The good news is:

• Breadth was pretty good in last week's rally.

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 moved up last week, but 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 also moved upward last week, but remained in deeply negative territory,

The Positives

New lows declined significantly last week.  If that pattern holds we could be enjoying a nice summer rally.

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 continued last week, but remains 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.

Seasonality

Next week includes the 5 trading days prior to the 3rd 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 negative by all measures.

Report for the week before the 3rd Friday of July.

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

Daily returns from Monday through 3rd Friday.


OTC Presidential Year 2 (PY2)

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1966-2   0.67%  -0.49%  -0.12%  -0.09%   0.87%   0.84%

 1970-2   0.33%  -0.68%  -0.80%   0.24%   0.83%  -0.08%

 1974-2   0.49%  -0.49%   1.51%   0.14%   0.81%   2.46%

 1978-2   0.64%  -0.22%   0.58%   0.77%  -0.12%   1.65%


 1982-2   0.46%   0.30%  -0.08%   0.24%   0.34%   1.25%

 1986-2  -0.42%   0.11%  -0.01%  -0.29%   0.29%  -0.32%

 1990-2   0.25%  -1.09%  -0.79%  -0.58%  -0.63%  -2.84%

 1994-2  -0.09%   0.39%   1.38%   0.31%  -0.03%   1.96%

 1998-2   0.27%  -1.75%  -0.47%  -1.76%  -0.22%  -3.92%


 Avg      0.09%  -0.41%   0.01%  -0.42%  -0.05%  -0.77%


 2002-2   0.66%  -0.53%   1.60%  -2.88%  -2.79%  -3.94%

 2006-2   0.02%   0.27%   1.83%  -1.98%  -0.93%  -0.79%

 2010-2   0.09%   1.99%   0.35%  -0.03%  -3.11%  -0.73%

 2014-2  -0.17%   0.71%   0.40%  -0.04%  -0.50%   0.40%

 2018-2  -0.26%   0.63%  -0.01%  -0.37%  -0.07%  -0.07%


 Avg      0.07%   0.61%   0.83%  -1.06%  -1.48%  -1.03%


OTC summary for PY2 1966 - 2018 

 Avg      0.21%  -0.06%   0.38%  -0.45%  -0.38%  -0.30%

 Win%       71%     50%     50%     36%     36%     43%


OTC summary for all years 1963 - 2021

 Avg     -0.04%  -0.11%   0.03%  -0.02%  -0.22%  -0.36%

 Win%       59%     39%     50%     55%     41%     42%


SPX PY2

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1954-2  -0.07%  -0.33%   0.23%   0.33%  -0.43%  -0.26%

 1958-2   1.22%   0.17%  -0.02%   0.54%   0.69%   2.60%


 1962-2   0.00%  -1.82%  -1.02%   0.39%   0.69%  -1.75%

 1966-2  -0.18%  -0.65%  -0.67%   0.60%   0.30%  -0.60%

 1970-2   0.04%  -0.95%   0.06%   1.26%  -0.23%   0.18%

 1974-2   0.76%  -1.16%   1.07%   0.10%  -0.29%   0.48%

 1978-2   0.20%  -0.93%   1.29%  -0.09%  -0.29%   0.19%


 Avg      0.20%  -1.10%   0.15%   0.45%   0.04%  -0.30%


 1982-2   0.68%  -0.11%   0.90%   0.03%   0.54%   2.05%

 1986-2  -0.05%   0.82%   0.21%  -0.30%   0.95%   1.63%

 1990-2   0.45%  -0.39%  -0.90%   0.30%  -1.02%  -1.55%

 1994-2  -0.33%  -0.02%   0.17%   1.04%   0.17%   1.03%

 1998-2  -0.22%  -1.60%  -0.09%  -2.10%   0.10%  -3.91%


 Avg      0.11%  -0.26%   0.06%  -0.21%   0.15%  -0.15%


 2002-2  -0.38%  -1.84%   0.55%  -2.70%  -3.83%  -8.20%

 2006-2  -0.14%   0.19%   1.86%  -0.85%  -0.71%   0.35%

 2010-2   0.07%   1.54%  -0.02%   0.12%  -2.88%  -1.17%

 2014-2  -0.23%   0.50%   0.18%   0.05%  -0.48%   0.01%

 2018-2  -0.10%   0.40%   0.22%  -0.40%  -0.09%   0.02%


 Avg     -0.16%   0.16%   0.56%  -0.76%  -1.60%  -1.80%


 SPX summary for PY2 1954 - 2018

 Avg      0.11%  -0.36%   0.24%  -0.10%  -0.40%  -0.52%

 Win%       44%     35%     65%     65%     41%     59%


SPX summary for all years 1953 - 2021

 Avg     -0.08%  -0.18%   0.04%  -0.03%  -0.15%  -0.39%

 Win%       49%     35%     54%     56%     45%     41%

Conclusion

The buy the dip crowd had another good week.

Next week might test their resolve when Seasonality turns negative.

The strongest sectors last week were Healthcare and Internet while the weakest were Energy and Precious Metals (for the 3rd week in a row).

I expect the major averages to be lower on Friday July 15 than they were on Friday July 8.

Last week's negative forecast was a miss.

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