Technical Market Report for Saturday, June 26, 2021

The good news is that the Nasdaq composite (OTC) closed at all-time highs last Thursday and the S&P 500 (SPX) closed at an all-time high last Friday.

The Negatives

New highs continued to deteriorate, indicating narrowing leadership, while index prices hit new highs.

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 failed to confirm the all-time high by a wide margin.

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 is seen in the NY NH and SPX.

The Positives

The number of new lows remained non-threatening. 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 finished the week at a strong 86%.

The next chart is similar to the one above, 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 very strong 94%. 

Seasonality

Next week includes the last three trading days of June and the first two trading days of July, all 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 1928 to 2020. There are summaries for both the first year of the Presidential Cycle and all years combined. 

Average returns for the coming week have been positive by all measures. The number following the year represents its position in the Presidential Cycle.

OTC Presidential Year 1 (PY1)

    Year          Mon        Tues         Wed        Thurs        Fri      Totals

 1965-1      -0.45% 1  -2.13% 2   0.80% 3   1.80% 4   0.73% 5     0.76%

 1969-1       0.09% 4   0.23% 5   1.20% 1   0.60% 2   0.60% 3     2.73%

 1973-1       0.26% 3   0.94% 4  -0.18% 5  -0.82% 1  -0.70% 2    -0.50%

 1977-1      -0.35% 2   0.06% 3   0.39% 4   0.17% 5   0.22% 2     0.49%

 1981-1       0.21% 5  -0.70% 1  -1.13% 2  -0.52% 3  -0.85% 4    -3.00%

 1985-1       0.38% 3   0.66% 4   0.29% 5   0.09% 1   0.15% 2     1.57%

 1989-1      -0.81% 3  -1.57% 4  -0.60% 5   0.16% 1   0.22% 3    -2.60%

 1993-1       1.16% 1  -0.25% 2   0.41% 3  -0.05% 4   0.13% 5     1.39%

 1997-1      -0.68% 4   0.13% 5   0.26% 1  -0.26% 2   1.20% 3     0.66%

   Avg:          0.05%    -0.35%    -0.15%    -0.11%     0.17%      -0.40%

 2001-1       0.49% 3   2.44% 4   1.65% 5  -0.55% 1  -0.37% 2     3.67%

 2005-1       1.21% 2  -0.05% 3  -0.58% 4   0.02% 5   1.04% 2     1.64%

 2009-1       0.47% 5   0.32% 1  -0.49% 2   0.58% 3  -2.67% 4    -1.78%

 2013-1       0.85% 3   0.76% 4   0.04% 5   0.92% 1  -0.03% 2     2.53%

 2017-1       1.42% 3  -1.44% 4  -0.06% 5  -0.49% 1   0.66% 3     0.09%

   Avg:          0.89%     0.41%     0.11%     0.10%    -0.27%       1.23%

OTC Summary for PY1 1965 - 2017

• Averages:      0.30%    -0.04%     0.14%     0.12%     0.02%       0.55%
• % Winners:       71%       57%       57%       57%       64%         71%
• MDD  7/2/1981:  3.17% --  6/30/1989:  2.96% --  7/2/2009:  2.67%

OTC Summary for All Years 1963 - 2020

• Averages:      0.06%     0.12%     0.30%     0.17%    -0.20%       0.45%
• % Winners:       55%       64%       66%       64%       50%         67%
• MDD 7/2/2002:  7.20% --  7/2/1974:  6.98% --  7/2/2008:  6.24%

SPX PY1

   Year             Mon      Tues        Wed        Thurs          Fri            Totals

