Technical Market Report For Saturday, Oct. 30
The good news is:
- The Dow Jones Industrial Average (DJIA), S&P 500 (SPX) and NASDAQ composite (OTC) all closed at all time highs last Friday on a spike in volume.
The Negatives
The market is overbought.
There are numerous non confirmations by the breadth indicators.
The first chart covers the past 6 months showing the 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 1st trading day of each month.
OTC NH fell short of confirming the new all time high for the OTC.
The next chart is similar to the first one except it shows the SPX in red and NY NH, in green, has been calculated with NYSE data.
NY NH also failed to confirm the new SPX all time high by a wide margin.
The next chart covers the past 6 months showing the OTC in blue and a 10% trend (19 day EMA) of NASDAQ new lows (OTC NL), in brown. OTC NL has been plotted on an inverted Y axis so decreasing numbers of new lows move the indicator upward (up is good).
The sharp upward move of OTC_NL has been arrested while the index moved to an all time high.
The next chart is similar to the one above except is shows the SPX in red and NY NL has been calculated with NYSE data.
NY NL turned downward as the index moved to a new all time high.
The Positives
A massive jump in volume pushed the tech sector upward taking all of the major indices to all time highs.
The next chart covers the past 6 months showing the 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 horizontal lines have been drawn at 10% levels for the indicator; the line is solid at the 50%, neutral level.
OTC HL Ratio declined as the index moved to an all time high.
The next chart is similar to the previous one except it shows the SPX in red and NY HL ratio, in blue, has been calculated with NYSE data.
NY HL Ratio also declined as the index moved to an all time high.
There was a big spike in volume on the NASDAQ last week that pushed the indices to new highs.
The chart below covers the past 6 months showing the OTC in blue and a 5% trend (39 day EMA) of NASDAQ upside volume (OTC UV) in green.
The next chart is similar to the previous one except it shows the SPX in red and NY UV, in green, has been calculated with NYSE data.
NY UV declined while OTC UV exploded.
Seasonality
Next week includes the first 5 trading days of November during the 1st 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 1st year of the Presidential Cycle and all years combined.
Average returns for the coming week have been mixed brought down by blue chip losses in the 1920’s and 1930’s,
Report for the first 5 days of November. 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) Day1 Day2 Day3 Day4 Day5 Totals 1965-1 0.29% 1 0.36% 3 0.22% 4 0.29% 5 -0.13% 1 1.04% 1969-1 0.08% 1 -0.18% 2 0.11% 3 0.62% 4 1.24% 5 1.87% 1973-1 -0.50% 4 -0.63% 5 -1.66% 1 -0.77% 2 0.40% 3 -3.16% 1977-1 -0.80% 2 -0.24% 3 -0.02% 4 0.75% 5 0.66% 1 0.35% 1981-1 1.03% 1 0.78% 2 0.48% 3 0.15% 4 -0.02% 5 2.40% 1985-1 0.54% 5 0.04% 1 0.35% 2 0.50% 3 0.25% 4 1.67% 1989-1 0.22% 3 -0.77% 4 -0.04% 5 -1.09% 1 0.31% 2 -1.37% 1993-1 0.58% 1 0.24% 2 -1.62% 3 -2.03% 4 0.76% 5 -2.07% 1997-1 2.28% 1 0.07% 2 0.37% 3 -0.85% 4 -1.29% 5 0.59% Avg 0.93% 0.07% -0.09% -0.66% 0.00% 0.25% 2001-1 3.32% 4 -0.03% 5 2.74% 1 2.31% 2 0.13% 3 8.47% 2005-1 -0.29% 2 1.43% 3 0.74% 4 0.43% 5 0.41% 1 2.71% 2009-1 0.20% 1 0.40% 2 -0.09% 3 2.42% 4 0.34% 5 3.27% 2013-1 0.06% 5 0.37% 1 0.08% 2 -0.20% 3 -1.90% 4 -1.59% 2017-1 -0.16% 3 -0.02% 4 0.73% 5 0.32% 1 -0.27% 2 0.60% Avg 0.62% 0.43% 0.84% 1.06% -0.26% 2.69% OTC summary for PY1 1965 - 2017 Averages 0.49% 0.13% 0.17% 0.20% 0.06% 1.06% % Winners 71% 57% 64% 64% 64% 71% MDD 11/4/1993 3.61% -- 11/6/1973 3.52% -- 11/7/1997 2.13% OTC summary for all years 1963 - 2020 Averages 0.29% 0.23% 0.29% 0.21% 0.00% 1.01% % Winners 66% 53% 66% 59% 55% 72% MDD 11/6/2008 9.63% -- 11/7/2007 3.86% -- 11/4/1993 3.61% SPX PY1 Day1 Day2 Day3 Day4 Day5 Totals 1929-1 -5.26% 1 -9.92% 3 3.69% 4 -0.89% 5 -6.23% 1 -18.61% 1933-1 1.79% 3 1.10% 4 3.47% 5 -0.31% 6 -0.63% 1 5.41% 1937-1 -2.27% 1 -4.64% 3 -0.52% 4 0.00% 5 -2.88% 6 -10.30% 1941-1 0.42% 6 0.52% 1 0.73% 3 -0.83% 4 -0.31% 5 0.53% 1945-1 1.32% 4 -0.06% 5 -0.06% 6 0.53% 1 1.18% 3 2.92% 1949-1 1.00% 2 0.80% 3 -0.24% 4 -0.49% 5 0.06% 6 1.13% 1953-1 0.49% 1 -0.61% 3 0.53% 4 -0.12% 5 0.20% 