The good news is:
• NASDAQ new highs expanded to levels not seen since late July.
The negatives
The market is overbought going into a seasonally bad week.
The NASDAQ composite (OTC) and NDX have, as of Friday, been up for 8 consecutive days for the first time since July 2009.
Advance Decline Lines (ADL) are running totals of declining issues subtracted from advancing issues.
The chart below covers the past 6 months showing the OTC in blue and the NASDAQ ADL in red green and black. The colors of the ADL are controlled by a trend identifier that looks for patterns of higher highs and higher lows (green) or lower highs and lower lows (red) and it colors the line black if neither of the directional patterns can be identified. Dashed vertical lines have been drawn on the 1st trading day of each month.
This shows an unusual instance of the OTC ADL going into a negative pattern while the index is going up.
Friday was an up day, but on the NYSE, downside volume exceeded upside volume.
The chart below covers the past 6 months showing the S&P 500 (SPX) in red and momentum of a 5% trend (39 day EMA) of NYSE down side volume (NY DV 5% MoM 7) in olive drab. NY DV 5% MoM 7 has been plotted on an inverted Y axis so decreasing values move the indicator upward (up is good). NY DV 5% MoM 7 usually does not lead, but it did at the April high and it headed sharply downward of Friday.
Upside volume has not accompanied the rally since the 1st of the month.
The chart below covers the past 6 months showing the SPX in red and a 5% trend of NYSE upside volume (NY UV) in green.
Upside volume was missing in the recent rally.
The positives
New highs hit levels not seen for a month or two on Friday.
The chart below covers the past 6 months showing the OTC in blue and a 10% trend (19 day EMA) of NASDAQ new highs (OTC NH) in green.
OTC NH hit its highest level since last May.
The chart below is a up date of one I show often covering the past 6 months showing the SPX in red and a 40% trend (4 day EMA) of NYSE new highs divided by new highs + new lows (NY HL Ratio) in black. Dashed horizontal lines have been drawn at 10% levels of the indicator; the line is solid at the neutral 50% level.
NY HL Ratio has held above 90%, very strong.
The chart below is similar to the one above except is shows the OTC in blue and OTC HL Ratio, in red, has been calculated from NASDAQ data.
OTC HL Ratio held at 70% last week, also very strong.
Seasonality
Next week includes the 5 trading days prior to the 4th Friday of September 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 September 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.
Average returns by all measures have been negative.
Report for the week before the 4th Friday of September.
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 | 0.34% | -0.15% | 0.13% | -1.18% | 0.54% | -0.31% |
| 1970-2 | -0.01% | -0.71% | -0.14% | 1.10% | 2.26% | 2.50% |
| 1974-2 | -0.40% | -1.36% | -0.15% | -1.51% | -1.30% | -4.72% |
| 1978-2 | -1.24% | -1.17% | -1.04% | -0.42% | 0.15% | -3.73% |
| 1982-2 | -0.33% | 1.03% | 0.38% | -0.25% | 0.24% | 1.07% |
| 1986-2 | 0.89% | 0.23% | 0.33% | -0.85% | 0.03% | 0.63% |
| Avg | -0.22% | -0.40% | -0.13% | -0.39% | 0.28% | -0.85% |
| 1990-2 | -2.79% | 0.74% | -1.34% | -2.53% | 0.97% | -4.93% |
| 1994-2 | -0.15% | -1.28% | -0.79% | -0.04% | -0.39% | -2.65% |
| 1998-2 | 1.00% | 1.04% | 3.68% | -2.27% | 1.35% | 4.80% |
| 2002-2 | -2.96% | -0.23% | 3.39% | -0.06% | -1.84% | -1.69% |
| 2006-2 | 0.01% | -0.60% | 1.37% | -0.67% | -0.84% | -0.73% |
| Avg | -0.98% | -0.07% | 1.26% | -1.11% | -0.15% | -1.04% |
| OTC summary for Presidential Year 2 1966 - 2006 | ||||||
| Avg | -0.51% | -0.22% | 0.53% | -0.79% | 0.11% | -0.89% |
| Win% | 36% | 36% | 55% | 09% | 64% | 36% |
| OTC summary for all years 1963 - 2009 | ||||||
| Avg | -0.30% | -0.01% | 0.11% | -0.33% | -0.21% | -0.75% |
| Win% | 40% | 53% | 59% | 38% | 47% | 42% |
| SPX Presidential Year 2 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1954-2 | -0.44% | 0.70% | 0.66% | 0.56% | 0.68% | 2.16% |
| 1958-2 | -0.40% | 0.73% | 0.44% | -0.42% | 0.18% | 0.53% |
| 1962-2 | -1.84% | 0.58% | -1.42% | -0.68% | 0.90% | -2.46% |
| 1966-2 | -0.50% | -0.69% | -1.68% | 0.30% | -0.35% | -2.92% |
| 1970-2 | -0.86% | -0.31% | 1.43% | 1.30% | 0.07% | 1.64% |
| 1974-2 | -1.03% | -2.02% | -0.66% | -1.64% | -2.29% | -7.63% |
| 1978-2 | -0.87% | -0.66% | -0.78% | 0.17% | -0.06% | -2.20% |
| 1982-2 | -0.03% | 1.93% | -0.71% | -0.15% | -0.40% | 0.65% |
| 1986-2 | 1.17% | 0.31% | 0.26% | -1.88% | 0.17% | 0.03% |
| Avg | -0.32% | -0.15% | -0.09% | -0.44% | -0.50% | -1.50% |
| 1990-2 | -2.16% | 1.20% | -1.04% | -1.34% | 1.69% | -1.65% |
| 1994-2 | -0.07% | -1.59% | -0.41% | -0.04% | -0.35% | -2.46% |
| 1998-2 | 0.37% | 0.58% | 3.52% | -2.19% | 0.19% | 2.47% |
| 2002-2 | -1.38% | -1.73% | 2.49% | 1.82% | -3.23% | -2.03% |
| 2006-2 | 0.10% | -0.22% | 0.52% | -0.54% | -0.25% | -0.38% |
| Avg | -0.63% | -0.35% | 1.02% | -0.46% | -0.39% | -0.81% |
| SPX summary for Presidential Year 2 1954 - 2006 | ||||||
| Avg | -0.57% | -0.08% | 0.19% | -0.34% | -0.22% | -1.02% |
| Win% | 21% | 50% | 50% | 36% | 50% | 43% |
| SPX summary for all years 1953 - 2009 | ||||||
| Avg | -0.46% | 0.01% | 0.00% | -0.18% | -0.20% | -0.83% |
| Win% | 31% | 50% | 54% | 39% | 40% | 36% |
Money Supply (M2)
The money supply chart was provided by Gordon Harms. Money supply growth flattened last week.
Conclusion
The market is overbought going into a week that seasonally has been very weak.
I expect the major averages to be lower on Friday September 24 than they were on Friday September 17.
Last weeks negative forecast was a miss. This report is free to anyone who wants it, so please tell your friends. They can sign up at: http://alphaim.net/signup.html
In his latest newsletter, Jerry Minton looks at the impending arrival of the election cycle "power zone" and what it means for the market. To read the newsletter and sign up for a free subscription go to www.alphaim.net.
Thank you,
