Technical market report for Saturday, May 1, 2021

The good news is that on Monday and the following Thursday, the Nasdaq composite (OTC) and the S&P 500 (SPX) closed at all-time highs. 

The Negatives

Although new highs have remained at comfortably high levels, they have failed to confirm the new price records.

The first 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. Dashed vertical lines have been drawn on the first trading day of each month. The NY NH came pretty close, but failed to confirm the recent index high.

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 seriously failed to confirm Monday’s record high.

The next chart covers the past six months, showing the OTC in blue and a 10% trend (19-day EMA) of Nasdaq new lows (OTC NL) in brown. The OTC NL has been plotted on an inverted Y axis, so decreasing numbers of new lows move the indicator upward (up is good). The OTC NL continued to recover, but at 57 the value is still uncomfortably high.

The Positives

New all-time highs are a positive, but at the end of the week, not much had changed.

The next chart is similar to the previous one, except it shows the SPX in red and the NY NL in blue. The information has been calculated with NYSE data. I consider this one a positive because the level of the indicator (24), up a little from last week, is not threatening.

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 took a little dip last week, but finished the week at a very strong at 93%. Sometimes price action can be confusing. This indicator is not predictive, but it offers a pretty good representation of what is really going on in the market. 

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 jumped up, finishing the week at a comfortable 79%.

Seasonality

Next week includes the first five trading days of May 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 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 positive by all measures and much stronger during the first year of the Presidential Cycle than other years.

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    Day1      Day2      Day3     Day4      Day5     Totals
•  1965-1 0.27% 1 -0.04% 2 0.31% 3 0.04% 4 0.13% 5 0.72%
•  1969-1 0.26% 4 0.12% 5 0.34% 1 0.19% 2 -0.38% 3 0.53%
•  1973-1 0.10% 2 1.01% 3 0.70% 4 0.98% 5 -0.37% 1 2.42%
•  1977-1 0.37% 1 0.40% 2 0.44% 3 0.27% 4 0.01% 5 1.48%
•  1981-1 -0.03% 5 -1.55% 1 -0.83% 2 0.20% 3 0.79% 4 -1.41%
•  1985-1 -0.33% 3 -0.22% 4 0.47% 5 -0.16% 1 0.37% 2 0.12%
•  1989-1 -0.02% 1 0.13% 2 0.19% 3 0.09% 4 0.35% 5 0.74%
•  1993-1 0.80% 1 1.72% 2 0.75% 3 -0.47% 4 0.21% 5 3.00%
•  1997-1 0.77% 4 2.74% 5 2.60% 1 -0.81% 2 -0.41% 3 4.89%
•  Avg -- 0.24%    0.56%    0.63%   -0.23%    0.26%     1.47%
•  2001-1 2.46% 2 2.42% 3 -3.35% 4 2.11% 5 -0.82% 1 2.82%
•  2005-1 0.36% 1 0.23% 2 1.51% 3 -0.02% 4 0.28% 5 2.36%
•  2009-1 0.11% 5 2.58% 1 -0.54% 2 0.28% 3 -2.44% 4 0.00%
•  2013-1 -0.89% 3 1.26% 4 1.14% 5 0.42% 1 0.11% 2 2.04%
•  2017-1 0.73% 1 0.06% 2 -0.37% 3 0.05% 4 0.42% 5 0.88%
•  Avg --  0.55%    1.31%    -0.32%     0.57%    -0.49%    1.62%

OTC Summary for PY1 1965 - 2017

• Averages -- 0.35% 0.77% 0.24% 0.23% -0.12% 1.47%
• % Winners --  71%    79%    71%    71%     64%    93%
• MDD: 5/3/2001: 3.35% -- 5/7/2009: 2.68% -- 5/5/1981: 2.39%

OTC Summary for All Years 1963 - 2020

• Averages -- 0.27% 0.16% 0.06% -0.04% -0.06% 0.38%
• % Winners --  63%    67%    58%    55%     57%     62%
• MDD: 5/7/2010: 9.33% -- 5/7/2002: 6.78% -- 5/3/2000: 6.34%

