Technical market report for March 5, 2022

The good news is:

• On average, new highs increased while new lows decreased last week.

The Negatives

New lows increased sharply last Friday.

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 and dashed horizontal lines have been drawn at 10% levels for the indicator; the line is solid at the 50%, neutral level.

OTC HL Ratio rose a little last week, but remains in deeply in negative territory. 

The next chart is similar to the first 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 still negative, but close to the neutral line. 

The Positives

On average, new highs increased while new lows decreased last week.

The next chart covers the past 6 months showing the SPX in red and a 10% trend (19 day EMA) of NYSE new highs (NY NH) in green.

Finally, the strongest upward move for NY NH since late last December.

The next chart is similar to the one above except it shows the OTC in blue and OTC NH, in green, has been calculated with Nasdaq data.

A little life in OTC NH too.  

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).  

NY NL continued its move upward.

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.

This is a pretty one; after failing to confirm the recent index low OTC NL has moved sharply upward.

Seasonality

Next week includes the 5 trading days prior to the 2nd Friday of March 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 2020 while SPX data runs from 1953 to 2020.  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 March.

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  -0.72%  -1.43%  -1.03%   0.57%  -0.39%  -3.00%

 1970-2  -0.22%  -0.50%  -0.02%  -0.35%  -0.93%  -2.02%

 1974-2  -0.27%   0.97%   0.43%  -0.62%   0.68%   1.19%

 1978-2  -0.21%   0.28%   0.38%   0.40%   0.58%   1.44%


 1982-2  -1.69%  -0.77%   0.42%  -0.19%  -1.09%  -3.33%

 1986-2   0.47%   0.94%   0.63%   0.18%   0.40%   2.62%

 1990-2  -0.20%   0.51%   0.03%   0.93%   0.06%   1.33%

 1994-2   0.57%  -0.37%   0.12%  -0.50%   0.01%  -0.17%

 1998-2  -1.61%   1.35%   0.47%   0.42%   0.43%   1.06%


 Avg     -0.49%   0.33%   0.34%   0.17%  -0.04%   0.30%


 2002-2   3.14%   0.37%   1.29%  -0.46%   2.55%   6.89%

 2006-2  -0.72%  -0.77%  -0.04%  -0.78%   0.55%  -1.77%

 2010-2   0.25%   0.36%   0.78%   0.40%  -0.03%   1.76%

 2014-2  -0.04%  -0.63%   0.37%  -1.46%  -0.35%  -2.10%

 2018-2   1.00%   0.56%   0.33%   0.42%   1.78%   4.10%


 Avg      0.73%  -0.02%   0.55%  -0.38%   0.90%   1.78%


OTC summary for PY2 1966 - 2018 

 Avg     -0.02%   0.06%   0.30%  -0.07%   0.30%   0.57%

 Win%       36%     57%     79%     50%     64%     57%


OTC summary for all years 1963 - 2021

 Avg     -0.21%   0.45%  -0.06%   0.15%   0.14%   0.47%

 Win%       44%     57%     59%     64%     53%     66%


SPX PY2

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1954-2  -0.26%   0.23%   0.23%   0.45%   0.00%   0.64%

