Technical market report for Saturday, March 27

The good news is that the Dow Jones Industrial Average (DJIA) and S&P 500 (SPX) both closed at all-time highs last Friday. 

The Negatives

The blue chips led the market upward last week. The secondaries lagged and the highs were unconfirmed by the breadth.

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 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 one went from bad to worse. On the positive side, new lows on the NYSE dropped from 207 on Thursday to 24 on Friday.

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

This chart is similar to the previous one, and new lows on the NASDAQ declined from 376 on Thursday to 88 on Friday. The decline to 88 is comforting, yet 88 is still a threatening number.

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. This is a significant non-confirmation of the new DJIA and SPX highs.

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 did not confirm the rally.

The Positives

New index highs, along with a sharp decline in the number of new lows, is a positive.

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 dropped below the neutral line and then recovered to a modestly positive 60%.

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. Although the OTC HL Ratio is negative at 39%, I expect it to recover quickly.

Seasonality

Next week includes the last three trading days of March and the first trading day of April, all during the first year of the Presidential Cycle. The market will be closed in observance of Good Friday. 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 modestly negative by all measures.

The number following the year represents its position in the Presidential Cycle. The number following the daily return represents the day of the week:

• 1 = Monday, 2 = Tuesday, etc.

OTC Presidential Year 1 (PY1)

•    Year    Day4      Day3     Day2      Day1       Totals
•  1965-1 -0.33% 1 -0.02% 2 0.10% 3 0.27% 4 0.02%
•  1969-1 -0.29% 3 0.15% 4 0.34% 5 0.74% 2 0.94%
•  1973-1 0.21% 3 0.90% 4 -0.62% 5 -1.42% 1 -0.93%
•  1977-1 0.07% 2 -0.73% 3 -0.11% 4 0.44% 5 -0.32%
•  1981-1 -0.34% 5 0.07% 1 0.58% 2 0.55% 3 0.86%
•  1985-1 0.50% 3 0.22% 4 0.37% 5 0.40% 1 1.49%
•  1989-1 0.27% 3 0.21% 4 0.54% 5 0.23% 1 1.25%
•  1993-1 -0.11% 1 0.81% 2 0.57% 3 -0.51% 4 0.75%
•  1997-1 1.68% 3 -1.54% 4 -2.22% 1 -0.39% 2 -2.48%
•  Avg --   0.40%   -0.05%   -0.03%    0.06%    0.38%
•  2001-1 -5.99% 3 -1.81% 4 1.08% 5 -3.11% 1 -9.83%
•  2005-1 -0.94% 2 1.61% 3 -0.32% 4 -0.72% 5 -0.37%
•  2009-1 -2.63% 5 -2.81% 1 1.78% 2 1.51% 3 -2.15%
•  2013-1 0.53% 2 0.12% 3 0.34% 4 -0.87% 1 0.13%
•  2017-1 0.38% 3 0.28% 4 -0.04% 5 -0.29% 1 0.33%
•  Avg --  -1.73%   -0.52%    0.57%   -0.70%   -2.38%

OTC summary for PY1 1965 - 2017

• Averages --  -0.50% -0.18% 0.17% -0.23% -0.74%
• % Winners --  50%   64%   64%   50%   57%
• MDD 4/2/2001: 9.60% -- 3/30/2009: 5.37% -- 4/1/1997: 4.11%

OTC summary for all years 1963 - 2020

• Averages --   -0.25% 0.01% 0.16% -0.09% -0.17%
• % Winners --  55%   60%   63%   52%   64%
• MDD 4/3/2000: 12.62% -- 4/2/2001: 9.60% -- 3/27/1980: 6.15%

