Technical Market Report - Monday, August 27
The good news is:
The Russell 2000 (R2K), Nasdaq composite (OTC) and the S&P 500 (SPX) all closed at all-time highs last Friday.
The Negatives
New highs failed to confirm the new all-time index highs.
Volume is at its lowest level in more than a year.
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 turned sharply upward last week but is far from confirming the new index high.
The next chart is similar to the one above one except it shows the SPX in red and NY NH, in green, has been calculated with NYSE data.
NY NH also moved sharply upward but also failed to confirm the new index high.
The Positives
There was a significant shift in the breadth indicators last week. New highs expanded while new lows declined to non-threatening levels.
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 new lows move the indicator upward (up is good).
OTC NL moved sharply upward last week indicating a short-term bottom occurred about a week earlier.
The next chart is similar to the one above except it shows the SPX in red and NY NL has been calculated with NYSE data.
The image of NY NL is not as dramatic as OTC NL, but the pattern is essentially the same.
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 moved sharply upward last week.
The next chart is similar to the one above except it shows the SPX in red and NY HL Ratio, in blue, has been calculated with NYSE data.
NY HL Ratio also moved sharply upward last week.
Seasonality
Next week includes the last 5 trading days of August during the 2nd 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 1928 to 2018. There are summaries for both the 2nd year of the Presidential Cycle and all years combined.
Average returns for the coming week have been mostly negative in spite of a higher percentage of positive years.
Report for the last 5 days of August.
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 2
Day5 Day4 Day3 Day2 Day1 Totals
1966-2 1.36% 4 -1.16% 5 -2.56% 1 -2.71% 2 0.73% 3 -4.35%
1970-2 0.64% 2 0.98% 3 -0.05% 4 1.15% 5 0.64% 1 3.36%
1974-2 0.59% 1 -0.95% 2 0.14% 3 -1.70% 4 1.63% 5 -0.29%
1978-2 0.41% 5 -0.44% 1 -0.45% 2 0.09% 3 0.19% 4 -0.20%
1982-2 1.57% 3 1.85% 4 -0.32% 5 -0.70% 1 0.77% 2 3.17%
1986-2 -0.59% 1 0.32% 2 0.32% 3 0.19% 4 0.12% 5 0.35%
1990-2 3.79% 1 0.42% 2 -0.28% 3 -0.81% 4 0.67% 5 3.79%
1994-2 0.41% 4 1.08% 5 0.04% 1 0.43% 2 -0.11% 3 1.84%
Avg 1.12% 0.65% -0.14% -0.16% 0.33% 1.79%
1998-2 0.41% 2 -1.66% 3 -4.63% 4 -2.77% 5 -8.57% 1 -17.22%
2002-2 0.81% 1 -3.16% 2 -2.48% 3 1.63% 4 -1.57% 5 -4.77%
2006-2 0.15% 5 0.95% 1 0.54% 2 0.62% 3 -0.09% 4 2.17%
2010-2 0.84% 3 -1.07% 4 1.65% 5 -1.56% 1 -0.28% 2 -0.42%
