The good news is:
• All of the major indices closed at multi month highs Friday.
The negatives
Advance Decline Lines (ADL) are running totals of declining issues subtracted from advancing issues.
The chart below is an update of one I showed last week. It covers the past 6 months showing the NASDAQ composite (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.
The down trend pattern was broken on Monday, but will resume if the ADL turns down before surpassing Monday's high.
The chart below covers the past 6 months showing the S&P 500 (SPX) in red and an ADL calculated from NYSE data. The NYSE ADL has had an extremely positive bias for the last 8 - 10 years, but, it did not surpass Monday's high on Friday while the SPX hit a multi month high.
The next chart is similar to the one above except it covers the past year to give you a better perspective on the strong upward bias of the NYSE ADL.
The positives
New highs fell off a bit last week, but, new lows remained at non threatening levels.
The chart below covers the past 6 months showing the OTC in blue and a 40% trend (4 day EMA) of the ratio of NASDAQ new highs to new highs + new lows (OTC HL Ratio) in red. Dashed horizontal lines have been drawn at 10% levels of the indicator; the line is solid at the neutral 50% level.
OTC HL Ratio fell off its Monday high, but at 75% it remains at a comfortable level.
The chart below is similar to the one above except it covers the past year and shows the SPX in red and NY HL Ratio has been calculated from NYSE data.
Like NYSE advance, decline data, NYSE new high, new low data also has an extremely positive bias. However, the current reading of the indicator above 90% has to be considered positive.
Seasonality
Next week includes the last 4 trading days of September and the 1st trading day of October during the 2nd year of the Presidential Cycle.
The tables below show the return on a percentage basis for the last 4 trading days of September and the 1st trading day of October during the 2nd year of the Presidential Cycle. OTC data covers the period from 1963 - 2009 and SPX data from 1928 - 2009. There are summaries for both the 2nd year of the Presidential Cycle and all years combined.
By all measures the indices have been up a little over half of the time, while average returns have been modestly negative.
Last 4 days of September and first day 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 | ||||||
| Day4 | Day3 | Day2 | Day1 | Day1 | Totals | |
| 1966-2 | 0.34% 2 | 0.27% 3 | -1.06% 4 | -0.96% 5 | 0.00% 1 | -1.41% |
| 1970-2 | 2.26% 5 | 0.55% 1 | 0.49% 2 | 0.57% 3 | 0.29% 4 | 4.15% |
| 1974-2 | -0.15% 3 | -1.51% 4 | -1.30% 5 | -2.54% 1 | -0.34% 2 | -5.84% |
| 1978-2 | 0.61% 2 | -0.68% 3 | -0.01% 4 | 0.67% 5 | 0.31% 1 | 0.90% |
| 1982-2 | 0.02% 1 | 0.21% 2 | -0.41% 3 | -0.32% 4 | 0.56% 5 | 0.05% |
| 1986-2 | -0.85% 4 | 0.03% 5 | -1.08% 1 | 0.90% 2 | 0.45% 3 | -0.55% |
| Avg | 0.38% | -0.28% | -0.46% | -0.14% | 0.25% | -0.26% |
| 1990-2 | 0.74% 2 | -1.34% 3 | -2.53% 4 | 0.97% 5 | 2.94% 1 | 0.80% |
| 1994-2 | -0.03% 2 | 0.61% 3 | -0.09% 4 | 0.65% 5 | -0.45% 1 | 0.70% |
| 1998-2 | 1.35% 5 | -0.25% 1 | -0.29% 2 | -2.32% 3 | -4.81% 4 | -6.33% |
| 2002-2 | 3.39% 3 | -0.06% 4 | -1.84% 5 | -2.26% 1 | 3.55% 2 | 2.79% |
| 2006-2 | 0.55% 2 | 0.09% 3 | 0.29% 4 | -0.51% 5 | -0.92% 1 | -0.50% |
| Avg | 1.20% | -0.19% | -0.89% | -0.69% | 0.06% | -0.51% |