1 0.49% 1957-1 -1.51% 5 -0.17% 1 0.15% 3 0.59% 4 -1.18% 5 -2.12% Avg 0.34% 0.10% 0.22% -0.06% -0.01% 0.59% 1961-1 0.16% 3 0.55% 4 0.52% 5 0.78% 1 1.23% 3 3.24% 1965-1 -0.21% 1 0.09% 3 0.16% 4 -0.10% 5 -0.15% 1 -0.21% 1969-1 -0.09% 1 0.06% 2 0.44% 3 0.03% 4 0.60% 5 1.05% 1973-1 -0.55% 4 -0.58% 5 -1.45% 1 -0.53% 2 0.80% 3 -2.31% 1977-1 -1.07% 2 -0.70% 3 0.06% 4 0.90% 5 0.78% 1 -0.04% Avg -0.35% -0.11% -0.05% 0.22% 0.65% 0.35% 1981-1 1.90% 1 0.48% 2 -0.05% 3 -0.96% 4 -0.70% 5 0.66% 1985-1 0.90% 5 -0.15% 1 0.59% 2 0.20% 3 -0.07% 4 1.47% 1989-1 0.25% 3 -0.80% 4 -0.25% 5 -1.48% 1 0.66% 2 -1.63% 1993-1 0.27% 1 -0.14% 2 -1.16% 3 -1.19% 4 0.45% 5 -1.77% 1997-1 2.66% 1 0.19% 2 0.21% 3 -0.50% 4 -1.12% 5 1.44% Avg 1.20% -0.08% -0.13% -0.79% -0.16% 0.04% 2001-1 2.29% 4 0.29% 5 1.44% 1 1.45% 2 -0.27% 3 5.20% 2005-1 -0.35% 2 1.00% 3 0.43% 4 0.02% 5 0.22% 1 1.31% 2009-1 0.65% 1 0.24% 2 0.10% 3 1.92% 4 0.25% 5 3.17% 2013-1 0.29% 5 0.36% 1 -0.28% 2 0.43% 3 -1.32% 4 -0.52% 2017-1 0.16% 3 0.02% 4 0.31% 5 0.13% 1 -0.02% 2 0.60% Avg 0.61% 0.38% 0.40% 0.79% -0.23% 1.95% SPX summary for PY1 1929 - 2017 Averages 0.14% -0.52% 0.38% -0.02% -0.37% -0.39% % Winners 65% 57% 65% 48% 48% 61% MDD 11/11/1929 17.76% -- 11/6/1937 9.95% -- 11/6/1973 3.08% SPX summary for all years 1928 - 2020 Averages 0.25% 0.00% 0.28% 0.08% -0.05% 0.54% % Winners 64% 58% 66% 55% 51% 68% MDD 11/11/1929 17.76% -- 11/6/2008 10.03% -- 11/6/1937 9.95%
November
Since 1963, over all years, the OTC in November has been up 72% of the time with an average gain of 1.8%. During the 1st year of the Presidential Cycle November has been up 86% time with an average gain of 2.2% The best November ever for the OTC was 2001 (+14.2%), the worst 2000 (-22.9%).
The average month has 21 trading days. The chart below has been calculated by averaging the daily percentage change of the OTC for each of the 1st 11 trading days and each of the last 10. In months when there were more than 21 trading days some of the days in the middle were not counted. In months when 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 1st trading day and at 5 trading day intervals after that. The line is solid on the 11th trading day, the dividing point.
In the chart below the blue line shows the average of the OTC in November over all years since 1963 while the green line shows the average during the 1st year of the Presidential Cycle over the same period.
Since 1928 the SPX has been up 61% of the time in November with an average gain of 0.8%. During the 1st year of the Presidential Cycle the SPX has been up 70% of the time with an average gain of 0.7%. The best November ever for the SPX was 1928 +12.0% the worst 1929 -13.4%.
The chart below is similar to the one above except it shows the average daily performance over all years for the SPX in November in red and the performance during the 1st year of the Presidential Cycle in green.
Since 1979 the Russell 2000 (R2K) has been up 69% of the time in November with an average gain of 2.5%. During the 1st year of the Presidential Cycle the R2K has been up 80% of the time in November with an average gain of 2.8%. The best November ever for the R2K was 2002 +8.8%, the worst 2008 -12.0%.
The chart below is similar to those above except it shows the daily performance over all years of the R2K in November in magenta and the performance during the 1st year of the Presidential Cycle in green.
Since 1885 the DJIA has been up 61% of the time in November with an average gain of 1.0%. During the 1st year of the Presidential Cycle the DJIA has been up 65% of the time in November with an average gain of 0.7%. The best November ever for the DJIA was 1928 +16.3%, the worst 1973 -14.0%.
The chart below is similar to those above except it shows the daily performance over all years of the DJIA in November in grey and the performance during the 1st year of the Presidential Cycle in green.
Conclusion
The rapid rise of the blue chip indices to all time highs without confirmation from the breadth indicators is typical of a final cycle top. There may be a little left to the upside, but the end is near.
The strongest sectors last week were Electronics and Transportation while the weakest were Leisure and Energy.
I expect the major averages to be lower on Friday, November 5 than they were on Friday, October 29.