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Market Sentiment At Its Lowest In 10 Months

Market Sentiment At Its Lowest In 10 Months

Stocks sold off last week…

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Technical market report for August 19, 2017

The good news is:

The market has been following the average seasonal pattern for the 1st year of the Presidential Cycle pretty closely and that pattern turns modestly positive for the next 2 weeks.

The Negatives:

The secondaries have been leading the way down and new lows have reached uncomfortable levels.  There has been no sigh of a bottom.

The clearest sign of a bottom will be a sudden decline in the numbers of new lows.

The first two charts cover the past year, the first shows the NASDAQ composite (OTC) in blue and a 10% trend (19-day EMA) of NASDAQ new lows (OTC NL) in orange.  The new low indicators have been plotted on an inverted Y axis so decreasing new lows move the indicator upward.  Up is good.  Dashed vertical lines have been drawn on the 1st trading day of each month.

I included a year in this chart and the next one so you could see how this indicator behaves when a bottom has been reached.  The last one was in early October last year.  There has been no hint of a bottom yet.

The next chart is similar to the one above except it shows the S&P 500 (SPX) in red and NY NL, in blue, has been calculated from 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 remained 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 remained in negative territory.

Summation indices (SI) are a running total of oscillator values so they are subject to the time component of the oscillators they are derived from.

The next 2 charts cover the past 6 months showing SI’s derived from advancing – declining issues (AD), new highs – new lows (HL) and upside – downside volume (UD).

The chart below shows the OTC in blue and the SI’s have been calculated from NASDAQ data.  The simple observation is they have been headed sharply downward for the past month.

The next chart is similar to the one above except is shows the SPX in red and the SI’s have been calculated from NYSE data.

The Positives

The market is oversold so there could be a bounce and seasonality for the next 2 weeks is modestly positive.

Seasonality

Next week includes the 5 trading days prior to the 4th 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 positive for the OTC and modestly negative for the SPX.

Report for the week before the 4th Friday of August.

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

Daily returns from Monday through the 4th Friday.

OTC Presidential Year 1

 Year       Mon         Tue      Wed       Thur      Fri        Totals

 1965-1   0.38%   0.00%   0.02%   0.36%   0.20%   0.95%

 1969-1   0.94%   1.49%   0.25%   0.24%   0.50%   3.42%

 1973-1  -1.00%  -0.54%  -0.76%   1.17%  -0.13%  -1.25%

 1977-1   0.20%  -0.11%  -0.19%  -0.61%  -0.25%  -0.95%

 1981-1  -2.90%  -1.48%   0.02%  -0.50%   0.37%  -4.50%

 1985-1  -0.28%   0.25%   0.44%  -0.27%  -0.06%   0.08%

 1989-1  -0.79%   0.01%   0.77%   0.87%   0.19%   1.04%

 1993-1  -0.01%   0.59%  -0.20%  -0.31%   0.37%   0.43%

 Avg     -0.76%  -0.15%   0.17%  -0.16%   0.12%  -0.78%

 1997-1   0.48%   1.99%   1.75%  -1.34%  -0.50%   2.37%

 2001-1   0.77%  -2.66%   1.57%  -0.92%   4.01%   2.77%

 2005-1   0.27%  -0.19%  -0.39%   0.26%  -0.64%  -0.69%

 2009-1  -0.14%   0.31%   0.01%   0.16%   0.05%   0.39%

 2013-1  -0.38%   0.68%  -0.38%   1.08%   0.52%   1.53%

 Avg      0.20%   0.03%   0.51%  -0.15%   0.69%   1.27%

OTC summary for Presidential Year 1 1965 - 2013

 Avg     -0.19%   0.03%   0.22%   0.01%   0.36%   0.43%

 Win%       46%     58%     62%     54%     62%     69%

OTC summary for all years 1963 - 2016

 Avg     -0.16%   0.03%   0.39%  -0.10%   0.21%   0.35%

 Win%       41%     56%     65%     52%     65%     59%

SPX Presidential Year 1

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1953-1  -1.07%  -0.66%  -0.29%  -0.29%  -0.21%  -2.53%

 1957-1  -2.01%   0.85%   0.44%  -0.73%  -1.44%  -2.88%

 1961-1   0.21%   0.01%  -0.67%  -0.57%   0.12%  -0.91%

 1965-1  -0.15%   0.17%   0.12%   0.38%   0.07%   0.59%

 1969-1   0.61%   0.53%   0.00%   0.29%   0.60%   2.03%

 1973-1  -0.68%  -0.71%  -0.36%   1.37%  -0.28%  -0.66%

 Avg     -0.41%   0.17%  -0.12%   0.15%  -0.19%  -0.37%

 1977-1   0.29%  -0.17%  -0.40%  -1.11%  -0.09%  -1.49%

 1981-1  -2.89%  -0.29%  -0.14%  -1.16%   0.46%  -4.02%

 1985-1   0.15%   0.91%   0.57%  -0.95%  -0.10%   0.58%

 1989-1  -1.55%   0.15%   1.03%   1.98%  -0.28%   1.33%

 1993-1  -0.20%   1.00%   0.08%   0.20%  -0.11%   0.96%

 Avg     -0.84%   0.32%   0.23%  -0.21%  -0.03%  -0.53%

 1997-1   1.30%   1.48%   1.44%  -1.52%  -0.16%   2.53%

 2001-1   0.81%  -1.21%   0.70%  -0.28%   1.97%   1.99%

 2005-1   0.17%  -0.34%  -0.66%   0.23%  -0.60%  -1.20%

 2009-1  -0.05%   0.24%   0.01%   0.28%  -0.20%   0.27%

 2013-1  -0.59%   0.38%  -0.58%   0.86%   0.39%   0.47%

 Avg      0.33%   0.11%   0.18%  -0.09%   0.28%   0.81%

SPX summary for Presidential Year 1 1953 - 2013

 Avg     -0.35%   0.15%   0.09%  -0.06%   0.01%  -0.18%

 Win%       44%     63%     53%     50%     38%     56%

SPS summary for all years 1953 - 2016

 Avg     -0.19%   0.04%   0.25%  -0.14%   0.03%  -0.02%

 Win%       41%     56%     60%     47%     50%     59%

Conclusion

The market is following the average seasonal pattern for the 1st year of the Presidential Cycle pretty closely.  That pattern calls for a little firming for the next 2 weeks prior to a decline into the end of September.  The breadth indicators are showing no sighs of a bottom.

I expect the major averages to be higher on Friday August 25 than they were on Friday August 18.

By Mike Burk

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