Technical market report for September 4, 2021

The good news is:

• The NASDAQ composite (OTC) closed at all time highs last Friday and the S&P 500 (SPX) closed at an all time high last Thursday.

The Negatives

The all time highs for the SPX and OTC were not confirmed by the breadth indicators or the secondaries.

The market is overbought; since the August lows, the OTC is up nearly 6% while the SPX is up nearly 3% and the Russell 2000 (R2K) is up 7.5%.

The first chart covers the past 6 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 1st trading day of each month. 

OTC NH continued to move upward last week, but is a long way from confirming the OTC high.

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 moved upward and is also a long way from confirming the SPX high.

The Positives

New lows continued their decline last week and are no longer at frightening levels.

The secondaries outperformed the blue chips.

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).

OTC NL continued its recovery from its low 2 weeks ago.

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 is also continuing its recovery from its recent low.

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 recovered to a comfortable 80%.

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 continued its recovery, finishing the week at a strong 89%. 

Seasonality

Next week includes the 4 trading days prior to the 2nd Friday of September 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 2053.  There are summaries for both the 1st 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 negative by all measures, helped considerably by 2001 the worst week of that period on record.

Report for the week before the 2nd Friday of September.

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

Daily returns from Monday to 2nd Friday.


OTC Presidential year 1 (PY1)

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1965-1   0.00%   0.48%   0.62%   0.35%   0.61%   2.06%

 1969-1  -0.32%  -0.90%   0.09%   1.13%   0.54%   0.54%

 1973-1  -0.72%  -0.45%  -0.42%   0.26%   0.45%  -0.89%

 1977-1   0.00%  -0.05%   0.38%   0.12%  -0.37%   0.08%


 1981-1   0.00%  -2.55%  -0.01%   1.50%   1.21%   0.15%

 1985-1  -0.04%  -0.53%  -1.04%  -0.51%  -0.94%  -3.07%

 1989-1   0.00%   0.02%  -0.46%   0.09%   0.35%   0.00%

 1993-1   0.00%  -1.38%  -1.17%   0.96%   0.89%  -0.70%

 1997-1   0.59%   0.66%  -1.02%   0.04%   0.57%   0.83%


 Avg      0.27%  -0.76%  -0.74%   0.41%   0.42%  -0.56%


 2001-1  -6.83%  -1.55%  -1.75%  -3.72%  -3.25% -17.10%

 2005-1   0.00%   1.20%   0.24%  -0.28%   0.44%   1.60%

 2009-1   0.00%   0.94%   1.11%   1.15%  -0.15%   3.05%

 2013-1   1.26%   0.62%  -0.11%  -0.24%   0.17%   1.69%

 2017-1   0.00%  -0.92%   0.28%   0.07%  -0.59%  -1.16%


 Avg     -2.79%   0.06%  -0.05%  -0.60%  -0.68%  -2.38%


OTC summary for PY1 1965 - 2017 

 Avg     -1.01%  -0.32%  -0.23%   0.06%   0.00%  -0.92%

 Win%       33%     43%     43%     71%     64%     57%


OTC summary for all years 1963 - 2020

 Avg     -0.29%  -0.05%  -0.04%   0.06%   0.02%  -0.13%

 Win%       48%     50%     56%     64%     55%     59%


SPX PY1

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1953-1   0.00%   0.17%   0.17%  -1.01%  -1.15%  -1.83%

 1957-1  -0.90%  -0.93%   0.89%   1.27%  -0.04%   0.29%


 1961-1   0.00%  -0.34%   0.74%  -0.16%  -0.69%  -0.45%

 1965-1   0.00%   0.34%   0.34%   0.26%   0.26%   1.20%

 1969-1  -1.00%   0.73%   1.68%  -0.77%   0.14%   0.78%

 1973-1  -0.87%  -0.61%  -0.16%   0.29%   1.04%  -0.29%

 1977-1   0.00%   0.27%   0.31%  -0.74%  -0.94%  -1.11%


 Avg     -0.94%   0.08%   0.58%  -0.22%  -0.04%   0.03%


 1981-1   0.00%  -1.74%   0.36%   1.47%   1.22%   1.31%

 1985-1   0.01%  -0.72%  -1.00%  -0.72%  -0.42%  -2.86%

 1989-1   0.00%  -0.33%  -0.94%  -0.25%   0.12%  -1.41%

 1993-1   0.00%  -0.61%  -0.41%   0.19%   0.92%   0.09%

 1997-1   0.23%   0.26%  -1.56%  -0.70%   1.24%  -0.53%


 Avg      0.12%  -0.63%  -0.71%   0.00%   0.62%  -0.68%


 2001-1  -4.92%  -0.58%  -1.61%  -3.11%  -1.90% -12.12%

 2005-1   0.00%   1.26%   0.24%  -0.38%   0.80%   1.92%

 2009-1   0.00%   0.88%   0.78%   1.04%  -0.14%   2.57%

 2013-1   1.00%   0.73%   0.31%  -0.34%   0.27%   1.97%

 2017-1   0.00%  -0.75%   0.31%  -0.02%  -0.15%  -0.61%


 Avg     -1.96%   0.31%   0.01%  -0.56%  -0.22%  -1.25%


SPX summary for PY1 1953 - 2017 

 Avg     -0.92%  -0.11%   0.03%  -0.22%   0.03%  -0.65%

 Win%       43%     47%     65%     35%     53%     47%


SPX summary for all years 1953 - 2020

 Avg     -0.24%  -0.04%  -0.01%  -0.16%   0.03%  -0.28%

 Win%       45%     53%     58%     49%     62%     51%

Conclusion

The market is overbought going into a seasonally bad week.

The strongest sectors last week were Precious metals and Health Care while the weakest were Retail and Banks.

I expect the major averages to be lower on Friday September 10 than they were on Friday September 3.

Last week the Dow Jones Industrial Average was down a little while everything else was up.  I am calling last week's positive forecast a tie.