Year 1

•    Year    Day4      Day3      Day2      Day1      Totals
•  1929-1 -0.65% 2 3.04% 3 1.75% 4 -2.55% 1 1.59%
•  1933-1 -2.25% 3 -0.33% 4 -3.31% 5 0.51% 6 -5.38%
•  1937-1 -0.68% 1 1.82% 2 -0.17% 3 -1.17% 4 -0.20%
•  1941-1 -0.70% 5 -0.20% 6 0.40% 1 0.10% 2 -0.40%
•  1945-1 0.82% 3 0.22% 4 0.22% 6 0.95% 1 2.21%
•  1949-1 1.94% 2 -0.07% 3 -0.99% 4 -0.80% 5 0.09%
•  1953-1 0.15% 5 -1.46% 1 -1.25% 2 -0.16% 3 -2.72%
•  1957-1 0.41% 3 0.20% 4 -0.16% 5 0.07% 1 0.52%
•  Avg --  0.52%    -0.26%    -0.35%    0.03%    -0.06%
•  1961-1 0.05% 2 0.85% 3 0.20% 4 0.83% 1 1.93%
•  1965-1 -0.20% 1 0.20% 2 -0.05% 3 0.19% 4 0.14%
•  1969-1 0.73% 3 0.71% 4 0.41% 5 -0.09% 2 1.76%
•  1973-1 0.05% 3 0.98% 4 -1.06% 5 -1.20% 1 -1.23%
•  1977-1 0.70% 2 -1.15% 3 -0.12% 4 0.80% 5 0.22%
•  Avg -- 0.27%    0.32%    -0.12%    0.11%    0.56%
•  1981-1 -1.19% 5 -0.27% 1 1.28% 2 0.42% 3 0.24%
•  1985-1 0.62% 3 0.00% 4 0.62% 5 0.34% 1 1.58%
•  1989-1 0.26% 3 0.06% 4 0.80% 5 0.52% 1 1.64%
•  1993-1 0.67% 1 0.27% 2 -0.07% 3 -0.30% 4 0.56%
•  1997-1 0.18% 3 -2.10% 4 -2.17% 1 0.33% 2 -3.76%
•  Avg -- 0.11%    -0.41%    0.10%    0.26%    0.05%
•  2001-1 -2.44% 3 -0.46% 4 1.08% 5 -1.25% 1 -3.07%
•  2005-1 -0.76% 2 1.38% 3 -0.07% 4 -0.65% 5 -0.10%
•  2009-1 -2.03% 5 -3.48% 1 1.31% 2 1.66% 3 -2.54%
•  2013-1 0.78% 2 -0.06% 3 0.41% 4 -0.45% 1 0.68%
•  2017-1 0.11% 3 0.29% 4 -0.23% 5 -0.16% 1 0.01%
•  Avg -- -0.87%    -0.47%    0.50%   -0.17%    -1.01%

SPX summary for PY1 1929 - 2017

• Averages --  -0.15% 0.02% -0.05% -0.09% -0.27%
• % Winners --  61%   52%   48%   52%   61%
• MDD 3/31/1933: 5.80% -- 3/30/2009: 5.44% -- 3/31/1997: 4.22%

SPX summary for all years 1928 - 2020

• Averages --  -0.10% 0.02% -0.12% 0.10% -0.10%
• % Winners --  52%   47%   43%   61%   62%
• MDD 3/31/1938: 8.31% -- 3/31/1939: 7.89% -- 4/1/1932: 7.24%

April

Since 1963, over all years, the OTC in April has been up 67% of the time with an average gain of 1.8%. During the first year of the Presidential Cycle, April has been up 79% of the time with an average gain of 2.7% (helped considerably by a 15% gain in 2001 and a 12.3% gain in 2009). The best April ever for the OTC was 2001 (+15.0%), and the worst was 1970 (-18.5%).

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 April 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 65% of the time in April with an average gain of 1.4%. During the first year of the Presidential Cycle, the SPX has been up 61% of the time with an average gain of 2.7%. The best April for the SPX was 1933 (+42.2%), and the worst was 1932 (-20.2%).

The chart below is similar to the one above, except it shows the average daily average performance over all years since 1928 for the SPX in April 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 64% of the time in April with an average gain of 1.8%. During the first year of the Presidential Cycle, the R2K has been up 60% of the time with an average gain of 2.1%. The best April for the R2K was 2009 (+15.3%), and the worst was 2000 (-6.1%).

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

Since 1885, the Dow Jones Industrial Average (DJIA) has been up 61% of the time in April with an average gain of 1.4%. During the first year of the Presidential Cycle, the DJIA has been up 59% of the time in April with an average gain of 2.3%. The best April for the DJIA was 1933 (+40.2%), while the worst was 1932 (-23.4%).

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

Conclusion

New lows peaked on Thursday and then declined significantly on Friday, suggesting a short-term bottom. New highs increased significantly on Friday from Thursday’s levels. The biggest negative is the underperformance of the secondaries. The strongest sectors last week were utilities and finance, while the weakest were precious metals (down from the top last week) and energy services.

I expect the major averages to be higher on Thursday, April 1 (the market will be closed on Good Friday) than they were on Friday, March 26. Last week, the DJIA and SPX were up while the OTC and R2K were down, so I am calling last week's positive forecast a tie.