 1958-2   0.33%   0.71%  -0.24%   0.12%  -0.31%   0.62%


 1962-2  -0.21%  -0.33%  -0.13%   0.72%   0.33%   0.37%

 1966-2  -1.34%   0.16%   0.88%   0.00%  -0.12%  -0.42%

 1970-2  -1.04%   0.27%  -0.07%  -0.41%  -0.53%  -1.77%

 1974-2   0.00%   1.87%   0.68%  -1.06%   0.87%   2.36%

 1978-2  -0.63%   0.53%   0.55%   0.06%   1.13%   1.63%


 Avg     -0.81%   0.50%   0.38%  -0.17%   0.33%   0.43%


 1982-2  -1.83%   1.39%   0.53%  -0.05%  -0.69%  -0.64%

 1986-2   0.45%   2.26%   0.37%   0.28%   1.44%   4.79%

 1990-2  -0.54%   1.26%  -0.29%   0.99%  -0.69%   0.73%

 1994-2   0.47%  -0.22%   0.25%  -0.68%   0.55%   0.37%

 1998-2  -0.32%   1.13%   0.40%   0.13%  -0.12%   1.22%


 Avg     -0.35%   1.16%   0.25%   0.13%   0.10%   1.29%


 2002-2   1.95%  -0.67%   1.45%  -0.45%   0.58%   2.87%

 2006-2  -0.70%  -0.19%   0.20%  -0.49%   0.73%  -0.43%

 2010-2  -0.02%   0.17%   0.45%   0.40%  -0.02%   0.99%

 2014-2  -0.05%  -0.51%   0.03%  -1.17%  -0.28%  -1.98%

 2018-2   1.10%   0.26%  -0.05%   0.45%   1.74%   3.50%


 Avg      0.46%  -0.19%   0.42%  -0.25%   0.55%   0.99%


SPX summary for PY2 1954 - 2018 

 Avg     -0.16%   0.49%   0.31%  -0.04%   0.29%   0.87%

 Win%       31%     71%     71%     56%     50%     71%


SPX summary for all years 1953 - 2021

 Avg     -0.15%   0.27%  -0.02%   0.03%   0.14%   0.27%

 Win%       50%     55%     54%     62%     49%     58%

March

Since 1963, over all years, the OTC in March has been up 63% of the time with an average gain of 0.7%.  During the 2nd year of the Presidential Cycle March has been up 50% time with an average gain of 0.8%.  The best March ever for the OTC was 2009 (+10.9%), the worst 1980 (-17.1%).

The average month has 21 trading days.  The chart below has been calculated by averaging the daily percentage change for each of the 1st 11 trading days and each of the last 10.  In months when there were more than 21 trading days some of the days in the middle were not counted.  In months when 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 1st trading day and at 5 trading day intervals after that.  The line is solid on the 11th trading day, the dividing point.

In the chart below the blue line shows the average daily performance of the OTC in March over all years since 1963 in blue, while the grey line shows the average during the 2nd year of the Presidential Cycle over the same period.

Since 1928 the SPX has been up 61% of the time in March with an average gain of 0.5%.  During the 2nd year of the Presidential Cycle the SPX has been up 61% of the time and, on average been flat.  The best March ever for the SPX was 1928 (+10.8%) the worst 1938 (-25.0%).

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 March in red and the average daily performance during the 2nd year of the Presidential Cycle, over the same period, in grey.

Since 1979 the Russell 2000 (R2K) has been up 70% of the time in March with an average gain of 0.8%.  During the 2nd year of the Presidential Cycle the R2K has been up 70% of the time with an average gain of 2.6%.  The best March ever for the R2K 1979 (+9.7%), the worst 2020 (-21.9%)

The chart below is similar to those above except it shows the average daily performance of the R2K, over all years since 1979, in March in magenta and the average daily performance during the 2nd year of the Presidential Cycle in grey.

Since 1885 the Dow Jones Industrial Average (DJIA) has been up 59% of the time in March with an average gain of 0.6%.  During the 2nd year of the Presidential Cycle the DJIA has been up 59% of the time in March with an average loss of -0.2%.  The best March for the DJIA 1920 (+12.6%), the worst 1938 (-23.7%).

There is a substantial discrepancy between summaries above and the chart below.  Prior to 1953 the market traded 6 days a week, so several days in the middle of the month would not be included in the calculations for the chart. 

The chart below is similar to those above except it shows the average daily performance over all years for the DJIA in March in grey and the average performance during the 2nd year of the Presidential Cycle in black.

Conclusion

Last week new lows increased from their low a week ago Friday. However, the number of new lows was small enough to keep the new low indicators moving upward.  If this rally is to continue, the number of new lows will have to decline significantly from where they were last week.

It is encouraging to see some life in the new high indicators.

The strongest sectors last week were Precious metals (for the 4th week in a row) and Utilities (for the 2nd week in a row) while the weakest were Banks (for the 2nd week in a row) and Electronics.

I expect the major averages to be higher on Friday March 11 than they were on Friday March 4.

Last week's positive forecast was a miss.