Technical market report for Saturday, May 8, 2021

The good news is that last Friday saw the Dow Jones Industrial Average (DJIA) and S&P 500 (SPX) close at all-time highs. 

The Negatives

Although new highs on the Nasdaq 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 Nasdaq composite (OTC) in blue and a 10% trend (19-day EMA) of Nasdaq new highs (OTC NH) in green. Dashed vertical lines have been drawn on the first trading day of each month. The OTC NH has failed to confirm the rally of the past six weeks.

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 fell to an uncomfortably high level of 72 last week. 

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. The level of NY NL is not uncomfortably high, but it moved downward while the SPX was moving to a new high last week.

The Positives

Last week's new blue chip records were confirmed by the levels of the new highs on the NYSE. The next chart is similar to the first one, except it shows the SPX in red and the NY NH in green. The information has been calculated with NYSE data. The NY NH confirmed the new SPX record, thus implying higher prices ahead.

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 held above the 90% level, which is very strong. 

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 fell to a still positive 70%.

Seasonality

Next week includes the five trading days prior to the second Friday 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 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 mixed, but stronger during the first year of the Presidential Cycle. 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  -0.12%  -0.25%  -0.46%   0.72%  -0.60%  -0.71%
•  1969-1   0.34%   0.19%  -0.38%  -0.02%   0.32%   0.45%
•  1973-1  -0.37%   0.17%  -0.12%  -0.20%  -1.11%  -1.62%
•  1977-1  -0.14%   0.41%  -0.25%   0.04%   0.46%   0.53%
•  1981-1  -1.55%  -0.83%   0.20%   0.79%   0.55%  -0.83%
•  1985-1  -0.16%   0.37%   0.06%   0.78%   1.48%   2.53%
•  1989-1  -0.33%  -0.08%   0.16%   0.23%   0.98%   0.95%
•  1993-1   0.20%   0.04%  -0.20%  -0.89%   0.11%  -0.74%
•  1997-1   2.60%  -0.81%  -0.41%   0.60%   0.32%   2.30%
•  Avg  --    0.15%  -0.26%  -0.04%   0.30%   0.69%   0.84%
•  2001-1  -0.82%   1.16%  -1.92%  -1.28%  -1.01%  -3.87%
•  2005-1   0.63%  -0.85%   0.45%  -0.39%   0.66%   0.49%
•  2009-1   2.58%  -0.54%   0.28%  -2.44%   1.33%   1.22%
•  2013-1   0.42%   0.11%   0.49%  -0.12%   0.80%   1.71%
•  2017-1   0.03%   0.29%   0.14%  -0.22%   0.09%   0.34%
•  Avg  --    0.57%   0.03%  -0.11%  -0.89%   0.37%  -0.02%

OTC Summary for PY1 1965 - 2017 

•  Avg  --  0.24%  -0.04%  -0.14%  -0.17%   0.31%   0.20%
•  Win%  --   50%     57%     50%     43%     79%     64%

OTC Summary for All Years 1963 - 2020

•  Avg  --  0.09%  -0.12%  -0.02%  -0.05%   0.10%   0.01%
•  Win%  --   59%     52%     52%     55%     60%     53%

SPX PY1

•     Year      Mon      Tue       Wed      Thur      Fri      Totals
•  1953-1   1.09%   0.12%  -0.12%  -0.40%   0.24%   0.93%
•  1957-1  -0.15%  -0.30%   0.39%   0.11%   0.50%   0.54%
•  1961-1  -0.17%   0.09%  -0.09%  -0.03%   0.09%  -0.11%
•  1965-1  -0.21%  -0.12%   0.44%   0.37%  -0.19%   0.28%
•  1969-1   0.36%   0.47%  -0.18%   0.41%  -0.05%   1.01%
•  1973-1  -0.42%   0.65%  -0.73%  -0.81%  -1.25%  -2.57%
•  1977-1  -0.31%   0.29%  -0.69%  -0.05%   0.30%  -0.46%
•  Avg  --   -0.15%   0.28%  -0.25%  -0.02%  -0.22%  -0.37%
•  1981-1  -1.54%  -0.27%   0.35%   0.68%  -0.01%  -0.79%
•  1985-1  -0.05%   0.43%  -0.08%   0.72%   1.30%   2.32%
•  1989-1  -0.52%  -0.26%   0.20%   0.38%   2.24%   2.03%
•  1993-1   0.11%   0.35%   0.10%  -1.25%   0.08%  -0.62%
•  1997-1   2.13%  -0.31%  -1.47%   0.63%   0.49%   1.48%
•  Avg  --    0.03%  -0.01%  -0.18%   0.23%   0.82%   0.89%
•  2001-1  -0.24%  -0.18%  -0.45%  -0.03%  -0.76%  -1.66%
•  2005-1   0.64%  -1.07%   0.42%  -1.00%  -0.46%  -1.47%
•  2009-1   3.39%  -0.38%   1.74%  -1.32%   2.41%   5.83%
•  2013-1   0.19%   0.52%   0.41%  -0.37%   0.43%   1.19%
•  2017-1   0.00%  -0.10%   0.11%  -0.22%  -0.15%  -0.35%
•  Avg  --    0.80%  -0.24%   0.45%  -0.59%   0.30%   0.71%

SPX Summary for PY1 1953 - 2017 

•  Avg  --  0.25%   0.00%   0.02%  -0.13%   0.31%   0.45%
•  Win%  --   47%     47%     53%     41%     59%     53%

SPX Summary for All Years 1953 - 2020

•  Avg  --  0.02%  -0.02%  -0.02%  -0.10%   0.07%  -0.06%
•  Win%   --  48%     46%     51%     47%     55%     43%

Conclusion

Except for a little hiccup from the OTC, May has started out by following the seasonal pattern quite nicely. It is troubling, however, to see the secondaries underperforming the blue chips. The implication of that condition is that we are in a developing top, 

The strongest sectors last week were precious metals (back up from the bottom last week) and basic materials, while the weakest were electronics and internet. I expect the major averages to be higher on Friday, May 14 than they were on Friday, May 7. Last week, the OTC was down while everything else was up, so I am calling last week's positive forecast a tie.