The good news is: Seasonally next week has been one of the strongest of the 3rd year of the Presidential Cycle.

The Negatives

Nasdaq new highs deteriorated last week.

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 first trading day of each month.

OTC NH stalled last week. This is not what I like to see early in the cycle.

The Positives

New lows have been insignificant and seasonally next week has been very strong.

The next chart is similar to the one above, except, it shows the S&P 500 (SPX) in red and NY NH, in green has been calculated with NYSE data.

NY NH continued moving upward, but, at a slower pace.

The next chart covers the past 6 months showing the SPX in red and a 40% trend (4 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.

 NY HL Ratio turned downward after breaking the 90% level, finishing the week at a very strong 80%. 

The next chart is similar to the one above except it shows the Nasdaq composite (OTC) in blue and OTC HL Ratio, in red, has been calculated with Nasdaq data.

OTC HL Ratio declined a bit last week, but, finished the week at a positive 60%.

The next chart covers the past 6 months showing the OTC in blue and a 10% trend of Nasdaq new lows (OTC NL) in brown. OTC NL has been plotted on an inverted Y axis so diminishing numbers of new lows move the indicator upward (up is good).

 OTC NL continued moving upward, reaching its highest level in the past 6 months.

The next chart is similar to the one above except it shows the SPX in red and NY NL, in blue, has been calculated with NYSE data.

NY NL is very close to its highest level in the past 6 months.

Seasonality

Next week includes the 5 trading days prior to the 3rd Friday of February during the 3rd 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 2018 while SPX data runs from 1953 to 2018. There are summaries for both the 3rd 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 positive by all measures and stronger during the 3rd year of the Presidential Cycle than other years.  The SPX has not had a down year during this period in the 3rd year of the Presidential Cycle since 1971.

Report for the week before the 3rd Friday of February.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday through 3rd Friday.

OTC Presidential Year 3
 Year       Mon     Tue     Wed    Thur    Fri    Totals
 1963-3   0.13%  -0.23%   0.26%   0.68%   0.65%   1.49%
 1967-3   0.08%  -0.20%   0.60%   0.33%  -0.08%   0.73%
 1971-3   0.00%   0.14%  -0.44%  -0.31%  -0.71%  -1.33%
 1975-3   0.00%  -1.08%   0.55%   0.97%   0.29%   0.73%

 1979-3   0.23%   0.68%  -0.22%   0.26%   0.51%   1.46%
 1983-3   0.79%   0.15%   0.00%  -0.03%   0.88%   1.80%
 1987-3   0.00%   1.38%  -0.26%  -0.01%   0.05%   1.16%
 1991-3   1.67%  -0.03%   0.90%  -0.82%   0.99%   2.72%
 1995-3  -0.13%   0.15%   0.63%  -0.29%  -0.80%  -0.43%

 Avg      0.64%   0.47%   0.21%  -0.18%   0.33%   1.34%

 1999-3   0.00%  -0.34%  -2.80%   0.52%   1.02%  -1.62%
 2003-3   0.00%   2.78%  -0.91%  -0.23%   1.34%   2.97%
 2007-3  -0.38%   0.39%   1.16%   0.35%  -0.03%   1.48%
 2011-3   0.28%  -0.46%   0.76%   0.21%   0.08%   0.87%
 2015-3   0.00%   0.11%   0.14%   0.37%   0.63%   1.26%

 Avg     -0.05%   0.49%  -0.33%   0.24%   0.61%   1.00%

OTC summary for Presidential Year 3 1963 - 2015 
 Avg      0.33%   0.25%   0.03%   0.14%   0.34%   0.95%
 Win%       75%     57%     64%     57%     71%     79%

OTC summary for all years 1963 - 2018
 Avg      0.14%  -0.07%   0.14%   0.18%  -0.12%   0.21%
 Win%       60%     51%     59%     63%     48%     61%


SPX Presidential Year 3
 Year       Mon     Tue     Wed    Thur    Fri    Totals
 1955-3   4.68%  -5.14%  -0.33%   0.19%   0.14%  -0.46%

 1959-3   0.15%  -0.39%   0.39%   0.95%   0.91%   2.01%
 1963-3  -0.62%   0.11%   0.49%   0.30%   0.09%   0.37%
 1967-3   0.10%   0.67%   0.11%  -0.46%   0.03%   0.46%
 1971-3   0.00%   0.23%  -0.47%  -0.65%  -0.84%  -1.72%
 1975-3   0.00%  -0.70%   0.63%   0.95%   0.50%   1.37%

 Avg     -0.12%  -0.01%   0.23%   0.22%   0.14%   0.50%

 1979-3   0.34%   0.74%  -0.06%  -0.14%  -0.06%   0.82%
 1983-3   0.87%  -0.42%  -0.59%   0.01%   0.38%   0.26%
 1987-3   0.00%   2.07%  -0.02%   0.05%  -0.03%   2.07%
 1991-3   2.57%  -0.84%   0.96%  -1.30%   1.33%   2.72%
 1995-3   0.04%   0.19%   0.41%   0.14%  -0.67%   0.11%

 Avg      0.95%   0.35%   0.14%  -0.25%   0.19%   1.19%

 1999-3   0.00%   0.96%  -1.44%   1.09%   0.15%   0.76%
 2003-3   0.00%   1.95%  -0.71%  -0.95%   1.32%   1.61%
 2007-3  -0.33%   0.76%   0.76%   0.10%  -0.09%   1.21%
 2011-3   0.24%  -0.32%   0.63%   0.31%   0.19%   1.04%
 2015-3   0.00%   0.16%  -0.03%  -0.11%   0.61%   0.63%

 Avg     -0.04%   0.70%  -0.16%   0.09%   0.44%   1.05%

SPX summary for Presidential Year 3 1955 - 2015 
 Avg      0.80%   0.00%   0.05%   0.03%   0.25%   0.83%
 Win%       80%     63%     50%     63%     69%     88%

SPX summary for all years 1953 - 2018
 Avg      0.10%  -0.01%   0.21%   0.01%   0.00%   0.28%
 Win%       49%     57%     59%     50%     48%     61%

Conclusion

The market continued to follow the pattern of the 3rd of the Presidential Cycle pretty closely. There were a couple of down days last week, but all of the major averages finished up for the week and the secondaries gained some strength relative to the blue chips.

I expect the major averages to be higher on Friday, February 15 than they were on Friday, February 8.