Technical Market Report for Saturday, March 20

The good news is that the recent all-time highs were confirmed by everything that matters, so higher highs should be expected. 

The Negatives

New lows built up pretty quickly last week.

The first chart covers the past six months, showing the S&P 500 (SPX) in red and a 10% trend (19-day EMA) of NYSE new lows (NY NL) in blue. The NY NL trend has been plotted on an inverted Y axis, so decreasing numbers of new lows move the indicator upward (up is good). Dashed vertical lines have been drawn on the first trading day of each month.

This is not what you like to see. The implications of NY NL continuing to move downward are not good.

The next chart is similar to the first one, except it shows the OTC in blue and the OTC NL in brown. The information has been calculated with NASDAQ data.

The Positives

The previous highs were confirmed by the NY NH and the OTC NH. The implications are that higher highs lie ahead. The next chart covers the past six months, showing the SPX in red and a 10% trend (19-day EMA) of NYSE new highs (NY NH) in green. 

The NY NH did begin heading downward a couple days ahead of the final SPX high, but the confirmation implies higher highs ahead.

The next chart is similar to the first one, except it shows the OTC in blue and the OTC NH in green. The information has been calculated with NASDAQ data. The OTC NH has been holding up pretty well.

The next chart covers the past six months, showing the SPX in red, and a 40% trend (four-day EMA) of NYSE new highs divided by new highs + new lows (NY HL Ratio) in blue. Dashed horizontal lines have been drawn at 10% levels for the indicator; the line is solid at the 50%, neutral level. The NY HL Ratio fell to 85%, which is still strong.

The next chart is similar to the one above, except it shows the OTC in blue and the OTC HL Ratio in red. The information has been calculated with NASDAQ data. The OTC HL Ratio fell to 74%, which is comfortably positive.

Seasonality

Next week includes the five trading days prior to the fourth Friday of March, 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 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 modest and mixed. 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 0.02% -0.25% -0.10% 0.08% -0.14% -0.39%
•  1969-1 0.06% -0.10% -0.29% 0.15% 0.34% 0.16%
•  1973-1 -1.06% -0.57% -1.17% -1.85% -0.19% -4.83%
•  1977-1 -0.19% -0.22% -0.30% -0.23% -0.27% -1.21%
•  1981-1 0.64% 0.04% 0.78% 0.11% -0.34% 1.22%
•  1985-1 -0.30% 0.62% -0.03% 0.09% -0.04% 0.34%
•  1989-1 -0.09% 0.51% 0.27% 0.21% 0.54% 1.44%
•  1993-1 -0.89% -0.23% -0.10% 0.99% 0.08% -0.16%
•  1997-1 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
•  Avg --  -0.16% 0.23% 0.23% 0.35% 0.06% 0.71%
•  2001-1 3.19% -4.81% -1.46% 3.69% 1.63% 2.24%
•  2005-1 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
•  2009-1 6.76% -2.52% 0.82% 3.80% -2.63% 6.22%
•  2013-1 -0.35% -0.26% 0.78% -0.97% 0.70% -0.11%
•  2017-1 0.01% -1.83% 0.48% -0.07% 0.19% -1.21%
•  Avg --  2.40% -2.35% 0.15% 1.61% -0.03% 1.78%

OTC summary for PY1 1965 - 2017 

•  Avg -- 0.65% -0.80% -0.03% 0.50% -0.01% 0.31%
•  Win% -- 50%   25%   42%   67%   50%   50%

OTC summary for all years 1963 - 2020

•  Avg --  -0.03% -0.05% 0.07% 0.25% -0.13% 0.10%
•  Win% --  50%   44%   52%   54%   52%   54%

SPX PY1

•    Year      Mon      Tue      Wed     Thur     Fri     Totals
•  1953-1 -0.61% 0.58% -0.27% -0.57% 0.15% -0.72%
•  1957-1 -0.45% 0.43% 0.14% 0.02% -0.11% 0.02%
•  1961-1 0.40% -0.19% -0.06% -0.26% -0.17% -0.28%
•  1965-1 -0.01% 0.12% 0.18% -0.29% -0.74% -0.74%
•  1969-1 -0.13% 0.16% 0.73% 0.71% 0.41% 1.88%
•  1973-1 -1.21% -0.20% -1.30% -1.49% 0.04% -4.16%
•  1977-1 -0.54% -0.31% -0.79% -0.50% -0.64% -2.78%
•  Avg --  -0.30% -0.08% -0.25% -0.37% -0.22% -1.22%
•  1981-1 1.20% -0.75% 1.81% -0.61% -1.19% 0.46%
•  1985-1 0.20% 1.50% -0.26% 0.15% -0.17% 1.42%
•  1989-1 0.55% 0.35% 0.26% 0.06% 0.80% 2.02%
•  1993-1 -0.29% -0.03% -0.15% 0.63% -0.69% -0.53%
•  1997-1 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
•  Avg --  0.42% 0.27% 0.42% 0.06% -0.31% 0.84%
•  2001-1 1.76% -2.41% -1.79% -0.41% 1.99% -0.85%
•  2005-1 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
•  2009-1 7.08% -5.97% 5.18% 2.33% -2.03% 6.59%
•  2013-1 -0.55% -0.24% 0.67% -0.83% 0.72% -0.23%
•  2017-1 -0.20% -1.24% 0.19% -0.11% -0.08% -1.44%
•  Avg --  2.02% -2.46% 1.06% 0.25% 0.15% 1.01%

SPX summary for PY1 1953 - 2017 

•  Avg -- 0.48% -0.55% 0.30% -0.08% -0.11% 0.04%
•  Win% --  40%   40%   53%   40%   40%   40%

SPX summary for all years 1953 - 2020

•  Avg --  -0.01% 0.02% 0.07% 0.06% -0.19% -0.04%
•  Win% --  41%   46%   44%   41%   51%   37%

Money supply (M2) and Interest Rates

The following charts were supplied by Gordon Harms. M2 growth continued to level off.

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

• 2-year yield: 0.161%, up from 0.109%.
• 5-year yield: 0.886%, up from 0.487%.
• 10-year yield: 1.726%, up from 1.210%.
• 30-year yield: 2.437%, up from 2.014%.

Huge moves seen in the bond market.

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

Conclusion

So far, the past week's movement looks like a typical pullback after a big move up, except for the big increase in the number of new lows. The strongest sectors last week were utilities and precious metals, while the weakest were basic materials and energy services.

I expect the major averages to be higher on Friday, March 26 than they were on Friday, March 19. Last week's positive forecast was a miss.