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Technical market report for January 29, 2018

Technical market report for January 29, 2018


The good news is:

  • All of the major averages, except the Russell 2000 (R2K) closed at all time highs last Friday.

 

The Negatives

The market is overbought.

NYSE 52 week new lows continue to increase.  The increase appears to be from interest rate sensitive issues i.e. bonds trading as stocks.

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

 

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 confirmed the SPX high on Friday.

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 has also been confirming the index.

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 finished 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 rose to finish the week at a strong 82%.

 

Seasonality

Next week includes the last 3 trading days of January and the first 2 trading days of February 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 1928 to 2016.  There are summaries for both the 2nd year of the Presidential Cycle and all years combined.

Average returns for the coming week have been mostly positive, but weaker for the OTC during the 2nd year of the Presidential Cycle than other years.

Report for the last 3 days of January and the first 2 days of February.

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 2

               Day3      Day2      Day1      Day1      Day2      Totals

 1966-2      -0.08% 4   0.02% 5   0.27% 1  -0.64% 2  -0.81% 3    -1.24%

 1970-2      -0.73% 3  -1.14% 4  -1.94% 5  -1.85% 1  -0.29% 2    -5.95%

 1974-2      -0.48% 2   0.65% 3  -0.25% 4  -0.82% 5  -1.34% 1    -2.25%

 

 1978-2       0.09% 5   0.35% 1  -0.13% 2   0.69% 3   0.39% 4     1.40%

 1982-2       0.09% 3   1.44% 4   1.17% 5  -0.83% 1   0.34% 2     2.21%

 1986-2       0.63% 3  -0.12% 4   0.43% 5   0.50% 1   0.12% 2     1.57%

 1990-2      -0.76% 1  -1.77% 2   1.24% 3   0.47% 4   1.07% 5     0.24%

 1994-2       0.52% 4   0.46% 5   0.49% 1  -0.40% 2   0.29% 3     1.36%

 

 Avg          0.11%     0.07%     0.64%     0.09%     0.44%       1.35%

 

 1998-2       2.05% 3   0.53% 4   0.00% 5   2.07% 1   0.81% 2     5.47%

 2002-2      -2.62% 2   1.08% 3   1.08% 4  -1.18% 5  -2.91% 1    -4.56%

 2006-2       0.93% 5   0.11% 1  -0.04% 2   0.21% 3  -1.25% 4    -0.05%

 2010-2       0.80% 3  -1.91% 4  -1.45% 5   1.11% 1   0.87% 2    -0.58%

 2014-2      -1.14% 3   1.77% 4  -0.47% 5  -2.61% 1   0.86% 2    -1.57%

 

 Avg          0.01%     0.32%    -0.18%    -0.08%    -0.33%      -0.26%

 

OTC summary for Presidential Year 2 1966 - 2014

Averages     -0.06%     0.11%     0.03%    -0.25%    -0.14%      -0.30%

% Winners       54%       69%       46%       46%       62%         46%

MDD  2/3/1970  5.82% --  2/4/2002  4.55% --  1/29/2010  3.33%

 

OTC summary for all years 1963 - 2017

Averages      0.08%    -0.03%     0.25%     0.25%    -0.06%       0.48%

% Winners       59%       55%       64%       69%       67%         62%

MDD 2/2/2001  6.27% --  2/3/1970  5.82% --  1/30/2009  5.26%

 

 

SPX Presidential Year 2

               Day3      Day2      Day1      Day1      Day2      Totals

 1930-2       1.13% 3   0.54% 4   1.42% 5   0.61% 6  -0.83% 1     2.88%

 1934-2       1.63% 1   1.25% 2  -1.41% 3   2.60% 4  -0.09% 5     3.98%

 

 1938-2      -0.85% 5  -0.38% 6   1.71% 1   1.87% 2  -1.38% 3     0.98%

 1942-2      -0.22% 4  -0.67% 5  -0.45% 6   0.34% 1   0.68% 2    -0.33%

 1946-2       0.27% 2  -0.59% 3   0.05% 4   0.38% 5   0.38% 6     0.49%

 1950-2       0.48% 6   0.71% 1   0.18% 2   0.00% 3   1.06% 4     2.42%

 1954-2      -0.31% 3   0.04% 4   0.23% 5  -0.35% 1  -0.27% 2    -0.65%

 

 Avg         -0.13%    -0.18%     0.34%     0.45%     0.09%       0.58%

 

 1958-2       0.60% 3  -0.48% 4   0.05% 5   0.82% 1   1.00% 2     1.99%

 1962-2      -0.34% 1   0.40% 2   0.98% 3   0.61% 4   0.79% 5     2.45%

 1966-2      -0.03% 4  -0.38% 5  -0.46% 1  -0.78% 2   0.40% 3    -1.25%

 1970-2      -0.95% 3  -1.27% 4  -0.78% 5   0.86% 1   1.19% 2    -0.95%

 1974-2      -0.08% 2   1.09% 3  -0.50% 4  -1.29% 5  -2.13% 1    -2.92%

 