| OTC summary for Presidential Year 2 1966 - 2006 | ||||||
| Averages | 0.75% | -0.19% | -0.71% | -0.47% | 0.14% | -0.48% |
| % Winners | 73% | 55% | 18% | 45% | 55% | 55% |
| MDD 10/1/1998 7.53% -- 10/1/1974 5.73% -- 9/30/2002 4.11% | ||||||
| OTC summary for all years 1963 - 2009 | ||||||
| Averages | -0.02% | -0.14% | -0.17% | -0.01% | -0.04% | -0.38% |
| % Winners | 52% | 47% | 48% | 49% | 52% | 51% |
| MDD 9/29/2008 9.28% -- 10/1/1998 7.53% -- 10/1/1974 5.73% | ||||||
| SPX Presidential Year 2 | ||||||
| Day4 | Day3 | Day2 | Day1 | Day1 | Totals | |
| 1930-2 | -1.52% 5 | -0.72% 6 | -2.23% 1 | -1.43% 2 | 4.46% 3 | -1.44% |
| 1934-2 | -0.66% 3 | 0.99% 4 | -1.09% 5 | 0.22% 6 | -2.97% 1 | -3.50% |
| 1938-2 | -0.27% 2 | 4.46% 3 | 3.66% 4 | 2.86% 5 | 1.80% 6 | 12.50% |
| 1942-2 | -0.22% 6 | 0.11% 1 | -0.45% 2 | 0.00% 3 | 0.79% 4 | 0.23% |
| 1946-2 | 2.58% 3 | 1.13% 4 | -1.05% 5 | -0.99% 1 | -0.27% 2 | 1.40% |
| Avg | -0.02% | 1.19% | -0.23% | 0.13% | 0.76% | 1.84% |
| 1950-2 | -1.44% 2 | 1.41% 3 | 0.05% 4 | 0.15% 5 | 1.23% 1 | 1.41% |
| 1954-2 | 0.40% 1 | 0.49% 2 | -0.58% 3 | -0.58% 4 | -0.06% 5 | -0.33% |
| 1958-2 | -0.42% 4 | 0.18% 5 | 0.42% 1 | 0.38% 2 | -0.16% 3 | 0.40% |
| 1962-2 | 0.58% 2 | -1.42% 3 | -0.68% 4 | 0.90% 5 | -1.39% 1 | -2.01% |
| 1966-2 | 0.31% 2 | -1.27% 3 | -1.04% 4 | 0.33% 5 | -2.17% 1 | -3.84% |
| Avg | -0.11% | -0.12% | -0.36% | 0.24% | -0.51% | -0.87% |
| 1970-2 | 0.07% 5 | -0.13% 1 | 0.52% 2 | -0.11% 3 | 0.13% 4 | 0.49% |
| 0.66% 3 | -1.64% 4 | -2.29% 5 | -2.16% 1 | -0.24% 2 | -6.98% | |
| 1978-2 | 0.75% 2 | -0.94% 3 | 0.30% 4 | 0.57% 5 | 0.41% 1 | 1.08% |
| 1982-2 | 0.24% 1 | -0.31% 2 | -1.31% 3 | -0.97% 4 | 1.26% 5 | -1.08% |
| 1986-2 | -1.88% 4 | 0.17% 5 | -1.00% 1 | 0.61% 2 | 0.99% 3 | -1.11% |
| Avg | -0.30% | -0.57% | -0.75% | -0.41% | 0.51% | -1.52% |
| 1990-2 | 1.20% 2 | -1.04% 3 | -1.34% 4 | 1.69% 5 | 2.90% 1 | 3.42% |
| 1994-2 | 0.27% 2 | 0.60% 3 | -0.56% 4 | 0.10% 5 | -0.21% 1 | 0.20% |
| 1998-2 | 0.19% 5 | 0.38% 1 | 0.03% 2 | -3.05% 3 | -3.01% 4 | -5.46% |
| 2002-2 | 2.49% 3 | 1.82% 4 | -3.23% 5 | -1.46% 1 | 4.00% 2 | 3.62% |
| 2006-2 | 0.75% 2 | 0.02% 3 | 0.19% 4 | -0.25% 5 | -0.34% 1 | 0.38% |
| Avg | 0.98% | 0.36% | -0.98% | -0.59% | 0.67% | 0.43% |
| SPX summary for Presidential Year 2 1930 - 2006 | ||||||
| Averages | 0.14% | 0.21% | -0.58% | -0.16% | 0.36% | -0.03% |
| % Winners | 60% | 60% | 35% | 50% | 50% | 55% |
| MDD 10/1/1974 6.81% -- 10/1/1998 5.97% -- 9/30/1930 5.78% | ||||||
| SPX summary for all years 1928 - 2009 | ||||||
| Averages | -0.10% | 0.11% | -0.24% | 0.01% | 0.09% | -0.13% |
| % Winners | 47% | 57% | 53% | 47% | 49% | 56% |
| MDD 10/1/1931 12.73% -- 9/29/2008 8.79% -- 10/1/1974 6.81% | ||||||
The market followed the average seasonal pattern for the 2nd year of the Presidential Cycle until July. Since then July and September, usually weak months have been strong while August, on average flat, was weak.
Money Supply (M2)
The money supply chart was provided by Gordon Harms. Money supply growth remained flat last week.
Conclusion
The market remained overbought while the breadth indicators deteriorated last week.
I expect the major averages to be lower on Friday October 1 than they were on Friday September 24.
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. If it is not for you, reply with REMOVE in the subject line.
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,
