The good news is:
• All of the major indices hit multi month highs last week.
The negatives
Negatives are hard to find. Some indicators like new highs and volume are not expanding as quickly as you would expect, but nothing troublesome jumps out.
The positives
The chart below is an update of one I have been showing every week, it 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.
There are some trading systems that impose a "No Sell Filter" when a variation of this indicator is above 80% as it is now.
The chart below is similar to the one above except it covers the past 5 years to give you a historical perspective on how this indicator works. Dashed vertical lines have been drawn on the 1st trading day of each year.
Seasonality
Next week includes the 5 trading days prior to the 4th Friday of October 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 October 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 over all years have been negative, however, average returns during the 2nd year of the Presidential Cycle have been positive.
Report for the week before the 4th Friday of October.
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 | -0.33% | 0.27% | 0.45% | 0.82% | 1.33% | 2.53% |
| 1970-2 | -0.20% | -1.41% | 0.41% | -0.42% | -0.48% | -2.10% |
| 1974-2 | 1.71% | 0.50% | -1.15% | -1.26% | 0.45% | 0.24% |
| 1978-2 | -1.52% | -0.66% | 0.02% | -2.61% | -2.33% | -7.10% |
| 1982-2 | 1.05% | 0.42% | 1.55% | 1.70% | -0.13% | 4.59% |
| 1986-2 | -0.62% | -0.12% | 0.23% | 0.64% | 0.13% | 0.27% |
| Avg | 0.08% | -0.25% | 0.21% | -0.39% | -0.47% | -0.82% |
| 1990-2 | 1.11% | -0.01% | -0.03% | -0.36% | -1.58% | -0.87% |
| 1994-2 | -0.54% | -0.39% | 0.66% | 0.55% | 1.13% | 1.41% |
| 1998-2 | 1.71% | -0.58% | 2.17% | 1.66% | -0.51% | 4.45% |
| 2002-2 | 1.69% | -1.29% | 2.12% | -1.63% | 2.50% | 3.39% |
| 2006-2 | 0.57% | -0.46% | 0.50% | 0.96% | -1.20% | 0.37% |
| Avg | 0.91% | -0.54% | 1.08% | 0.24% | 0.07% | 1.75% |
| OTC summary for Presidential Year 2 1966 - 2006 | ||||||
| Avg | 0.42% | -0.34% | 0.63% | 0.00% | -0.06% | 0.65% |
| Win% | 55% | 27% | 82% | 55% | 45% | 73% |
| OTC summary for all years 1963 - 2009 | ||||||
| Avg | -0.01% | -0.45% | 0.14% | -0.16% | -0.15% | -0.63% |
| Win% | 47% | 38% | 57% | 47% | 51% | 47% |
| SPX Presidential Year 2 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1954-2 | 0.38% | 0.25% | 0.81% | -0.12% | 0.00% | 1.32% |
| 1958-2 | -0.37% | 0.00% | -0.39% | -0.20% | -0.31% | -1.27% |
| 1962-2 | -1.13% | -2.67% | 3.22% | -0.94% | -0.27% | -1.81% |
| 1966-2 | 0.29% | 0.61% | 0.86% | 0.82% | 0.01% | 2.60% |
| 1970-2 | -1.34% | 0.59% | 0.02% | -0.33% | 0.47% | -0.59% |
| 1974-2 | 1.69% | -0.50% | -2.87% | -1.14% | -0.14% | -2.97% |
| 1978-2 | 0.23% | -0.70% | -0.18% | -1.32% | -1.50% | -3.47% |
| 1982-2 | 2.37% | -0.11% | 1.94% | -0.12% | -0.14% | 3.94% |
| 1986-2 | -1.20% | -0.04% | 0.16% | 1.28% | -0.43% | -0.23% |
| Avg | 0.35% | -0.15% | -0.19% | -0.33% | -0.35% | -0.66% |
| 1990-2 | 0.73% | -0.76% | 0.08% | -0.78% | -1.76% | -2.49% |
| 1994-2 | -0.87% | 0.15% | 0.24% | 0.70% | 1.70% | 1.91% |
| 1998-2 | 0.57% | 0.14% | 0.56% | 0.80% | -0.72% | 1.35% |
| 2002-2 | 1.73% | -1.06% | 0.67% | -1.52% | 1.72% | 1.54% |
| 2006-2 | 0.62% | 0.03% | 0.35% | 0.50% | -0.85% | 0.64% |
| Avg | 0.55% | -0.30% | 0.38% | -0.06% | 0.02% | 0.59% |
| SPX summary for Presidential Year 2 1954 - 2006 | ||||||
| Avg | 0.26% | -0.31% | 0.39% | -0.17% | -0.17% | 0.03% |
| Win% | 64% | 46% | 79% | 36% | 31% | 50% |
| SPX summary for all years 1953 - 2009 | ||||||
| Avg | -0.19% | -0.07% | 0.18% | -0.26% | -0.07% | -0.40% |
| Win% | 54% | 45% | 59% | 35% | 45% | 44% |
Money supply (M2)
The money supply chart was provided by Gordon Harms. M2 growth has been increasing.
Conclusion
Looking over broad market and sector charts, everything but the financials are heading sharply upward.
I expect the major averages to be higher on Friday October 22 than they were on Friday October 15.
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Thank you,
