Technical Market Report for September 27, 2014

By: Mike Burk | Sat, Sep 27, 2014
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The good news is:
• New lows have risen to the level that will make it easy to determine when a bottom has been reached.


The negatives

There is no sign of a bottom.

New lows remained at threatening levels every day last week on both the NYSE and NASDAQ.

The chart below covers the past 6 months showing the S&P 500 (SPX) in red and a 10% trend (19 day EMA) of NYSE new lows (NY NL) in blue. NY NL has been plotted on an inverted Y axis so decreasing new lows move the indicator upward (up is good). Dashed vertical lines have been drawn on the 1st trading day of the month.

No sign of a bottom here.

NY NL and SPX Chart 1

The next chart is similar to the one above except it covers the past year.

NL is very near its lowest level of the past year and falling.

NY NL and SPX Chart 2

The next chart is similar to the first one except it shows the NASDAQ composite (OTC) in blue and OTC NL, in red, has been calculated from NASDAQ data.

OTC NL is also falling sharply.

OTC NL

The next chart is similar to the one above except is covers the past year.

OTC NL is at its lowest level of the past year and falling sharply.

OTC NL

Right now, new lows are all that matters. You can see in the charts above that the new low indicators move sharply upward when a bottom has been reached. There is no sign of that now.


The positives

There are none.


Seasonality

Next week includes the last 2 trading days of September and the first 3 trading days of October during the 2nd year of the Presidential Cycle.

The tables below show the change, on a percentage basis, of the OTC and SPX for the last 2 trading days of September and the first 3 trading days of October during the 2nd year of the Presidential Cycle.

OTC data covers the period from 1963 to 2013 while SPX data runs from 1928 through 2013. There are summaries for both the 2nd year of the Presidential Cycle and all years combined.

For the past 40 years average returns for the coming week have been negative by all measures.

Report for the last 2 days of September and first 3 days of October.
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
  Day2 Day1 Day1 Day2 Day3 Totals
1966-2 -1.06% 4 -0.96% 5 0.00% 1 -1.66% 2 -0.63% 3 -4.31%
1970-2 0.49% 2 0.57% 3 0.29% 4 0.89% 5 1.56% 1 3.79%
 
1974-2 -1.30% 5 -2.54% 1 -0.34% 2 0.34% 3 -1.44% 4 -5.27%
1978-2 -0.01% 4 0.67% 5 0.31% 1 -0.14% 2 -0.01% 3 0.83%
1982-2 -0.41% 3 -0.32% 4 0.56% 5 -0.36% 1 0.40% 2 -0.14%
1986-2 -1.08% 1 0.90% 2 0.45% 3 0.01% 4 0.05% 5 0.33%
1990-2 -2.53% 4 0.97% 5 2.94% 1 0.49% 2 -1.39% 3 0.50%
Avg -1.06% -0.06% 0.78% 0.07% -0.48% -0.75%
 
1994-2 -0.09% 4 0.65% 5 -0.45% 1 -1.78% 2 -0.14% 3 -1.80%
1998-2 -0.29% 2 -2.32% 3 -4.81% 4 0.17% 5 -4.85% 1 -12.11%
2002-2 -1.84% 5 -2.26% 1 3.55% 2 -2.18% 3 -1.83% 4 -4.55%
2006-2 0.29% 4 -0.51% 5 -0.92% 1 0.27% 2 2.11% 3 1.24%
2010-2 -0.13% 3 -0.33% 4 0.09% 5 -1.11% 1 2.36% 2 0.88%
Avg -0.41% -0.96% -0.51% -0.93% -0.47% -3.27%
 
OTC summary for Presidential Year 2 1966 - 2010
Averages -0.66% -0.46% 0.14% -0.42% -0.32% -1.72%
% Winners 17% 42% 58% 50% 42% 50%
MDD 10/5/1998 11.64% -- 10/3/1974 5.18% -- 10/3/2002 4.59%
 
OTC summary for all years 1963 - 2013
Averages -0.14% -0.09% -0.08% -0.07% 0.14% -0.23%
% Winners 46% 45% 52% 55% 59% 53%
MDD 10/5/1998 11.64% -- 10/3/2008 10.81% -- 10/3/2000 8.54%
 
SPX Presidential Year 2
  Day2 Day1 Day1 Day2 Day3 Totals
1930-2 -2.23% 1 -1.43% 2 4.46% 3 -1.24% 4 1.25% 5 0.82%
 
1934-2 -1.09% 5 0.22% 6 -2.97% 1 0.34% 2 -0.34% 3 -3.83%
1938-2 3.66% 4 2.86% 5 1.80% 6 0.48% 1 -0.32% 2 8.48%
1942-2 -0.45% 2 0.00% 3 0.79% 4 1.46% 5 0.33% 6 2.13%
1946-2 -1.05% 5 -0.99% 1 -0.27% 2 0.80% 3 -0.40% 4 -1.90%
1950-2 0.05% 4 0.15% 5 1.23% 1 -0.15% 2 1.73% 3 3.02%
Avg 0.22% 0.45% 0.12% 0.59% 0.20% 1 .58%
 
