Technical market report for September 5, 2020

The good news is both the NASDAQ composite (OTC) and S&P 500 (SPX) closed at all time highs last Wednesday, September 2.

The Negatives

There is narrowing leadership, minimal new highs, and declining volume as the indices hit all time highs.

The first chart covers the past six months, showing the OTC in blue and a 10% trend (19-day EMA) of NASDAQ new highs (OTC NH) in green. There was a minor, short term non-confirmation of the new OTC high by OTC NH on Wednesday.

I use six month charts because I am interested in relatively short term moves. But there were many more new highs a little over six months ago, and the nine month chart below shows a longer term degradation of OTC NH.

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. Notably, there was also a short term non-confirmation of Wednesday’s all time SPX high.

The next chart is similar to the second one covering the past nine months, but showing the SPX in red and the NY NH in green. This one also shows longer term degradation of new highs.

The Positives

New lows remained insignificant all week on the NYSE. The NASDAQ was not quite as good. There were 87 new lows on the NASDAQ on Friday, the highest amount since May 14.

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 solidly at the 50% neutral level.

The NY HL Ratio fell to 75% last Friday, September 4, but the data remained positive every day last week. 

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 finished the week at a barely positive 52%. The data was negative on Thursday and Friday. That is, new lows outnumbered new highs on those days.

Seasonality

Next week includes the five trading days prior to the second Friday of September during the fourth year of the Presidential Cycle. The tables below shows the daily change, on a percentage basis, for that period.

The OTC data covers the period from 1963 to 2019, while the SPX data runs from 1953 to 2019. There are summaries for both the fourth 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. Returns for the coming week have been mixed, and have been often stronger during the fourth year of the Presidential Cycle than other years.

The number following the year is the position in the Presidential Cycle. Daily returns from Monday to Second Friday:

OTC Presidential Year 4 (PY4)

•  Year     Mon     Tue     Wed     Thur     Fri    Totals
•  1964-4 0.00% 0.29% 0.38% 0.07%-0.24% 0.50%
•  1968-4 0.16% 0.27% 0.00%-0.01%-0.50%-0.09%
•  1972-4 0.00%-0.28%-0.54%-0.32%-0.06%-1.21%
•  1976-4 0.00% 0.21% 0.05%-0.44% 0.36% 0.19%
•  1980-4-0.62% 0.21% 0.80% 0.99% 0.75% 2.13%
•  1984-4-0.46% 0.51%-0.14% 0.75% 0.89% 1.55%
•  1988-4 0.00% 0.22% 0.17% 0.47% 0.49% 1.35%
•  1992-4 0.00%-0.40% 0.65% 1.10% 0.30% 1.66%
•  1996-4 0.82% 0.06% 0.40% 1.02% 1.96% 4.26%
•  Avg  -   -0.09% 0.12% 0.37% 0.87% 0.88% 2.19%
•  2000-4 0.00%-2.15%-3.14% 2.12%-2.93%-6.09%
•  2004-4 0.00% 0.76%-0.43% 1.03% 1.32% 2.68%
•  2008-4 0.62%-2.64% 0.85% 1.32% 0.14% 0.29%
•  2012-4-1.03% 0.02% 0.32% 1.33% 0.89% 1.52%
•  2016-4 0.00% 0.50% 0.15%-0.46%-2.54%-2.35%
•  Avg  -   -0.21%-0.70%-0.45% 1.07%-0.62%-0.79%

OTC summary for PY4 1964 - 2016 

•  Avg  -   -0.09%-0.17%-0.04% 0.64% 0.06% 0.46%
•  Win%  -   50% 71% 69% 71% 64% 71%

OTC summary for all years 1963 - 2019

•  Avg  -   -0.29% 0.02%-0.09% 0.10% 0.03%-0.06%
•  Win%  -   48% 51% 55% 65% 56% 60%

SPX PY4

•  Year     Mon     Tue    Wed     Thur     Fri      Totals
•  1956-4-0.52%-0.38%-0.70%-0.13% 0.47%-1.26%
•  1960-4 0.00%-0.89%-1.24%-0.09% 0.66%-1.56%
•  1964-4 0.00% 0.13% 0.22% 0.06% 0.42% 0.83%
•  1968-4 0.03%-0.49% 0.00%-0.21% 0.34%-0.33%
•  1972-4 0.00%-0.25%-0.61%-0.24%-0.13%-1.22%
•  1976-4 0.00% 0.70%-0.09%-0.51% 0.24% 0.34%
•  Avg  -  0.03%-0.16%-0.43%-0.20% 0.31%-0.39%
•  1980-4-1.26% 0.62% 0.60% 0.68%-0.10% 0.54%
•  1984-4-0.07% 0.12% 0.14% 1.98% 0.50% 2.67%
•  1988-4 0.00% 0.42% 0.11% 0.00% 0.36% 0.89%
•  1992-4 0.00%-0.63% 0.46% 0.86%-0.09% 0.60%
•  1996-4 1.23% 0.01% 0.52% 0.58% 1.40% 3.74%
•  Avg  -   -0.03% 0.10% 0.37% 0.82% 0.42% 1.69%
•  2000-4 0.00%-0.90%-0.98% 0.69%-0.53%-1.73%
•  2004-4 0.00% 0.69%-0.45% 0.19% 0.50% 0.92%
•  2008-4 2.05%-3.41% 0.61% 1.38% 0.21% 0.84%
•  2012-4-0.61% 0.31% 0.21% 1.63% 0.40% 1.93%
•  2016-4 0.00% 0.30%-0.01%-0.22%-2.45%-2.39%
•  Avg  -  0.72%-0.60%-0.12% 0.73%-0.38%-0.08%

SPX summary for PY4 1956 - 2016

•  Avg  -  0.12%-0.23%-0.08% 0.42% 0.14% 0.30%
•  Win%  -   43% 56% 53% 63% 69% 63%

SPX summary for all years 1953 - 2019

•  Avg  -   -0.24% 0.00%-0.04%-0.13% 0.03%-0.24%
•  Win%  -   45% 54% 58% 49% 61% 52%

Conclusion

The strongest sectors last week were banks and basic materials. The weakest sectors were telecomm and energy. I expect the major averages to be higher on Friday, September 11, than they were on Friday, September 4. Last week's positive forecast was a miss.