Technical market report for November 16, 2019.

The good news is: The Dow Jones Industrial Average (DJIA), S&P 500 (SPX) and NASDAQ composite (OTC) all closed at all time highs last Friday. (For the 3rd Friday in a row)


The Negatives

The market is overbought.
None of the breadth indicators confirmed the new index highs.
Last week the Russell 2000 (R2K) continued as the worst performing of the major indices; down 0.15%.

The first 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.  Dashed vertical lines have been drawn on the 1st trading day of each month.

NY NH tumbled last week as the SPX moved to a new high.

​​​​​​The Positives

All time record highs are a positive, however, last Friday’s highs were NOT confirmed by any of the breadth indicators.

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 tumbled, finishing the week at a barely positive 54%.

Seasonality
Next week includes the 5 trading days prior to the 4th Friday of November during the 3rd year of the Presidential Cycle.  The tables below show the daily change, on a percentage basis, for that period.  The 4th Friday of November usually follows Thanksgiving as you can see by the heavy population of 0’s in the Thursday column.

OTC data covers the period from 1963 to 2018 while SPX data runs from 1953 to 2018.  There are summaries for both the 3rd 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 modest, mixed and weaker during the 3rd year of the Presidential Cycle than other years.

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

OTC NH weakened a little and, by a small margin, failed to confirm the new OTC high.

The next chart is a close up showing just the past year from the chart above.

Conclusion
The market is overbought.  The new blue chip highs were not confirmed by the secondaries and any of the breadth indicators.  Seasonality for the next week is not a factor.

I expect the major averages to be lower on Friday November 22 than they were on Friday November 15.

Last week the R2K was down while the other major indices were up.  So I am calling last weeks negative forecast a tie.

Good Luck,
Mike Burk
YTD W 22 / L 13 / T 10

Interest rates at their close last Friday and their changes from last month:
2yr yield 1.614% up from 1.578%
5yr yield 1.655% up from 1.563%
10yr yield 1.832% up from 1.753%
30yr yield 2.305% up from 2.251%

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

NY HL Ratio also tumbled finishing the week at 63%.

Money supply (M2) and Interest Rates
The following charts were supplied by Gordon Harms.
M2 growth continued moving sharply upward.

Report for the week before the 4th Friday of November.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday through the 4th Friday.

Break down by Presidential Year

OTC Presidential Year 3 (PY3)
 Year       Mon     Tue     Wed    Thur    Fri    Totals
 1963-3  -0.23%  -0.11%  -0.20%  -0.40%  -1.20%  -2.14%
 1967-3  -1.99%   1.11%   1.62%   0.00%   1.02%   1.76%
 1971-3  -1.13%  -1.45%   0.09%   0.00%   1.24%  -1.26%
 1975-3   0.23%   0.33%   0.49%   0.00%   0.31%   1.36%

 1979-3   0.65%  -0.34%  -0.44%   0.00%   0.70%   0.57%
 1983-3   0.63%   0.53%   0.05%   0.00%   0.28%   1.49%
 1987-3   0.20%   1.13%   0.35%   0.00%  -0.41%   1.27%
 1991-3   0.65%  -2.11%   0.51%   0.80%  -0.73%  -0.88%
 1995-3  -1.48%  -0.44%  -0.37%   0.00%   0.88%  -1.41%

 Avg      0.13%  -0.24%   0.02%   0.80%   0.14%   0.21%

 1999-3   0.69%  -1.46%   2.32%   0.00%   0.80%   2.35%
 2003-3   2.81%  -0.21%   0.53%   0.00%   0.36%   3.49%
 2007-3  -1.66%   0.13%  -1.33%   0.00%   1.34%  -1.52%
 2011-3  -1.92%  -0.07%  -2.43%   0.00%  -0.75%  -5.17%
 2015-3  -0.05%   0.01%   0.26%   0.00%   0.22%   0.44%

 Avg     -0.03%  -0.32%  -0.13%   0.00%   0.39%  -0.08%

OTC summary for PY3 1963 - 2015 
 Avg     -0.18%  -0.21%   0.10%   0.20%   0.29%   0.02%
 Win%       50%     43%     64%     50%     71%     57%

OTC summary for all years 1963 - 2018
 Avg     -0.16%  -0.24%   0.27%   0.81%   0.44%   0.43%
 Win%       46%     51%     71%     75%     78%     64%


SPX PY3
 Year       Mon     Tue     Wed    Thur    Fri    Totals
 1955-3  -0.70%   0.97%   0.13%   0.00%  -0.09%   0.31%

 1959-3   0.19%   0.47%   0.16%   0.00%   0.45%   1.28%
 1963-3  -0.72%   0.10%   0.92%  -1.30%  -2.81%  -3.81%
 1967-3  -1.26%   1.58%   0.59%   0.00%   0.27%   1.18%
 1971-3  -0.90%  -0.69%   0.19%   0.00%   1.78%   0.38%
 1975-3   0.19%   1.13%   0.25%   0.00%   0.33%   1.90%

 Avg     -0.50%   0.52%   0.42%  -1.30%   0.01%   0.19%

 1979-3   0.42%  -0.52%   0.19%   0.00%   0.75%   0.85%
 1983-3   0.58%   0.48%   0.07%   0.00%   0.13%   1.26%
 1987-3   0.41%   1.40%  -0.93%   0.00%  -1.54%  -0.66%
 1991-3   0.68%  -1.51%  -0.23%   0.40%  -1.03%  -1.69%
 1995-3  -0.54%   0.57%  -0.31%   0.00%   0.26%  -0.01%

 Avg      0.31%   0.08%  -0.24%   0.40%  -0.29%  -0.05%

 1999-3  -0.08%  -1.14%   0.88%   0.00%  -0.04%  -0.37%
 2003-3   1.62%   0.17%   0.43%   0.00%  -0.02%   2.20%
 2007-3  -1.75%   0.45%  -1.59%   0.00%   1.69%  -1.20%
 2011-3  -1.86%  -0.41%  -2.21%   0.00%  -0.27%  -4.76%
 2015-3  -0.12%   0.12%  -0.01%   0.00%   0.06%   0.05%

 Avg     -0.44%  -0.16%  -0.50%   0.00%   0.28%  -0.82%

SPX summary for PY3 1955 - 2015 
 Avg     -0.24%   0.20%  -0.09%  -0.45%   0.00%  -0.19%
 Win%       44%     69%     63%     50%     56%     56%

SPX summary for all years 1953 - 2018
 Avg     -0.19%   0.00%   0.26%   0.53%   0.29%   0.43%
 Win%       42%     56%     77%     67%     74%     65%