1954-2 -0.58% 3 -0.58% 4 -0.06% 5 0.56% 1 0.49% 2 -0.18%
1958-2 0.42% 1 0.38% 2 -0.16% 3 0.38% 4 0.40% 5 1.42%
1962-2 -0.68% 4 0.90% 5 -1.39% 1 1.10% 2 0.11% 3 0.04%
1966-2 -1.04% 4 0.33% 5 -2.17% 1 0.27% 2 -0.55% 3 -3.16%
1970-2 0.52% 2 -0.11% 3 0.13% 4 1.00% 5 1.54% 1 3.08%
Avg -0.27% 0.18% -0.73% 0.66% 0.40% 0.24%
 
1974-2 -2.29% 5 -2.16% 1 -0.24% 2 -0.02% 3 -1.74% 4 -6.43%
1978-2 0.30% 4 0.57% 5 0.41% 1 -0.35% 2 0.45% 3 1.37%
1982-2 -1.31% 3 -0.97% 4 1.26% 5 -0.38% 1 0.39% 2 -1.00%
1986-2 -1.00% 1 0.61% 2 0.99% 3 0.14% 4 -0.09% 5 0.65%
1990-2 -1.34% 4 1.69% 5 2.90% 1 0.09% 2 -1.21% 3 2.13%
Avg -1.13% -0.05% 1 .07% -0.10% -0.44% -0.66%
 
1994-2 -0.56% 4 0.10% 5 -0.21% 1 -1.55% 2 -0.24% 3 -2.44%
1998-2 0.03% 2 -3.05% 3 -3.01% 4 1.64% 5 -1.40% 1 -5.79%
2002-2 -3.23% 5 -1.46% 1 4.00% 2 -2.36% 3 -1.08% 4 -4.13%
2006-2 0.19% 4 -0.25% 5 -0.34% 1 0.21% 2 1.21% 3 1.02%
2010-2 -0.26% 3 -0.31% 4 0.44% 5 -0.80% 1 2.09% 2 1.16%
Avg -0.76% -0.99% 0.18% -0.57% 0.12% -2.04%
 
SPX summary for Presidential Year 2 1930 - 2010
Averages -0.57% -0.17% 0.36% 0.08% 0.12% -0.17%
% Winners 33% 48% 52% 62% 52% 57%
MDD 10/3/1974 6.29% -- 10/1/1998 5.97% -- 9/30/2002 4.64%
 
SPX summary for all years 1928 - 2013
Averages -0.22% -0.04% 0.07% 0.16% 0.17% 0.14%
% Winners 52% 45% 50% 65% 53% 60%
MDD 10/3/1931 10.76% -- 10/3/2008 9.38% -- 10/3/1974 6.29%


Money Supply (M2)

The money supply chart was provided by Gordon Harms. M2 growth leveled off last week.

M2Money Supply and S&P500 Chart


October

Since 1963, over all years, the OTC in October has been up 55% of the time with an average gain of 0.8%. During the 2nd year of the Presidential Cycle October has been up 75% time with an average gain of 3.6%. The best October ever for the OTC was 1974 (+17.2%), the worst 1987 (-27.2%).

The average month has 21 trading days. The chart below has been calculated by averaging the daily percentage change of the OTC for each of the 2nd 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 2nd 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 of the OTC in October over all years since 1963 while the green line shows the average during the 2nd year of the Presidential Cycle over the same period.

OTC October 1963-2014

Since 1928 the SPX has been up 58% of the time in October with an average gain of 0.4%. During the 2nd year of the Presidential Cycle the SPX has been up 67% of the time with an average gain of 2.6%. The best October ever for the SPX was 1974 +16.3% the worst 1987 -21.8%.

The chart below is similar to the one above except it shows the average daily performance over all years for the SPX in October in red and the performance during the 2nd. year of the Presidential Cycle in green.

SPX Oxtober 1928-2014

Since 1979 the Russell 2000 (R2K) has been up 54% of the time in October with an average loss of -0.5%. During the 2nd year of the Presidential Cycle the R2K has been up 75% of the time with an average gain of 3.5%. The best October ever for the R2K, 2011 +15.0%, the worst 1987 (-30.7%)

The chart below is similar to those above except it shows the daily performance over all years of the R2K in October in magenta and the performance during the 2nd. year of the Presidential Cycle in green.

R2K October 1979-2014

Since 1885 the DJIA has been up 55% of the time in October with an average gain of 0.3%. During the 2nd year of the Presidential Cycle the DJIA has been up 58% of the time in October with an average gain of 1.5%. The best October ever for the DJIA, 1885 +12.3%, the worst 1987 -23.2%.

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

DJIA in October 1885-2014


Conclusion

New lows are all that matters.

When a bottom has been reached, new lows will diminish quickly.

There is no sign of that now.

Seasonally there is often a bottom after the 1st week of October.

I expect the major averages to be lower on Friday October 3 than they were on Friday September 26.

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Good Luck,

YTD W 11 / L 15 / T 13

 


 

Author: Mike Burk

Mike Burk

Mike Burk independently publishes a weekly newsletter on the stock market from a technical perspective.

Charts and figures presented herein are believed to be reliable but we cannot attest to their accuracy. Recent (last 10-15 yrs.) data has been supplied by CSI (csidata.com), FastTrack (fasttrack.net), Quotes Plus (qp2.com) and the Wall Street Journal (wsj.com). Historical data is from Barron's and ISI price books. The views expressed are provided for information purposes only and should not be construed in any way as investment advice. Furthermore, the opinions expressed may change without notice.

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