Technical market report for Saturday, March 6, 2021

The good news is that the market is due for a bounce (at least). 

The Negatives

The Fed put out more hints about the end of free money. New lows reached threatening levels for around three days this past week. A Hindenburg Omen was triggered for three days last week. The secondaries underperformed the blue chips.

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.

No sign of relief here. It will take around 50 daily NYSE new lows to turn the NY NL upward.

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. It will take around 100 NASDAQ new lows to turn the OTC NL upward.

The Positives

The market is oversold and the recent index highs were confirmed by the breadth indicators, so there should be new highs for the blue chip indices in the near future.

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 held up pretty well over the tumultuous week.

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. After confirming the record OTC high, the OTC NH is following the index downward.

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 67%, remaining in positive territory.

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 also remained positive at 55%.

Seasonality

Next week includes the five trading days prior to the second 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 positive by all measures. 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 -0.37% 0.10% -0.04% 0.17% 0.33% 0.19%
•  1969-1 0.44% 0.42% 0.73% 2.12% -2.07% 1.64%
•  1973-1 0.37% 1.13% 0.30% -0.14% -0.10% 1.56%
•  1977-1 0.10% 0.06% -0.50% 0.20% 0.14% 0.00%
•  1981-1 0.13% -0.55% -0.44% 1.27% 0.75% 1.15%
•  1985-1 -0.03% 0.01% -0.57% -0.79% -0.29% -1.68%
•  1989-1 0.56% -0.02% 0.05% -0.18% 0.06% 0.47%
•  1993-1 0.86% 0.25% 0.57% 0.20% -0.22% 1.67%
•  1997-1 0.78% -0.39% -0.96% -0.83% -0.02% -1.43%
•  Avg --    0.46% -0.14% -0.27% -0.07% 0.06% 0.04%
•  2001-1 1.19% 2.87% 0.88% -2.48% -5.34% -2.88%
•  2005-1 0.95% -0.80% -0.59% -0.08% -0.88% -1.40%
•  2009-1 -1.95% 7.07% 0.98% 3.97% 0.38% 10.45%
•  2013-1 0.39% 1.32% -0.05% 0.30% 0.38% 2.34%
•  2017-1 -0.37% -0.26% 0.06% 0.02% 0.39% -0.15%
•  Avg --   0.04% 2.04% 0.26% 0.35% -1.01% 1.67%

OTC summary for PY1 1965 - 2017 

•  Avg --  0.22% 0.80% 0.03% 0.27% -0.46% 0.85%
•  Win% --    71%    64%    50%    57%    50%    64%

OTC summary for all years 1963 - 2020

•  Avg --   -0.17% 0.39% -0.06% 0.11% 0.15% 0.42%
•  Win% --    45%    56%    60%    64%    53%    66%

SPX PY1

•   Year      Mon      Tue      Wed     Thur     Fri    Totals
•  1953-1 -0.04% 0.31% 0.81% 0.04% 0.19% 1.31%
•  1957-1 0.73% 0.36% 0.25% -0.27% -0.32% 0.76%
•  1961-1 0.16% -0.91% -0.05% 0.09% -0.03% -0.73%
•  1965-1 0.03% -0.16% -0.17% 0.42% 0.36% 0.47%
•  1969-1 0.34% 0.33% -0.27% -0.67% -0.40% -0.66%
•  1973-1 0.36% 1.26% 0.31% -0.19% -0.39% 1.35%
•  1977-1 0.05% -0.38% -0.76% 0.57% -0.02% -0.54%
•  Avg --   0.19% 0.03% -0.19% 0.04% -0.10% -0.02%
•  1981-1 0.98% -0.50% -0.39% 2.49% -0.06% 2.52%
•  1985-1 -0.64% 0.09% -0.87% -0.63% -0.23% -2.27%
•  1989-1 1.25% -0.32% 0.07% -0.05% -0.36% 0.59%
•  1993-1 1.93% -0.07% 0.42% -0.57% -0.86% 0.86%
•  1997-1 1.08% -0.28% -0.87% -1.83% 0.46% -1.45%
•  Avg --   0.92% -0.22% -0.33% -0.12% -0.21% 0.05%
•  2001-1 0.59% 1.00% 0.65% 0.23% -2.48% -0.02%
•  2005-1 0.26% -0.48% -1.02% 0.19% -0.76% -1.81%
•  2009-1 -1.00% 6.37% 0.24% 4.07% 0.77% 10.46%
•  2013-1 0.46% 0.96% 0.11% 0.18% 0.45% 2.16%
•  2017-1 -0.33% -0.29% -0.23% 0.08% 0.33% -0.44%
•  Avg --   0.00% 1.51% -0.05% 0.95% -0.34% 2.07%

SPX summary for PY1 1953 - 2017 

•  Avg --  0.36% 0.43% -0.10% 0.24% -0.20% 0.74%
•  Win% --   76%    47%    47%    59%    35%    53%

SPX summary for all years 1953 - 2020

•  Avg --   -0.15% 0.25% -0.03% 0.02% 0.14% 0.24%
•  Win% --    51%    54%    53%    61%    48%    57%

Conclusion

We got more threats from the Fed last week that the days of free money may be over: We will see.

The seasonality for the coming week has historically been positive. The strongest sectors last week were banks and energy (same as the previous week), while the weakest were technology and electronics.

I expect the major averages to be higher on Friday, March 12 than they were on Friday, March 5. Last week, the Dow Jones Industrial Average and SPX were up while the OTC and Russell 2000 were down, so I am calling last week's positive forecast a tie.