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Technical market report for February 5, 2018

Trading Screen

The good news is:

• The implication of the confirmed highs we saw a little over a week ago is; at least, the blue chip indices will return to those highs.

The Negatives

Hindenburg Omens were triggered on Monday, Wednesday and Thursday last week when NYSE new highs and new lows both exceeded 2.8% of issues traded and the NYSE composite was above its 20 week moving average.

New lows on both the NYSE and NASDAQ have reached uncomfortable levels.

The secondaries have been leading the way downward.

The first chart covers the past 6 months showing the NASDAQ composite (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 vertical lines have been drawn on the 1st trading day of each month. Dashed horizontal lines have been drawn at 10% levels for the indicator; the line is solid at the 50%, neutral, level.

OTC HL Ratio fell sharply from 91% on Friday January 26 to 47% last Friday.

(Click to enlarge)

The next chart is similar to the one above one except it shows the S&P 500 (SPX) in red and NY HL Ratio, in blue, has been calculated with NYSE data.

NY HL Ratio fell from 82% to 31%.

(Click to enlarge)

The Positives

The market is oversold.

In spite of their sharp declines during the past week, I am calling the new highs charts positive because their levels are still pretty high.

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.

Related: Four Key Trends for the Gold Market in 2018

NY NH fell sharply, but is still strong at 193.

(Click to enlarge)

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 also fell sharply, but finished the week above 200.

 

(Click to enlarge)

Seasonality

Next week includes the 5 trading days prior to the 2nd Friday 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 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 mostly positive and a little stronger during the 2nd year of the Presidential Cycle than other years.

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

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 0.37% 0.18% -0.28% 0.84% -0.10% 1.01%
1970-2 1.46% 0.53% -0.19% 0.61% 0.60% 3.01%
1974-2 -1.34% -0.46% 0.30% 0.08% -0.66% -2.08%

1978-2 0.05% 0.47% 0.42% 0.02% 0.37% 1.32%
1982-2 -1.90% -1.15% 0.25% -0.39% 0.15% -3.04%
1986-2 0.64% 0.15% 0.39% 0.55% 0.58% 2.32%
1990-2 0.60% -0.17% 0.66% 0.12% 0.36% 1.56%
1994-2 0.25% 0.45% 0.49% -0.40% -0.26% 0.53%

Avg -0.07% -0.05% 0.44% -0.02% 0.24% 0.54%

1998-2 -0.24% 1.10% -0.02% 0.33% -0.23% 0.95%
2002-2 -2.91% -0.92% -1.40% -1.69% 2.06% -4.86%
2006-2 -0.17% -0.61% 0.98% -0.49% 0.27% -0.02%
2010-2 -0.70% 1.17% -0.14% 1.38% 0.28% 1.98%
2014-2 0.54% 1.03% 0.24% 0.94% 0.08% 2.84%

Avg -0.70% 0.35% -0.07% 0.09% 0.49% 0.18%

OTC summary for Presidential Year 2 1966 - 2014

Avg -0.26% 0.14% 0.13% 0.15% 0.27% 0.42%
Win% 54% 62% 62% 69% 69% 69%

OTC summary for all years 1963 - 2014
Avg -0.13% -0.02% 0.09% 0.28% 0.01% 0.23%
Win% 37% 56% 58% 69% 59% 58%

SPX Presidential Year 2

Year Mon Tue Wed Thur Fri Totals

1954-2 -0.27% -0.23% -0.11% -0.31% 0.23% -0.69%
1958-2 -0.60% -0.89% -0.44% 0.02% 0.95% -0.95%
1962-2 0.10% 0.11% 0.66% 0.23% -0.14% 0.96%
1966-2 0.35% -0.04% 0.55% -0.24% -0.02% 0.59%
1970-2 0.79% -1.05% 0.98% -0.24% -0.22% 0.26%
1974-2 -2.13% -0.31% 0.28% 0.04% -1.04% -3.16%

Avg -0.30% -0.44% 0.40% -0.04% -0.09% -0.46%

1978-2 -0.13% 0.93% 0.55% -0.58% -0.24% 0.52%
1982-2 -2.24% -0.83% 0.86% -0.20% -0.04% -2.45%
1986-2 0.78% -0.15% 0.02% 0.66% 1.09% 2.41%
1990-2 0.28% -0.66% 1.24% -0.24% 0.20% 0.82%
1994-2 0.42% -0.15% 0.36% -0.81% 0.27% 0.08%

Avg -0.18% -0.17% 0.61% -0.23% 0.25% 0.28%

1998-2 -0.18% 0.82% 0.10% 0.40% -0.39% 0.75%
2002-2 -2.47% -0.40% -0.60% -0.31% 1.49% -2.30%
2006-2 0.08% -0.81% 0.87% -0.15% 0.25% 0.24%
2010-2 -0.89% 1.30% -0.22% 0.97% -0.27% 0.89%
2014-2 0.16% 1.11% -0.03% 0.58% 0.48% 2.30%

Avg -0.66% 0.40% 0.02% 0.30% 0.31% 0.38%

SPX summary for Presidential Year 2 1954 2014

Avg -0.37% -0.08% 0.32% -0.01% 0.16% 0.02%
Win% 50% 31% 69% 44% 50% 69%

SPX summary for all years 1953 - 2018

Avg -0.26% -0.08% 0.12% 0.02% 0.06% -0.13%
Win% 37% 51% 58% 45% 53% 57%

Conclusion

This decline could last another day or two, but should be nearly done.

The highs of a week earlier were confirmed by everything that matters so it is likely, at least, the blue chips will return to or exceed those previous highs.

I expect the major averages to be higher on Friday February 9 than they were on Friday February 2.

Last weeks positive forecast was a miss.

By Mike Burk for Safehaven.com

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