The good news is:

• The buy the dip crowd is alive and well.  During the rally of a week ago we saw the highest volume in over 2 years.

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 turned downward last week and has remained in negative territory for over 7 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 is also remained 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).  

The rise of NY NL stalled 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

The enthusiasm of the buy the dip crowd is, unfortunately, a negative.

This bear market will not be over until they capitulate. 

Seasonality

Next week includes the 4 trading days prior to the 2nd Friday of July during the 2nd year of the Presidential Cycle.  The tables below show the daily change, on a percentage basis, for the 5 days prior to the 2nd Friday.  There are 0’s on Monday when the 4th of July occurred on a Monday. 

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 positive by all measures.

Report for the week before the 2nd Friday of July.

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

Daily returns from Monday to 2nd Friday.


OTC Presidential Year 2 (PY2)

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1966-2   0.00%   0.30%  -0.09%   0.64%   0.60%   1.45%

 1970-2   0.55%  -0.48%   1.04%   1.80%   1.93%   4.84%

 1974-2  -3.55%  -0.52%  -1.09%  -0.24%   2.84%  -2.56%

 1978-2   0.17%   0.38%   0.38%   0.12%   0.95%   2.00%


 1982-2   0.00%  -0.49%  -0.67%  -0.76%   0.76%  -1.16%

 1986-2  -1.72%  -1.59%   0.27%   0.49%  -0.14%  -2.68%

 1990-2   0.25%  -0.15%   0.64%   0.70%   0.27%   1.71%

 1994-2   0.00%  -0.46%  -0.37%   0.79%   0.13%   0.09%

 1998-2   1.16%   0.15%   1.33%   0.31%   0.41%   3.35%


 Avg     -0.11%  -0.51%   0.24%   0.31%   0.29%   0.26%


 2002-2  -2.95%  -1.74%  -2.54%   2.11%  -0.07%  -5.19%

 2006-2  -0.62%   0.56%  -1.81%  -1.73%  -0.82%  -4.41%

 2010-2   0.00%   0.10%   3.13%   0.74%   0.97%   4.94%

 2014-2   0.56%  -0.54%   0.22%  -1.41%   1.57%   0.40%

 2018-2   0.88%   0.04%  -0.55%   1.39%   0.03%   1.79%


 Avg     -0.53%  -0.32%  -0.31%   0.22%   0.34%  -0.50%


OTC summary for PY2 1966 - 2018 

 Avg     -0.53%  -0.32%  -0.01%   0.35%   0.68%   0.33%

 Win%       60%     43%     50%     71%     79%     64%


OTC summary for all years 1963 - 2021

 Avg      0.04%  -0.08%   0.35%   0.28%   0.44%   1.03%

 Win%       67%     54%     62%     64%     78%     69%


SPX PY2

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1954-2   0.00%   1.12%   0.07%   0.00%   0.67%   1.85%

 1958-2  -1.27%  -0.07%   0.31%   0.66%   0.48%   0.12%


 1962-2   0.68%   1.15%   0.93%   0.52%  -0.34%   2.93%

 1966-2   0.00%   0.25%   1.44%   0.37%   0.26%   2.32%

 1970-2  -0.12%  -0.08%   1.09%   1.48%   1.77%   4.13%

 1974-2  -3.07%   0.48%  -1.83%  -0.13%   4.08%  -0.46%

 1978-2   0.40%   0.69%   0.32%   0.01%   1.38%   2.81%


 Avg     -0.53%   0.50%   0.39%   0.45%   1.43%   2.34%


 1982-2   0.00%  -0.33%  -0.07%   0.29%   1.21%   1.10%

 1986-2  -1.70%  -1.87%   0.58%   0.45%   0.12%  -2.41%

 1990-2   0.31%  -0.84%   1.33%   1.17%   0.51%   2.47%

 1994-2   0.00%   0.04%  -0.05%   0.50%   0.26%   0.75%

 1998-2   0.08%   1.06%  -0.24%   0.78%   0.23%   1.91%


 Avg     -0.44%  -0.39%   0.31%   0.64%   0.47%   0.76%


 2002-2  -1.22%  -2.47%  -3.40%   0.75%  -0.64%  -6.98%

 2006-2   0.15%   0.41%  -1.09%  -1.30%  -0.49%  -2.32%

 2010-2   0.00%   0.54%   3.13%   0.94%   0.72%   5.33%

 2014-2   0.48%  -0.19%   0.42%  -1.18%   1.03%   0.55%

 2018-2   0.88%   0.35%  -0.71%   0.87%   0.11%   1.50%


 Avg      0.07%  -0.27%  -0.33%   0.02%   0.14%  -0.38%


SPX summary for PY2 1954 - 2018 

 Avg     -0.37%   0.01%   0.13%   0.39%   0.67%   0.92%

 Win%       58%     59%     59%     81%     82%     76%


SPX summary for all years 1953 - 2021

 Avg      0.04%  -0.01%   0.27%   0.16%   0.32%   0.76%

 Win%       59%     46%     60%     60%     71%     71%


Conclusion

Last week new lows returned to dangerously high levels.

Seasonality for next week is positive, however I think the buy the dip crowd had its day.

The strongest sectors last week were Utilities and Biotech while the weakest were Energy and Precious Metals (for the 2nd week in a row).

I expect the major averages to be lower on Friday July 8 than they were on Friday July 1.