005-1  -0.55%   1.32%   0.71%  -0.46%   0.05%   1.07%

 2009-1   0.10%   0.39%  -0.39%   0.84%  -0.29%   0.64%

 2013-1   0.36%  -0.59%   0.01%   0.71%   0.22%   0.71%

 2017-1   0.36%   0.02%   0.16%  -0.63%  -0.12%  -0.20%

    Avg:    -0.35%  -0.07%   0.35%   0.48%   0.03%   0.45%

OTC Summary for PY1 1965 - 2017 

•  Avg:     -0.31%   0.10%   0.08%   0.25%   0.16%   0.29%
•  Win%:      50%     67%     67%     58%     75%     75%

OTC Summary for All Years 1963 - 2020

•  Avg:     -0.23%  -0.12%   0.20%   0.05%   0.02%  -0.09%
•  Win%:       47%     55%     59%     61%     61%     55%

SPX PY1

   Year       Mon      Tue       Wed      Thur      Fri      Totals

 1953-1  -0.53%  -0.25%   0.12%   0.17%   0.00%  -0.49%

 1957-1  -0.23%   0.19%   0.10%   0.00%  -0.33%  -0.27%

 1961-1   0.02%   0.55%   0.94%   1.17%   0.15%   2.83%

 1965-1  -0.07%  -1.26%  -0.57%  -0.26%   0.26%  -1.90%

 1969-1   0.00%   0.00%   0.00%   0.00%   0.00%   0.00%

 1973-1   0.35%   0.58%   1.39%   0.19%  -0.24%   2.27%

 1977-1   0.77%   0.83%  -0.06%  -0.14%   0.08%   1.48%

   Avg:      0.27%   0.18%   0.42%   0.24%   0.06%   1.17%

 1981-1   1.12%  -0.59%   0.02%   0.66%   0.70%   1.91%

 1985-1  -0.40%  -0.93%  -0.50%   0.25%   0.18%  -1.40%

 1989-1  -0.66%   0.06%   1.25%   1.17%   0.05%   1.86%

 1993-1   0.06%   0.29%  -0.03%  -0.60%   0.58%   0.31%

 1997-1   0.00%   0.00%   0.00%   0.00%   0.00%   0.00%

   Avg:      0.03%  -0.29%   0.18%   0.37%   0.38%   0.67%

 2001-1  -1.64%  -1.63%   1.61%   1.04%   0.24%  -0.37%

 2005-1  -0.55%   0.67%   0.48%  -0.66%   0.54%   0.48%

 2009-1   0.30%  -0.26%  -0.46%   1.19%   0.07%   0.84%

 2013-1   0.20%  -0.19%  -0.38%   0.26%   0.08%  -0.02%

 2017-1  -0.11%   0.29%   0.03%  -0.10%  -0.13%  -0.02%

   Avg:    -0.36%  -0.22%   0.25%   0.35%   0.16%   0.18%

SPX Summary for PY1 1953 - 2017 

•  Avg:     -0.09%  -0.11%   0.26%   0.31%   0.16%   0.50%
•  Win%:      47%     53%     60%     64%     79%     53%

SPX Summary for All Years 1953 - 2020

•  Avg:     -0.15%  -0.08%   0.33%   0.15%   0.01%   0.26%
•  Win%:      36%     54%     64%     60%     61%     59%

Money Supply (M2) and Interest Rates

The following charts were supplied by Gordon Harms. M2 growth continued to level off. Perhaps the Fed has quit calculating M2.

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

• 2-year yield: 0.238%, up from 0.149%.
• 5-year yield: 0.783%, up from 0.744%.
• 10-year yield: 1.294%, down from 1.453%.
• 30-year yield: 1.922%, down from 2.141%.

A well-managed yield curve.

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

Conclusion

NYSE new lows are the brightest spot in the breadth data. The market is a bit oversold, so there could be a relief rally. The strongest sectors last week were utilities and biotech, while the weakest were energy services and transportation.

I expect the major averages to be lower on Friday, July 23 than they were on Friday, July 16.