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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…

Strong U.S. Dollar Weighs On Blue Chip Earnings

Strong U.S. Dollar Weighs On Blue Chip Earnings

Earnings season is well underway,…

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Technical market report for January 22, 2018

Technical market report for January 22, 2018

The good news is:

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

The Negatives

The market is overbought.

NYSE 52 week new lows have picked up a bit.  The increase appears to be from interest rate sensitive issues.

The blue chip averages are above any reasonable trend line which is another way of saying the market has gone parabolic.

A Hindenburg Omen was triggered on both Thursday and Friday when NYSE 52 week new highs and new lows both exceeded 83.

The Positives

The new index highs were confirmed by everything that matters.

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 fell off later in the week, but is at a very high level.

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 shows a pattern similar to NY NH.

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 a little, but finished the week at a very strong 86%.

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 dipped finishing the week at a comfortable 75%.

Seasonality

Next week includes the 5 trading days prior to the 4th 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 weaker during the 2nd year of the Presidential Cycle than other years.

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

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

Daily returns from Monday through the 4th Friday.

OTC Presidential Year 2

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1966-2   0.12%  -0.07%   0.27%  -0.08%   0.02%   0.25%

 1970-2  -0.93%  -0.91%   0.00%   0.31%   0.18%  -1.36%

 1974-2  -0.88%   0.86%   0.49%  -0.16%  -0.22%   0.09%

 1978-2  -0.29%   0.20%   0.33%  -0.34%   0.09%  -0.01%

 1982-2  -1.24%  -0.06%   0.09%   1.44%   1.17%   1.39%

 1986-2  -0.37%  -0.30%  -0.54%  -0.02%   0.66%  -0.56%

 1990-2  -2.03%  -0.38%  -1.08%  -0.10%  -0.92%  -4.50%

 1994-2  -0.46%  -0.54%   0.31%   0.52%   0.46%   0.29%

 Avg     -0.88%  -0.21%  -0.18%   0.30%   0.29%  -0.68%

 1998-2   0.00%   1.74%  -0.14%  -0.72%  -0.04%   0.85%

 2002-2   0.00%  -2.48%   2.12%   1.05%  -0.25%   0.44%

 2006-2   0.03%   0.75%  -0.20%   0.99%   0.93%   2.50%

 2010-2   0.25%  -0.32%   0.80%  -1.91%  -1.45%  -2.63%

 2014-2   0.00%   0.67%   0.41%  -0.57%  -2.15%  -1.64%

 Avg      0.14%   0.07%   0.60%  -0.23%  -0.59%  -0.10%

OTC summary for Presidential Year 2 1966 - 2014

 Avg     -0.58%  -0.06%   0.24%   0.03%  -0.12%  -0.38%

 Win%       30%     38%     67%     38%     54%     54%

OTC summary for all years 1963 - 2017

 Avg     -0.19%  -0.04%   0.25%   0.10%   0.02%   0.17%

 Win%       51%     52%     58%     47%     69%     59%

SPX Presidential Year 2

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1954-2   0.31%   0.62%  -0.31%   0.04%   0.23%   0.89%

 1958-2   0.61%  -0.12%  -0.24%   0.39%   0.85%   1.48%

 1962-2   0.09%  -0.76%   0.16%  -0.07%  -0.32%  -0.90%

 1966-2   0.26%   0.15%  -0.16%  -0.03%  -0.38%  -0.17%

 1970-2  -1.40%   0.20%   0.09%   0.04%  -0.98%  -2.04%

 1974-2  -0.17%   1.21%   0.54%  -0.26%  -0.20%   1.12%

 Avg     -0.12%   0.14%   0.08%   0.01%  -0.21%  -0.10%

 1978-2  -0.72%   0.01%   0.16%  -0.91%   0.00%  -1.46%

 1982-2   0.03%  -0.19%   0.48%   2.75%   1.24%   4.30%

 1986-2  -0.43%  -0.84%  -1.12%   0.37%   1.07%  -0.95%

 1990-2  -2.59%   0.37%  -0.41%  -1.27%  -0.09%  -3.97%

 1994-2  -0.58%  -0.22%   0.48%   0.81%   0.35%   0.84%

 Avg     -0.86%  -0.17%  -0.08%   0.35%   0.64%  -0.25%

 1998-2   0.00%   1.78%  -0.80%  -0.80%  -0.57%  -0.38%

 2002-2   0.00%  -0.73%   0.79%   0.35%   0.10%   0.51%

 2006-2   0.18%   0.24%  -0.17%   0.72%   0.78%   1.75%

 2010-2   0.46%  -0.42%   0.49%  -1.18%  -0.98%  -1.64%

 2014-2   0.00%   0.28%   0.06%  -0.89%  -2.09%  -2.64%

 Avg      0.32%   0.23%   0.07%  -0.36%  -0.55%  -0.48%

SPX summary for Presidential Year 2 1954 - 2014

 Avg     -0.30%   0.10%   0.00%   0.00%  -0.07%  -0.20%

 Win%       54%     56%     56%     50%     47%     44%

SPX summary for all years 1953 - 2017

 Avg     -0.13%   0.04%   0.20%   0.13%   0.00%   0.27%

 Win%       50%     62%     58%     58%     53%     66%

Conclusion

The market is overbought, but that does not seem to matter.

The breadth indicators have been strong and the secondaries are participating, although not leading.

Seasonality for the coming week is a little weak, but the market has not been doing a very good job of following the seasonal pattern.

I expect the major averages to be higher on Friday January 26 than they were on Friday January 19.

By Mike Burk

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