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Technical market report for November 18, 2017

The good news is:

  • Beginning last Thursday new lows all but disappeared and the secondaries outperformed the blue chips.

The Negatives

The negatives disappeared at the end of last week.

The Positives

The breadth indicators turned upward beginning last Thursday and continued to move upward on Friday in spite of a down day for the blue chip indices.

The first chart covers the past 6 months showing the S&P 500 (SPX) in red and a 10% trend (19 day EMA) of NYSE new lows (NY NL) in blue.  NY NL has been plotted on an inverted Y axis so increasing new lows move the indicator downward (up is good).  Dashed vertical lines have been drawn on the 1st trading day of each month.

NY NL turned upward at the end of last week and was up on Friday in spite of the index moving downward.

The next chart is similar to the one above except is shows the NASDAQ composite (OTC) in blue and OTC NL, in dark red, has been calculated with NASDAQ data.

OTC NL also turned sharply upward. 

The next chart covers the past 6 months showing the SPX in red and a 10% trend (19 day EMA) of NYSE new highs (NY NH) in green.

This one is ambiguous because it did not turn upward.  However, the value at 132 is relatively high and there were 113 new highs on Friday (a down day for the index) up from 84 on Wednesday.  New highs increasing when the index is down, good.

The next chart is similar to the one above except it shows the OTC in blue and OTC NH, in green, has been calculated using NASDAQ data.

OTC NH turned modestly upward.  The OTC is likely to hit a new all time high next week that will not be confirmed by OTC NH.  However as long as OTC NH is moving upward the market should be ok.

Summation Indices (SI) are running totals of oscillator values.  The charts below show SI’s calculated from advance – decline (AD), new high – new low (HL) and upside – downside volume (UD) oscillators.

The signals from SI’s are often ambiguous; however, when they are all heading in the same direction, they deserve attention.

The chart below covers the past 6 months showing the SPX in red and SI’s calculated with NYSE data.

All of the SI’s appear to be turning upward.  This is ambiguous, however, considering the strength in the underlying numbers, it appears a turnaround is likely.

The next chart is similar to the one above except is shows the OTC in blue and the SI’s have been calculated with NASDAQ data. 

2 of the 3 SI’s have turned upward.

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 dipped into negative territory last Wednesday before turning sharply upward.

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.

The pattern of NY HL Ratio is similar to OTC HL Ratio. 

Seasonality

Next week includes the 4 trading days in the week of Thanksgiving 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 for the coming week have been modestly positive by all measures and a little weaker during the 1st year of the Presidential Cycle than other years.

Report for the 3 days before Thanksgiving and 1 day after.

Day1 = the day after

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 1

               Day4       Day3       Day2       Day1       Totals

 1965-1      -0.09% 1    0.04% 2   -0.02% 3    0.47% 5     0.40%

 1969-1      -0.55% 1   -1.24% 2    0.05% 3   -0.11% 5    -1.86%

 1973-1      -2.35% 1    0.00% 2   -2.44% 3    0.77% 5    -4.03%

 1977-1       0.13% 1    0.57% 2    0.79% 3    0.57% 5     2.05%

 1981-1      -0.30% 1    0.52% 2    0.49% 3    0.50% 5     1.22%

 1985-1      -0.33% 1    0.24% 2    0.81% 3    0.30% 5     1.01%

 1989-1      -0.22% 1   -0.34% 2    0.22% 3    0.33% 5    -0.02%

 1993-1      -1.79% 1    1.18% 2    0.85% 3    0.22% 5     0.47%

 Avg         -0.50%      0.43%      0.63%      0.39%       0.95%

 1997-1      -2.09% 1    0.13% 2    0.35% 3    0.38% 5    -1.23%

 2001-1       1.89% 1   -2.79% 2   -0.29% 3    1.50% 5     0.31%

 2005-1       0.66% 1    0.53% 2    0.28% 3    0.13% 5     1.60%

 2009-1       1.40% 1   -0.31% 2    0.32% 3   -1.73% 5    -0.33%

 2013-1       0.07% 1    0.58% 2    0.67% 3    0.37% 5     1.70%

 Avg          0.39%     -0.37%      0.27%      0.13%       0.41%

OTC summary for Presidential Year 1 1965 - 2013

Averages     -0.27%     -0.07%      0.16%      0.29%       0.10%

%Winners        38%        62%        77%        85%         62%

MDD  11/21/1973  4.73% --  11/21/2001  3.07% --  11/24/1997  2.09%

OTC summary for all years 1963 - 2016

Averages     -0.02%     -0.17%      0.35%      0.46%       0.60%

% Winners      50%        55%        76%        81%         67%

SPX Presidential Year 1

               Day4       Day3       Day2       Day1       Totals

 1953-1      -0.33% 1    0.57% 2    0.08% 3    0.57% 5     0.90%

 1957-1       0.76% 1   -2.65% 2    2.89% 3    1.14% 5     2.14%

 1961-1       0.14% 1    0.08% 2   -0.11% 3    0.20% 5     0.31%

 1965-1      -0.65% 1    0.15% 2    0.17% 3    0.10% 5    -0.23%

 1969-1      -1.15% 1   -0.32% 2    0.36% 3    0.58% 5    -0.53%

 1973-1      -3.05% 1   -2.04% 2    1.11% 3   -0.32% 5    -4.29%

 Avg         -0.79%     -0.95%      0.89%      0.34%      -0.52%

 1977-1      -0.08% 1    0.88% 2    0.42% 3    0.21% 5     1.42%

 1981-1      -0.09% 1    1.57% 2    0.44% 3    0.84% 5     2.76%

 1985-1      -0.58% 1    0.16% 2    0.93% 3   -0.18% 5     0.33%

 1989-1      -0.66% 1    0.07% 2    0.68% 3    0.60% 5     0.69%

 1993-1      -0.75% 1    0.41% 2    0.29% 3    0.15% 5     0.10%

 Avg         -0.43%      0.62%      0.55%      0.32%       1.06%

 1997-1      -1.70% 1    0.44% 2    0.09% 3    0.40% 5    -0.78%

 2001-1       1.09% 1   -0.73% 2   -0.49% 3    1.17% 5     1.04%

 2005-1       0.53% 1    0.51% 2    0.35% 3    0.21% 5     1.59%

 2009-1       1.36% 1   -0.05% 2    0.45% 3   -1.72% 5     0.04%

 2013-1      -0.13% 1    0.01% 2    0.25% 3   -0.08% 5     0.06%

 Avg          0.23%      0.04%      0.13%     -0.01%       0.39%

SPX summary for Presidential year 1 1953 - 2013

Averages     -0.33%     -0.06%      0.49%      0.24%       0.35%

%Winners        31%        69%        88%        75%         75%

MDD  11/20/1973  5.03% --  11/26/1957  2.65% --  11/27/2009  1.72%

SPX summary for all years 1953 - 2016

Averages     -0.09%      0.09%      0.34%      0.36%       0.69%

% Winners      45%        60%        78%        74%         69%

Money supply (M2) and Interest Rates

The following charts were supplied by Gordon Harms.

M2 growth has been declining. 

Long term rates declined a little while short term rates rose accelerating the rate compression.  If the Fed continues to raise short term rates we could see an inversion which has been a reliable predictor of a recession.

Conclusion

The breadth indicators turned positive last week and the secondaries outperformed the blue chips.  Seasonality is positive for the next 2 – 3 weeks.

I expect the major averages to be higher on Friday November 24 than they were on Friday November 17.

Last week the blue chip indices were down while the OTC and Russell 2000 were up, so I am calling last weeks negative forecast a tie.

Good Luck,
By Mike Burk

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