SPX PY1

•      Year    Day1     Day2     Day3     Day4     Day5     Totals
•  1929-1 0.19% 3 0.46% 4 1.00% 5 0.42% 6 -0.60% 1 1.46%
•  1933-1 1.32% 1 0.36% 2 -0.59% 3 2.85% 4 1.04% 5 4.98%
•  1937-1 0.00% 6 0.24% 1 1.58% 2 -0.84% 3 0.72% 4 1.71%
•  1941-1 -0.11% 4 0.32% 5 0.21% 6 -0.11% 1 1.71% 2 2.04%
•  1945-1 -0.34% 2 -0.14% 3 0.68% 4 0.34% 5 0.20% 6 0.74%
•  1949-1 0.27% 1 0.47% 2 1.14% 3 -0.07% 4 -0.60% 5 1.22%
•  1953-1 0.45% 5 1.09% 1 0.12% 2 -0.12% 3 -0.40% 4 1.14%
•  1957-1 0.61% 3 0.80% 4 -0.11% 5 -0.15% 1 -0.30% 2 0.85%
•  Avg --  0.18%    0.51%    0.41%   -0.02%    0.12%    1.20%
•  1961-1 -0.21% 1 0.72% 2 0.82% 3 0.39% 4 0.12% 5 1.84%
•  1965-1 0.13% 1 0.31% 2 0.22% 3 0.23% 4 -0.08% 5 0.83%
•  1969-1 -0.17% 4 0.47% 5 0.36% 1 0.47% 2 -0.18% 3 0.94%
•  1973-1 0.12% 2 1.24% 3 1.65% 4 0.71% 5 -0.42% 1 3.30%
•  1977-1 0.50% 1 0.51% 2 0.53% 3 0.15% 4 -0.62% 5 1.07%
•  Avg --  0.07%    0.65%    0.72%    0.39%    -0.24%    1.60%
•  1981-1 -0.07% 5 -1.54% 1 -0.27% 2 0.35% 3 0.68% 4 -0.85%
•  1985-1 -0.81% 3 0.36% 4 0.60% 5 -0.05% 1 0.43% 2 0.52%
•  1989-1 -0.17% 1 -0.32% 2 0.01% 3 -0.13% 4 -0.05% 5 -0.66%
•  1993-1 0.52% 1 0.36% 2 0.11% 3 -0.28% 4 -0.21% 5 0.48%
•  1997-1 -0.35% 4 1.81% 5 2.13% 1 -0.31% 2 -1.47% 3 1.82%
•  Avg --  -0.18%    0.13%    0.52%   -0.08%    -0.12%    0.26%
•  2001-1 1.36% 2 0.08% 3 -1.49% 4 1.44% 5 -0.24% 1 1.15%
•  2005-1 0.46% 1 -0.09% 2 1.25% 3 -0.26% 4 -0.11% 5 1.25%
•  2009-1 0.54% 5 3.39% 1 -0.38% 2 1.74% 3 -1.32% 4 3.97%
•  2013-1 -0.93% 3 0.94% 4 1.05% 5 0.19% 1 0.52% 2 1.78%
•  2017-1 0.17% 1 0.12% 2 -0.13% 3 0.06% 4 0.41% 5 0.63%
•  Avg --  0.32%    0.89%    0.06%    0.64%    -0.15%    1.76%

SPX Summary for PY1 1929 - 2017

• Averages -- 0.15% 0.52% 0.46% 0.31% -0.03% 1.40%
• % Winners -- 57%     83%    74%    57%    39%    91%
• MDD: 5/5/1981: 1.87% -- 5/7/1997: 1.77% -- 5/3/2001: 1.49%

SPX Summary for All Years 1928 - 2020

• Averages -- 0.08% 0.15% 0.20% -0.05% 0.14% 0.51%
• % Winners -- 55%    67%    62%    44%     51%     66%
• MDD: 5/3/1930: 8.27% -- 5/7/2010: 7.60% -- 5/4/2000: 4.01%

May

Since 1963, over all years, the OTC in May has been up 62% of the time with an average gain of 0.7%. During the first year of the Presidential Cycle, the OTC in May has been up 79% of the time with an average gain of 2.7%. The best May ever for the OTC was 1997 (+11.1%), while the worst was 1970 (-13.0%).

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 May 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 58% of the time in May with an average loss of -0.1%. During the first year of the Presidential Cycle, the SPX has been up 61% of the time with an average gain of 1.6%. The best May ever for the SPX was 1933 (+15.9%), while the worst was 1940 (-24.0%).

The chart below is similar to the one above, except it shows the average daily performance for the SPX in May over all years since 1928 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 May with an average gain of 1.3%. During the first year of the Presidential Cycle, the R2K has been up 90% of the time with an average gain of 3.9%. The best May ever for the R2K was 1997 (+11.0%), while the worst was 2019 (-7.9%).

The chart below is similar to those above, except it shows the average daily performance of the R2K over all years since 1979 in 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 52% of the time in May with an average loss of -0.1%. During the first year of the Presidential Cycle, the DJIA has been up 59% of the time in May with an average gain of 0.9%. The best May ever for the DJIA was 1898 (+14.7%), while the worst was 1940 (-21.7%).

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

Conclusion

Aside from marginal new all-time highs for the OTC and the SPX, not much happened last week. New highs failed to confirm the index highs, while new lows remained non-threatening. May could be fun; May in PY1 has been the best of the four years by far.

The strongest sectors last week were finance and technology, while the weakest were electronics and precious metals (down from the top last week). I expect the major averages to be higher on Friday, May 7 than they were on Friday, April 30.

Last week, none of the major indices moved as much as 1%. The SPX was up slightly while the other major indices were down slightly. So I am calling last week's positive forecast a tie.