 1929-1       0.18% 4   1.11% 5   0.77% 6   0.54% 1   1.04% 2     3.64%

 1933-1      -1.28% 3  -0.92% 4   1.58% 5   2.57% 6   3.84% 1     5.79%

 1937-1      -1.56% 1   0.13% 2   1.72% 3   0.45% 4   1.49% 5     2.23%

 1941-1      -0.50% 5  -0.10% 6  -0.30% 1  -0.30% 2   0.71% 3    -0.50%

 1945-1      -2.02% 4  -1.13% 5   0.61% 6   0.47% 1   0.00% 2    -2.08%

 1949-1      -0.85% 2   0.64% 3   0.50% 4   0.71% 5   0.56% 2     1.56%

 1953-1       0.08% 5  -0.29% 1   0.00% 2   0.41% 3   0.29% 4     0.50%

 1957-1      -0.13% 3   0.36% 4   0.23% 5   0.13% 1   0.99% 2     1.58%

   Avg:         -0.68%    -0.10%     0.21%     0.28%     0.51%       0.21%

 1961-1       0.19% 3  -0.11% 4   0.19% 5   0.88% 1   0.64% 3     1.79%

 1965-1      -1.76% 1   0.99% 2   2.07% 3   0.43% 4   0.80% 5     2.54%

 1969-1       0.25% 4   0.08% 5   0.39% 1   0.38% 2   0.88% 3     1.98%

 1973-1       0.31% 3   1.03% 4  -0.41% 5  -1.30% 1  -1.00% 2    -1.37%

 1977-1      -0.83% 2  -0.03% 3   0.37% 4  -0.38% 5  -0.01% 2    -0.88%

   Avg:         -0.37%     0.39%     0.52%     0.00%     0.26%       0.81%

 1981-1      -0.19% 5  -0.51% 1  -0.52% 2  -1.10% 3  -0.87% 4    -3.18%

 1985-1       0.17% 3   0.62% 4   0.32% 5   0.30% 1  -0.22% 2     1.19%

 1989-1      -0.80% 3  -1.88% 4  -0.53% 5   0.39% 1   0.44% 3    -2.38%

 1993-1       0.95% 1  -0.26% 2  -0.04% 3  -0.34% 4  -0.71% 5    -0.39%

 1997-1      -0.60% 4   0.41% 5  -0.24% 1   0.66% 2   1.46% 3     1.69%

   Avg:         -0.09%    -0.32%    -0.20%    -0.01%     0.02%      -0.61%

 2001-1      -0.47% 3   1.25% 4   0.00% 5   0.86% 1  -0.18% 2     1.46%

 2005-1       0.91% 2  -0.14% 3  -0.71% 4   0.26% 5   0.88% 2     1.20%

 2009-1      -0.15% 5   0.91% 1  -0.85% 2   0.44% 3  -2.91% 4    -2.57%

 2013-1       0.96% 3   0.62% 4  -0.43% 5   0.54% 1  -0.05% 2     1.64%

 2017-1       0.88% 3  -0.86% 4   0.15% 5   0.23% 1   0.15% 3     0.55%

   Avg:          0.43%     0.35%    -0.37%     0.47%    -0.42%       0.46%

SPX Summary for PY1 1929 - 2017

• Averages:     -0.27%     0.08%     0.21%     0.31%     0.36%       0.70%
• % Winners:       43%       52%       52%       78%       61%         65%
• MDD  7/2/2009:  3.32% --  6/30/1989:  3.18% --  7/2/1981:  3.14%

SPX Summary for All Years 1928 - 2020

• Averages:     -0.06%     0.13%     0.17%     0.33%     0.16%       0.72%
• % Winners:       50%       59%       59%       73%       58%         63%
• MDD 7/2/1974:  5.26% --  7/2/2010:  5.03% --  7/2/2008:  4.57%

July

Since 1963, over all years, the OTC in July has been up 55% of the time with an average gain of 0.6%. During the first year of the Presidential Cycle, the OTC in July has been up 79% of the time with an average gain of 2.8%. The best July ever for the OTC was 1997 (+10.5%), while the worst was 2002 (-9.2%).

The average month has 21 trading days. The chart below has been calculated by averaging the daily percentage change for each of the first 11 trading days and each of the last 10. 

In months where there were more than 21 trading days, some of the days in the middle were not counted. In months where there were less than 21 trading days, some of the days in the middle of the month were counted twice. Dashed vertical lines have been drawn after the first trading day and at five trading day intervals after that. The line is solid on the eleventh trading day, the dividing point.

In the chart below, the blue line shows the average daily performance of the OTC in July over all years since 1963, while the green line shows the average during the first year of the Presidential Cycle over the same period.

Since 1928, the SPX has been up 59% of the time in July with an average gain of 1.6%. During the first year of the Presidential Cycle, the SPX has been up 65% of the time with an average gain of 2.3%. The best July ever for the SPX was 1932 (+37.7%), while the worst was 1934 (-11.5%).

The chart below is similar to the one above, except it shows the average daily performance over all years since 1928 for the SPX in July in red, and the average daily performance during the first year of the Presidential Cycle over the same period in green.

Since 1979, the Russell 2000 (R2K) has been up 52% of the time in July with an average loss of -0.1%. During the first year of the Presidential Cycle, the R2K has been up 80% of the time with an average gain of 2.8%. The best July ever for the R2K was 1980 (+11.0%), while the worst was 2002 (-15.2%).

The chart below is similar to those above, except it shows the average daily performance of the R2K over all years since 1979 in July in magenta, and the average daily performance during the first year of the Presidential Cycle over the same period in green.

Since 1885, the Dow Jones Industrial Average (DJIA) has been up 63% of the time in July with an average gain of 1.2%. During the first year of the Presidential Cycle, the DJIA has been up 74% of the time in July with an average gain of 1.7%. The best July ever for the DJIA was 1932 (+26.7%), while the worst was 1893 (-15.7%).

The chart below is similar to those above, except it shows the average daily performance over all years for the DJIA in July in grey, and the average performance during the first year of the Presidential Cycle over the same period in green.

Conclusion

New index highs with a diminishing number of 52-week issue highs both indicate a narrowing of leadership. Although, the actual number of new issue highs has not yet reached critically low levels. New lows remain minimal and nothing really bad will happen without a significant increase in the number of new lows.

The strongest sectors last week were internet and technology, while the weakest were utilities and precious metals. I expect the major averages to be higher on Friday, July 2 than they were on Friday, June 25.