The good news is:

• The secondaries outperformed the blue chips last week.

The negatives:

• New lows remained at uncomfortably high levels.

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 has remained negative for over 6 months. 

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 has remained 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 continued moving upward.  Unfortunately the actual numeric level (434) is frightfully high.

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 is also moving sharply upward, but still at a crashworthy level of 650.

The Positives

Not much to offer here.  

The new low indicators are moving sharply upward, but the ratios are not.

Seasonality

Next week includes the 5 trading days prior to the 4th 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 mostly negative. 

Report for the week before the 4th Friday of May.

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

Daily returns from Monday through the 4th Friday.


OTC Presidential Year 2 (PY2)

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1966-2   1.13%   0.62%   1.04%   0.96%   0.80%   4.55%

 1970-2   0.94%  -0.64%  -2.24%  -3.25%  -2.22%  -7.41%

 1974-2  -0.61%  -0.17%  -0.70%  -0.21%   1.12%  -0.58%

 1978-2   0.30%  -0.79%  -0.97%   0.02%   0.03%  -1.41%


 1982-2  -0.38%  -0.32%  -1.29%  -0.23%   0.10%  -2.13%

 1986-2  -0.24%   0.40%   0.32%   0.81%   0.59%   1.87%

 1990-2   1.02%   0.22%   0.66%   0.31%  -1.00%   1.21%

 1994-2  -0.24%   0.90%   0.18%  -0.16%   0.21%   0.89%

 1998-2  -0.82%   0.78%  -0.76%  -0.59%  -0.88%  -2.27%


 Avg     -0.13%   0.40%  -0.18%   0.03%  -0.20%  -0.09%


 2002-2  -2.29%  -2.20%   0.56%   1.44%  -2.13%  -4.61%

 2006-2  -0.96%  -0.65%   0.48%   1.34%   0.55%   0.77%

 2010-2  -0.69%  -0.12%  -0.68%   3.73%  -0.91%   1.32%

 2014-2   0.86%  -0.70%   0.85%   0.55%   0.76%   2.32%

 2018-2   0.54%  -0.21%   0.64%  -0.02%   0.13%   1.08%


 Avg     -0.51%  -0.78%   0.37%   1.41%  -0.32%   0.18%


OTC summary for PY2 1966 - 2018 

 Avg     -0.10%  -0.21%  -0.14%   0.34%  -0.20%  -0.31%

 Win%       43%     36%     57%     57%     64%     57%


OTC summary for all years 1963 - 2018

 Avg      0.00%  -0.15%   0.09%   0.11%   0.13%   0.18%

 Win%       48%     41%     59%     56%     64%     59%


SPX PY2

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1954-2   0.03%  -0.24%   0.83%  -0.41%   0.48%   0.69%

 1958-2  -0.28%   0.86%  -0.14%   0.53%   0.21%   1.18%


 1962-2  -0.36%  -1.97%  -1.97%  -0.80%  -1.90%  -7.00%

 1966-2   0.90%   0.66%   0.35%   0.00%   0.30%   2.21%

 1970-2   0.08%  -1.95%  -2.57%  -1.85%   0.12%  -6.17%

 1974-2  -0.40%   0.06%  -0.93%   0.23%   1.48%   0.43%

 1978-2   0.99%  -1.05%  -0.99%  -0.29%  -0.23%  -1.57%


 Avg      0.24%  -0.85%  -1.22%  -0.68%  -0.04%  -2.42%


 1982-2  -0.09%  -0.34%  -1.13%  -0.40%  -0.69%  -2.64%

 1986-2   0.19%   1.25%  -0.28%   1.98%   0.51%   3.65%

 1990-2   0.95%   0.12%   0.24%  -0.24%  -1.07%  -0.01%

 1994-2  -0.38%   0.36%   0.34%   0.16%   0.06%   0.53%

 1998-2  -0.26%   0.33%   0.87%  -0.40%  -0.37%   0.17%


 Avg      0.08%   0.34%   0.01%   0.22%  -0.31%   0.34%


 2002-2  -1.33%  -1.10%   0.57%   1.02%  -1.21%  -2.05%

 2006-2  -0.39%  -0.43%   0.16%   1.14%   0.57%   1.04%

 2010-2  -1.29%   0.04%  -0.57%   3.29%  -1.24%   0.23%

 2014-2   0.38%  -0.65%   0.81%   0.24%   0.42%   1.21%

 2018-2   0.74%  -0.31%   0.32%  -0.20%  -0.24%   0.31%


 Avg     -0.38%  -0.49%   0.26%   1.10%  -0.34%   0.15%


SPX summary for PY2 1954 - 2018 

 Avg     -0.03%  -0.26%  -0.24%   0.25%  -0.16%  -0.46%

 Win%       47%     47%     53%     50%     53%     65%


SPX summary for all years 1953 - 2021

 Avg     -0.02%  -0.11%  -0.06%   0.03%   0.08%  -0.08%

 Win%       48%     45%     51%     53%     62%     58%

Interest Rates

The following charts were supplied by Gordon Harms.

Treasury rates at their close last Friday and their changes from last month:

2yr yield 2.583% up from 1.451%

5yr yield 2.806% up from 2.790%

10yr yield 2.792% down from 2.830% A slight inversion with the 5 yr.

30yr yield 2.989% up from 2.920%

The following chart shows the last year of the previous chart.

Conclusion

The blue chips catching up with the secondaries to the downside, a poor excuse for a bear market rally.

The averages fell in spite of fewer new lows.

The strongest sectors last week were Utilities and Energy (for the 3rd week in a row) while the weakest were Transportation and Retail.

I expect the major averages to be lower on Friday May 27 than they were on Friday May 20.

Last week's overly optimistic forecast was a miss.