The good news is:
• Until Friday new highs exceeded new lows on the NYSE.
The negatives
Cycle bottoms are marked by a sharp decrease in the number of new lows. On Friday we saw the most new lows (140) on the NASDAQ since August 12 (156) and the most new lows (95) on the NYSE since July 1 (151).
The chart below covers the past 6 months showing the NASDAQ composite (OTC) in blue and a 10% trend (19 day EMA) of NASDAQ new lows (OTC NL) in black. OTC 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 each month.
The indicators downward move was broken briefly on Tuesday & Wednesday, but resumed Thursday and Friday.
Conditions were similar on the NYSE.
The chart below is similar to the one above except is shows the S&P 500 (SPX) in red and NY NL has been calculated using NYSE data.
Nothing good is going to happen as long as these indicators are heading downward.
The positives
Some of the NYSE breadth indicators look pretty good, but that is from strength in fixed income which makes up about half of the issues traded on the NYSE. Fixed income looks like a bubble.
Seasonality
Next week includes the 5 trading days prior to the 4th Friday of August during the 2nd year of the Presidential Cycle.
The tables below show the return on a percentage basis for the 5 trading days prior to the 4th Friday of August during the 2nd year of the Presidential Cycle. OTC data covers the period from 1963 - 2009 and SPX data from 1953 - 2009. 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.
Next week has been up a little over half of the time, but, during the 2nd year of the Presidential Cycle average returns have been negative.
Report for the week before the 4th Friday of August.
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 | -0.69% | -2.36% | 0.00% | 1.36% | -1.16% | -2.85% |
| 1970-2 | 2.41% | 0.64% | 0.98% | -0.05% | 1.15% | 5.13% |
| 1974-2 | -1.11% | 0.91% | -1.22% | -2.05% | -1.60% | -5.07% |
| 1978-2 | -0.70% | 0.07% | 0.64% | 0.41% | 0.41% | 0.84% |
| 1982-2 | 1.75% | 1.38% | 1.57% | 1.85% | -0.32% | 6.23% |
| 1986-2 | -0.24% | -0.12% | 0.56% | 0.06% | 0.10% | 0.35% |
| Avg | 0.42% | 0.58% | 0.51% | 0.04% | -0.05% | 1.50% |
| 1990-2 | -1.25% | -2.29% | -1.27% | -3.90% | 1.97% | -6.74% |
| 1994-2 | -0.02% | 0.77% | 0.50% | 0.41% | 1.08% | 2.74% |
| 1998-2 | -0.38% | 0.41% | -1.66% | -4.63% | -2.77% | -9.03% |
| 2002-2 | 2.46% | -1.29% | 2.37% | 0.97% | -2.97% | 1.55% |
| 2006-2 | -0.75% | 0.11% | -0.71% | 0.11% | 0.15% | -1.09% |
| Avg | 0.01% | -0.46% | -0.16% | -1.41% | -0.51% | -2.52% |
| OTC summary for Presidential Year 2 1966 - 2006 | ||||||
| Avg | 0.14% | -0.16% | 0.18% | -0.50% | -0.36% | -0.72% |
| Win% | 27% | 64% | 60% | 64% | 55% | 55% |
| OTC summary for all years 1963 - 2009 | ||||||
| Avg | -0.10% | -0.04% | 0.34% | -0.12% | 0.12% | 0.19% |
| Win% | 40% | 56% | 67% | 53% | 60% | 60% |
| SPX Presidential Year 2 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1954-2 | -0.67% | -0.42% | -0.71% | -0.26% | 0.29% | -1.77% |
| 1958-2 | -0.59% | 0.17% | 0.04% | 0.66% | 0.21% | 0.49% |
| 1962-2 | 0.61% | -0.42% | 1.12% | -0.13% | -0.20% | 0.97% |
| 1966-2 | -1.73% | -0.17% | 1.23% | -1.28% | -2.11% | -4.06% |
| 1970-2 | 2.21% | 0.16% | 0.11% | -0.16% | 0.96% | 3.28% |
| 1974-2 | -1.45% | 0.51% | -1.92% | -0.97% | -1.72% | -5.55% |
| 1978-2 | -0.80% | 0.40% | 0.58% | 0.16% | -0.17% | 0.17% |
| 1982-2 | 2.73% | -0.65% | 1.93% | 0.82% | -1.21% | 3.62% |
| 1986-2 | 0.09% | -0.35% | 1.32% | -0.04% | 0.21% | 1.23% |
| Avg | 0.56% | 0.01% | 0.40% | -0.04% | -0.39% | 0.55% |
| 1990-2 | 0.21% | -2.02% | -1.65% | -3.00% | 1.45% | -5.02% |
| 1994-2 | -0.30% | 0.48% | 0.97% | -0.20% | 1.22% | 2.17% |
| 1998-2 | 0.64% | 0.44% | -0.80% | -3.84% | -1.48% | -5.03% |
| 2002-2 | 2.36% | -1.40% | 1.27% | 1.41% | -2.27% | 1.37% |
| 2006-2 | -0.37% | 0.10% | -0.45% | 0.24% | -0.07% | -0.55% |
| Avg | 0.51% | -0.48% | -0.13% | -1.08% | -0.23% | -1.41% |
| SPX summary for Presidential Year 2 1954 - 2006 | ||||||
| Avg | 0.21% | -0.23% | 0.22% | -0.47% | -0.35% | -0.62% |
| Win% | 50% | 50% | 64% | 36% | 43% | 57% |
| SPX summary for all years 1953 - 2009 | ||||||
| Avg | -0.14% | 0.02% | 0.19% | -0.16% | -0.03% | -0.13% |
| Win% | 42% | 56% | 58% | 47% | 47% | 60% |
Money Supply (M2)
The money supply chart was provided by Gordon Harms. Money supply growth is comatose.
Conclusion
The market rallied early in the week, but, on the NASDAQ new highs never exceeded new lows. There is little to recommend the current market.
I expect the major averages to be lower on Friday August 27 than they were on Friday August 20.
Last week the blue chips were down a little and the secondaries were up a little so I am calling last week's positive forecast a tie.
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Thank you,
