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Technical market report for August 12, 2017

The good news is:

  • The market has been following the average pattern for the 1st year of the Presidential Cycle pretty closely and that pattern turns positive in about 6 weeks.

The Negatives

The secondaries have been leading the way down and new lows exceeded new highs the last 3 days of last week.  There has been no sigh of a bottom.

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.

Progressively higher index highs have been accompanied by progressively lower numbers of new highs.

There is nothing pretty here.

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

The pattern here is similar to the chart above.

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 is now in negative territory.

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

NY HL Ratio also fell into negative territory.

The Positives

The market is oversold so there could be a bounce, but, at this point, everything is confirming this decline.

 

Seasonality

Next week includes the 5 trading days prior to the 3rd Friday of August 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 2016 while SPX data runs from 1953 to 2016.  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 have been modestly up over all years, but very negative during the 1st year of the Presidential Cycle.

Report for the week before the 3rd Friday of August.

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

Daily returns from Monday through 3rd Friday.

OTC Presidential Year 1

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1965-1   0.70%  -0.22%   0.26%   0.24%  -0.26%   0.72%

 1969-1  -0.29%  -0.79%  -0.94%  -0.10%   0.42%  -1.71%

 1973-1  -0.92%  -0.73%  -0.23%  -0.04%   0.39%  -1.53%

 1977-1   0.13%  -0.24%   0.07%   0.14%  -0.01%   0.09%

 1981-1  -1.16%  -1.26%   0.10%   0.36%  -0.58%  -2.54%

 1985-1  -0.28%  -0.43%   0.21%  -0.01%  -0.39%  -0.90%

 1989-1  -1.40%   1.08%  -0.03%   0.01%   0.25%  -0.09%

 1993-1   1.20%   0.57%   0.52%  -0.59%   0.07%   1.76%

 Avg     -0.30%  -0.06%   0.18%  -0.02%  -0.13%  -0.34%

 1997-1  -0.73%  -0.67%   0.46%   0.21%  -1.56%  -2.29%

 2001-1   1.32%  -0.89%  -2.32%   0.60%  -3.28%  -4.58%

 2005-1   0.47%  -1.38%   0.38%  -0.42%  -0.02%  -0.98%

 2009-1  -2.75%   1.30%   0.68%   1.01%   1.59%   1.83%

 2013-1   0.27%   0.39%  -0.41%  -1.72%  -0.09%  -1.56%

 Avg     -0.29%  -0.25%  -0.24%  -0.07%  -0.67%  -1.52%

OTC summary for Presidential Year 1 1965 - 2013

 Avg     -0.27%  -0.25%  -0.10%  -0.02%  -0.27%  -0.91%

 Win%       46%     31%     62%     54%     38%     31%

OTC summary for all years 1963 - 2016

 Avg      0.24%  -0.04%   0.22%  -0.15%  -0.12%   0.15%

 Win%       69%     47%     62%     53%     54%     56%

 SPX Presidential Year 1

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1953-1  -0.24%  -0.41%  -0.61%  -0.08%   0.25%  -1.10%

 1957-1  -1.26%  -0.06%  -1.23%   0.04%   0.17%  -2.33%

 1961-1  -0.50%  -0.25%   0.27%   0.56%   0.26%   0.34%

 1965-1   0.12%   0.20%  -0.06%  -0.23%  -0.12%  -0.09%

 1969-1  -0.62%  -0.78%   0.08%   0.69%   0.71%   0.07%

 1973-1  -1.01%  -0.96%   0.29%  -0.70%   0.02%  -2.36%

 Avg     -0.65%  -0.37%  -0.13%   0.07%   0.21%  -0.87%

 1977-1   0.31%  -0.46%   0.01%  -0.06%  -0.17%  -0.38%

 1981-1  -0.96%  -0.85%   0.29%   0.15%  -1.12%  -2.48%

 1985-1  -0.37%  -0.18%   0.06%  -0.08%  -0.62%  -1.18%

 1989-1  -0.49%   0.48%   0.28%  -0.35%   0.46%   0.38%

 1993-1   0.50%   0.17%   0.64%   0.09%  -0.06%   1.33%

 Avg     -0.20%  -0.17%   0.26%  -0.05%  -0.30%  -0.47%

 1997-1   0.37%  -1.12%  -0.49%   0.30%  -2.59%  -3.53%

 2001-1   0.09%  -0.38%  -0.73%   0.31%  -1.67%  -2.38%

 2005-1   0.28%  -1.18%   0.07%  -0.10%   0.06%  -0.86%

 2009-1  -2.43%   1.01%   0.69%   1.09%   1.86%   2.23%

 2013-1  -0.12%   0.28%  -0.52%  -1.43%  -0.33%  -2.11%

 Avg     -0.36%  -0.28%  -0.20%   0.03%  -0.53%  -1.33%

SPX summary for Presidential Year 1 1953 - 2013

 Avg     -0.39%  -0.28%  -0.06%   0.01%  -0.18%  -0.90%

 Win%       38%     31%     63%     50%     50%     31%

SPX summary for all years 1953 - 2016

 Avg      0.18%  -0.01%  -0.01%  -0.09%   0.00%   0.07%

 Win%       66%     48%     57%     50%     58%     52%

Money supply (M2) and Interest Rates

The following charts were supplied by Gordon Harms.

M2 growth leveled off last month.           

The yield curve continued its slow motion compression.

Conclusion

The market is following the average seasonal pattern for the 1st year of the Presidential Cycle pretty closely.  That pattern calls for a bottom in late September.  A premature bottom, if it occurs, should be indicated by decreasing new lows on a down day and a firming of the secondaries.

There is no sign of that now.

I expect the major averages to be lower on Friday August 18 than they were on Friday August 11.

By Mike Burk

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