Technical Market Report For Saturday, May 14

The good news is:

  • There was a huge decline in the number of new lows last Friday.

The Negatives

New lows declined dramatically on Friday which indicates a good chance of a nice bear market rally.  The huge number of new lows earlier in the week would suggest a retest of Wednesday’s low.  The retest could come next week or next month.


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.  Dashed horizontal lines have been drawn at 10% levels for the indicator; the line is solid at the 50%, neutral level (equal numbers of new highs and new lows).

OTC HL Ratio is still at an extremely low level. 

 

The next chart is similar to the previous 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 is also in deeply in negative territory,

 

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 turned up on Friday.

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.

OTC NL also turned upward on Friday.

 

The Positives

It is all wishful.  

The last brief rally was just a setup for further declines.

Seasonality

Next week includes the 5 trading days prior to the 3rd Friday of May 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 2021 while SPX data runs from 1953 to 2021.  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 modestly negative by all measures. 

 

Report for the week before the 3rd Friday of May.

The number following the year is the position in the Presidential Cycle.

Daily returns from Monday through 3rd Friday.


OTC Presidential Year 2 (PY2)

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1966-2  -1.37%  -2.19%  -1.06%   1.75%  -0.29%  -3.16%

 1970-2  -0.69%  -1.33%  -1.34%  -2.32%  -1.88%  -7.56%

 1974-2  -1.33%  -0.02%   0.42%  -0.01%  -1.88%  -2.82%

 1978-2   0.34%   0.82%   0.88%  -0.15%  -0.07%   1.81%


 1982-2  -0.70%  -0.58%  -1.02%  -0.65%  -0.18%  -3.13%

 1986-2  -0.10%  -0.52%   0.18%  -0.69%   0.00%  -1.14%

 1990-2   0.80%   0.20%   0.10%   0.63%   0.58%   2.31%

 1994-2  -0.70%  -0.05%   1.46%   0.75%  -0.08%   1.37%

 1998-2  -0.87%   0.65%   0.32%  -0.04%  -1.00%  -0.94%


 Avg     -0.32%  -0.06%   0.21%   0.00%  -0.17%  -0.31%


 2002-2   3.23%   4.02%   0.38%   0.28%   0.63%   8.55%

 2006-2  -0.23%  -0.42%  -1.50%  -0.70%   0.62%  -2.23%

 2010-2   0.31%  -1.57%  -0.82%  -4.11%   1.14%  -5.04%

 2014-2   1.77%  -0.33%  -0.71%  -0.76%   0.52%   0.48%

 2018-2   0.11%  -0.81%   0.63%  -0.21%  -0.38%  -0.65%


 Avg      1.04%   0.18%  -0.40%  -1.10%   0.51%   0.22%


 OTC summary for PY2 1966 - 2018

 Avg      0.04%  -0.15%  -0.15%  -0.45%  -0.17%  -0.87%

 Win%       43%     29%     57%     29%     38%     36%


OTC summary for all years 1963 - 2021

 Avg     -0.05%  -0.05%  -0.01%   0.04%  -0.17%  -0.23%

 Win%       49%     44%     58%     53%     43%     47%


SPX PY2

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1954-2   0.14%   0.03%  -0.45%   0.35%   0.59%   0.66%

 1958-2  -0.57%  -0.30%  -1.15%   0.51%   0.05%  -1.46%


 1962-2   0.72%   1.89%  -0.03%  -0.53%  -0.17%   1.87%

 1966-2  -1.24%  -0.92%   1.78%  -0.12%   0.48%  -0.02%

 1970-2  -1.06%  -0.95%  -1.70%  -1.42%   1.94%  -3.20%

 1974-2  -0.89%   0.03%  -0.26%  -0.81%  -1.68%  -3.61%

 1978-2   0.70%   0.60%   0.25%  -0.98%  -0.51%   0.06%


 Avg     -0.35%   0.13%   0.01%  -0.77%   0.01%  -0.98%


 1982-2  -1.10%  -0.75%  -0.82%  -0.26%   0.26%  -2.67%

 1986-2  -0.11%  -0.49%   0.48%  -1.31%  -0.71%  -2.15%

 1990-2   0.78%  -0.13%  -0.08%   0.13%   0.05%   0.75%

 1994-2   0.08%   1.10%   0.96%   0.61%  -0.34%   2.41%

 1998-2  -0.14%   0.83%   0.28%  -0.13%  -0.78%   0.06%


 Avg     -0.10%   0.11%   0.16%  -0.19%  -0.30%  -0.32%


 2002-2   1.86%   2.11%  -0.57%   0.66%   0.76%   4.82%

 2006-2   0.00%   0.07%  -1.68%  -0.67%   0.41%  -1.88%

 2010-2   0.11%  -1.42%  -0.51%  -3.90%   1.50%  -4.22%

 2014-2   0.97%   0.04%  -0.47%  -0.94%   0.37%  -0.02%

 2018-2   0.09%  -0.68%   0.41%  -0.09%  -0.26%  -0.54%


 Avg      0.76%   0.02%  -0.57%  -0.99%   0.56%  -0.37%


 SPX summary for PY2 1954 - 2018

 Avg      0.02%   0.06%  -0.21%  -0.52%   0.12%  -0.54%

 Win%       56%     53%     35%     29%     59%     41%


SPX summary for all years 1953 - 2021

 Avg     -0.05%   0.01%   0.00%  -0.01%  -0.09%  -0.15%

 Win%       51%     49%     49%     52%     51%     46%

 

Conclusion

There is hope.  If the huge decline in the number of new lows holds we could be looking at a nice rally.  The extreme numbers of new lows leading up to the rally implies a retest in the near future.

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

I expect the major averages to be higher on Friday, May 20 than they were on Friday, May 13.

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