 Avg         -0.16%    -0.13%    -0.14%     0.04%     0.25%      -0.14%

 

 1978-2       0.00% 5   0.86% 1  -0.10% 2   0.76% 3   0.22% 4     1.74%

 1982-2       0.48% 3   2.75% 4   1.24% 5  -2.18% 1   0.20% 2     2.49%

 1986-2       0.23% 3  -0.46% 4   1.17% 5   1.03% 1  -0.55% 2     1.43%

 1990-2      -0.18% 1  -0.68% 2   1.89% 3  -0.09% 4   0.65% 5     1.58%

 1994-2       0.81% 4   0.35% 5   0.61% 1  -0.41% 2   0.50% 3     1.85%

 

 Avg          0.27%     0.56%     0.96%    -0.18%     0.20%       1.82%

 

 1998-2       0.87% 3   0.82% 4  -0.53% 5   2.14% 1   0.47% 2     3.78%

 2002-2      -2.86% 2   1.17% 3   1.49% 4  -0.71% 5  -2.47% 1    -3.37%

 2006-2       0.78% 5   0.12% 1  -0.40% 2   0.19% 3  -0.91% 4    -0.23%

 2010-2       0.49% 3  -1.18% 4  -0.98% 5   1.43% 1   1.30% 2     1.05%

 2014-2      -1.02% 3   1.13% 4  -0.65% 5  -2.28% 1   0.76% 2    -2.06%

 

 Avg         -0.35%     0.41%    -0.21%     0.15%    -0.17%      -0.17%

 

SPX summary for Presidential Year 2 1930 - 2014

Averages      0.04%     0.23%     0.22%     0.25%     0.04%       0.79%

% Winners       50%       59%       55%       59%       64%         64%

MDD  2/4/1974  3.88% --  2/4/2002  3.41% --  1/30/1970  2.97%

 

SPX summary for all years 1928 - 2017

Averages      0.03%     0.09%     0.25%     0.19%     0.06%       0.61%

% Winners       48%       60%       61%       64%       60%         66%

MDD 2/2/1933  6.96% --  2/2/2009  5.57% --  2/3/1941  4.51%

 

February

Since 1963, over all years, the OTC in February has been up 56% of the time with an average gain of 0.7%.  During the 2nd year of the Presidential Cycle February has been up 62% time with an average gain of 1.1%.  The best February ever for the OTC was 2000 (+19.2%), the worst 2001 (-22.4%).

The average month has 21 trading days.  The chart below has been calculated by averaging the daily percentage change for each of the 1st 11 trading days and each of the last 10.  In months when there were more than 21 trading days some of the days in the middle were not counted.  In months when there were less than 21 trading days some of the days in the middle of the month were counted twice.  Dashed vertical lines have been drawn after the 1st trading day and at 5 trading day intervals after that.  The line is solid on the 11th trading day, the dividing point.

In the chart below the blue line shows the average daily performance of the OTC in February over all years since 1963 in blue, while the grey line shows the average during the 2nd year of the Presidential Cycle over the same period.

Since 1928 the SPX has been up 50% of the time in February and has, on average, been flat.  During the 2nd year of the Presidential Cycle the SPX has been up 55% of the time with an average gain of 0.4%.  The best February for the SPX was 1931 (+11.4%) the worst 1933 (-18.4%).

The chart below is similar to the one above except it shows the average daily average performance over all years since 1928 for the SPX in February in red and the average daily performance during the 2nd year of the Presidential Cycle, over the same period, in grey. 

Since 1979 the R2K has been up 59% of the time in February with an average gain of 1.2%.  During the 2nd year of the Presidential Cycle the R2K has been up 56% of the time with an average gain of 1.9%.  The best February for the R2K 2000 (+16.4%), the worst 2009 (-12.3%)

The chart below is similar to those above except it shows the average daily performance of the R2K, over all years since 1979, in February in magenta and the average daily performance during the 2nd year of the Presidential Cycle in grey.

Since 1885 the Dow Jones Industrial Average (DJIA) has been up 53% of the time in February with an average loss of -0.1%.  During the 2nd year of the Presidential Cycle the DJIA has been up 52% of the time in February and has, on average, been flat.  The best February for the DJIA 1931 (+13.2%), the worst 1933 (-15.6%)

The chart below is similar to those above except it shows the average daily performance over all years for the DJIA in February in grey and the average performance during the 2nd year of the Presidential Cycle in black.

Conclusion

Same as last week.

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.

I expect the major averages to be higher on Friday February 2 than they were on Friday January 26.

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