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Technical market report for January 6, 2018

The good news is:

  • All of the major averages closed at all time highs last Friday.

The Negatives

The market is overbought.

52 week new highs have not been confirming the all time new index highs.

The secondaries have been underperforming the blue chips.

Seasonality for the next 2 weeks is negative.

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 highs (NY NH) in green.  Dashed vertical lines have been drawn on the 1st trading day of each month.

NY NH moved sharply upward, but failed to confirm the index high.

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

OTC NH also failed to confirm the new index high by a significant margin.

The next chart is from Fasttrack (https://investorsfasttrack.com/).

It shows the SPX in green, the Russell 2000 (R2K) in red and a relative strength indicator called Accutrack as a histogram in yellow.

Accutrack shows the R2K underperforming the SPX since early December and that relative weakness increased last week.

The Positives

New highs increased rapidly last week.

New lows have been insignificant.

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 rose last week finishing the week at a very strong 91%.

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 continued rising, finishing the week at a very strong 91%.

Seasonality

Next week includes the 5 trading days prior to the 2nd Friday of January 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 2016 while SPX data runs from 1953 to 2016.  There are summaries for both the 2nd 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 mixed and much weaker during the 2nd year of the Presidential Cycle than other years.

Report for the week before the 2nd Friday of January.

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

Daily returns from Monday to 2nd Friday.

OTC Presidential Year  2

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1966-2  -0.02%   0.17%   0.27%   0.05%  -0.12%   0.36%

 1970-2   1.01%   0.04%  -0.54%   0.24%   0.34%   1.08%

 1974-2   0.39%  -0.44%  -1.97%  -0.85%   0.89%  -1.98%

 1978-2  -1.44%  -0.62%  -0.49%   0.45%   0.23%  -1.86%

 1982-2  -1.69%  -0.78%  -0.85%   0.09%   0.77%  -2.47%

 1986-2   0.08%   1.15%  -0.25%  -1.76%   0.32%  -0.46%

 1990-2   0.11%  -0.42%  -1.33%  -0.41%  -2.04%  -4.09%

 1994-2   0.48%  -0.15%   0.17%   0.12%   0.57%   1.19%

 Avg     -0.49%  -0.16%  -0.55%  -0.30%  -0.03%  -1.54%

 1998-2   0.80%  -0.88%  -1.16%  -0.40%  -3.36%  -5.01%

 2002-2  -1.08%   0.92%  -0.53%   0.11%  -1.21%  -1.79%

 2006-2   0.57%   0.07%   0.48%  -0.63%   0.02%   0.50%

 2010-2  -0.21%  -1.30%   1.12%   0.38%  -1.24%  -1.24%

 2014-2  -0.44%   0.96%   0.30%  -0.23%   0.44%   1.04%

 Avg     -0.07%  -0.05%   0.04%  -0.15%  -1.07%  -1.30%

OTC summary for Presidential Year 2 1966 - 2014

 Avg     -0.11%  -0.10%  -0.37%  -0.22%  -0.34%  -1.13%

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

OTC summary for all years 1963 - 2017

 Avg      0.31%  -0.07%  -0.06%   0.51%   0.13%   0.82%

 Win%       64%     55%     53%     73%     67%     64%

SPX Presidential Year 2

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1954-2  -0.52%   0.52%   0.56%   0.48%   0.95%   2.00%

 1958-2  -0.46%   0.79%  -0.02%  -0.59%  -0.93%  -1.22%

 1962-2  -0.78%   0.04%  -0.27%   0.59%   0.35%  -0.07%

 1966-2   0.20%   0.09%  -0.24%   0.18%   0.15%   0.39%

 1970-2   0.49%  -0.68%  -0.20%   0.05%  -0.30%  -0.64%

 1974-2  -0.84%  -1.99%  -2.81%  -1.10%   1.37%  -5.36%

 Avg     -0.28%  -0.35%  -0.71%  -0.17%   0.13%  -1.38%

 1978-2  -1.07%  -0.52%  -0.48%   0.09%  -0.14%  -2.12%

 1982-2  -2.32%  -0.41%  -1.22%   0.57%  -0.18%  -3.56%

 1986-2  -0.11%   1.50%  -2.73%  -0.89%  -0.07%  -2.31%

 1990-2   0.45%  -1.18%  -0.66%   0.35%  -2.47%  -3.50%

 1994-2   1.14%  -0.24%   0.01%  -0.36%   0.52%   1.07%

 Avg     -0.38%  -0.17%  -1.02%  -0.05%  -0.47%  -2.08%

 1998-2   0.21%  -1.07%  -0.27%  -0.83%  -2.97%  -4.92%

 2002-2  -0.65%  -0.36%  -0.48%   0.12%  -0.95%  -2.31%

 2006-2   0.37%  -0.04%   0.35%  -0.63%   0.12%   0.17%

 2010-2   0.17%  -0.94%   0.83%   0.24%  -1.08%  -0.77%

 2014-2  -0.25%   0.61%  -0.02%   0.03%   0.23%   0.60%

 Avg     -0.03%  -0.36%   0.08%  -0.21%  -0.93%  -1.45%

SPX summary for Presidential Year 2 1954 - 2014

 Avg     -0.25%  -0.24%  -0.48%  -0.10%  -0.34%  -1.41%

 Win%       44%     38%     25%     63%     44%     31%

SPX summary for all years 1953 - 2017

 Avg      0.07%  -0.16%  -0.24%   0.29%   0.00%  -0.03%

 Win%       55%     41%     45%     72%     52%     51%

Conclusion

The market is overbought, the secondaries have been weaker than the blue chips and Seasonality for the next 2 weeks is negative.

I expect the major averages to be lower on Friday January 12 than they were on Friday January 5.

By Mike Burk

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