2014-2 0.41% 1 0.29% 2 -0.02% 3 -0.26% 4 0.50% 5 0.92%
Avg 0.52% -0.93% -0.99% -0.47% -2.00% -3.87%
OTC summary for Presidential Year 2 1966 - 2014
Averages 0.83% -0.20% -0.62% -0.49% -0.41% -0.90%
% Winners 92% 54% 38% 46% 62% 54%
MDD 8/31/1998 16.63% -- 8/30/1966 6.30% -- 8/28/2002 5.56%
OTC summary for all years 1963 - 2017
Averages 0.14% -0.09% 0.12% -0.11% 0.11% 0.16%
% Winners 55% 55% 64% 62% 70% 58%
MDD 8/31/1998 16.63% -- 8/30/2001 6.53% -- 8/30/1966 6.30%
SPX Presidential Year 2
Day5 Day4 Day3 Day2 Day1 Totals
1930-2 -1.05% 1 1.45% 2 0.76% 3 -0.05% 4 1.14% 5 2.25%
1934-2 -1.57% 1 -0.53% 2 -0.86% 3 -1.08% 4 -0.11% 5 -4.15%
1938-2 -0.95% 5 -1.04% 6 -4.20% 1 1.60% 2 0.17% 3 -4.43%
1942-2 -1.27% 3 0.59% 4 0.23% 5 0.12% 6 0.00% 1 -0.34%
1946-2 -0.63% 1 -3.15% 2 -1.12% 3 0.18% 4 -0.66% 5 -5.37%
1950-2 -1.33% 5 -0.05% 1 0.05% 2 -0.59% 3 -0.05% 4 -1.98%
1954-2 -0.71% 3 -0.26% 4 0.29% 5 -1.01% 1 -1.71% 2 -3.40%
Avg -0.98% -0.78% -0.95% 0.06% -0.45% -3.10%
1958-2 0.02% 1 0.34% 2 0.02% 3 -0.52% 4 0.19% 5 0.04%
1962-2 -0.05% 1 -1.28% 2 -0.22% 3 0.03% 4 0.75% 5 -0.76%
1966-2 -1.28% 4 -2.11% 5 -2.46% 1 1.78% 2 1.63% 3 -2.43%
1970-2 0.16% 2 0.11% 3 -0.16% 4 0.96% 5 -0.42% 1 0.66%
1974-2 0.85% 1 -1.69% 2 -0.25% 3 -1.09% 4 3.09% 5 0.91%
Avg -0.06% -0.93% -0.61% 0.23% 1.05% -0.32%
1978-2 -0.17% 5 -0.90% 1 -0.55% 2 0.11% 3 -0.20% 4 -1.71%
1982-2 1.93% 3 0.82% 4 -1.21% 5 0.47% 1 1.57% 2 3.59%
1986-2 -0.95% 1 2.03% 2 0.18% 3 -0.18% 4 0.04% 5 1.11%
1990-2 3.19% 1 -0.03% 2 0.89% 3 -1.69% 4 1.21% 5 3.56%
1994-2 -0.20% 4 1.22% 5 0.17% 1 0.32% 2 -0.12% 3 1.38%
Avg 0.76% 0.63% -0.11% -0.20% 0.50% 1.59%
1998-2 0.44% 2 -0.80% 3 -3.84% 4 -1.48% 5 -6.78% 1 -12.45%
2002-2 0.75% 1 -1.39% 2 -1.81% 3 -0.01% 4 -0.19% 5 -2.64%
2006-2 -0.07% 5 0.52% 1 0.19% 2 0.00% 3 -0.04% 4 0.60%
2010-2 0.33% 3 -0.77% 4 1.66% 5 -1.47% 1 0.04% 2 -0.21%
2014-2 0.48% 1 0.11% 2 0.00% 3 -0.17% 4 0.33% 5 0.75%
Avg 0.39% -0.47% -0.76% -0.63% -1.33% -2.79%
SPX summary for Presidential Year 2 1930 - 2014
Averages -0.09% -0.31% -0.56% -0.17% -0.01% -1.14%
% Winners 41% 41% 50% 41% 50% 45%
MDD 8/31/1998 12.39% -- 8/29/1938 6.10% -- 8/29/1966 5.74%
SPX summary for all years 1928 - 2017
Averages -0.08% -0.06% 0.04% -0.08% 0.12% -0.06%
% Winners 43% 47% 64% 49% 62% 57%
MDD 8/31/1998 12.39% -- 8/29/1938 6.10% -- 8/29/1966 5.74%
Conclusion
Last week was significant.
New highs expanded and more importantly new lows fell to non-threatening levels.
I expect the major averages to be higher on Friday, August 31 than they were on Friday, August 24.
Last weeks negative forecast was a miss.
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