The good news is:
• Most of the major indices were up every day last week.
The negatives
The chart below covers the past year showing the NASDAQ composite (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 vertical lines have been drawn on the 1st trading day of each month and dashed horizontal lines have been drawn at 10% levels for OTC HL Ratio and the line is solid at the neutral 50% level.
Although new highs increased and new lows decreased on the NASDAQ last week, new highs never outnumbered new lows.
The next chart is similar to the one above except it covers the period from March 2007 through March 2008. Following the sharp decline in early November none of the rallies could raise OTC HL Ratio above the 50% level. The current period looks like late December 2007.
The next chart is similar to the first except it shows the S&P 500 (SPX) in red and NY HL Ratio has been calculated from NYSE data.
After 5 consecutive up days NY HL Ratio just hit the neutral 50% level.
The problem is there have been no new highs.
The chart below shows the OTC in blue and a 10% trend (19 day EMA) of NASDAQ new highs (OTC NH) in green.
You can see in previous rallies OTC NH turned upward when prices rallied. This rally is a month old and still no response from OTC NH.
The positives
New lows declined sharply last week.
On the NYSE there were:
Monday 278
Tuesday 42
Wednesday 44
Thursday 17
Friday 20
The chart below covers the past year showing the SPX in red and a 10% trend (19 day EMA) of NYSE new highs (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).
NY NL reached a 1 month high on Friday.
Seasonality
Next week includes the 5 trading days prior to the 4th Friday of September during the 3rd 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 3rd year of the Presidential Cycle.
OTC data covers the period from 1963 - 2010 and SPX data covers the period from 1953 - 2010. There are summaries for both the 3rd 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 have been negative over all periods.
Report for the week before the 4th Friday of Sepember.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday through the 4th Friday.
| OTC Presidential Year 3 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1963-3 | -0.06% | -0.37% | -0.34% | -0.71% | -0.49% | -1.95% |
| 1967-3 | 0.19% | 0.34% | 0.20% | -0.08% | 0.35% | 1.00% |
| 1971-3 | -0.10% | -0.15% | -0.76% | -0.17% | 0.07% | -1.11% |
| 1975-3 | -0.69% | 0.11% | 0.65% | -0.43% | 0.05% | -0.32% |
| 1979-3 | -0.35% | -0.57% | 0.41% | 0.33% | -0.26% | -0.44% |
| 1983-3 | 3.21% | -1.45% | -0.03% | 0.43% | -0.31% | 1.84% |
| 1987-3 | -1.10% | 0.43% | 0.64% | 0.12% | 0.15% | 0.24% |
| Avg | 0.19% | -0.33% | 0.18% | 0.05% | -0.06% | 0.04% |
| 1991-3 | -0.47% | 0.34% | 0.26% | -0.17% | -0.47% | -0.51% |
| 1995-3 | -0.09% | 0.96% | 0.45% | -0.62% | -0.48% | 0.23% |
| 1999-3 | 0.57% | -2.25% | 1.32% | -3.79% | -0.34% | -4.50% |
| 2003-3 | -1.63% | 1.45% | -3.05% | -1.44% | -1.39% | -6.06% |
| 2007-3 | -0.12% | 0.58% | 0.58% | 0.39% | -0.30% | 1.13% |
| Avg | -0.35% | 0.22% | -0.09% | -1.12% | -0.59% | -1.94% |
| OTC summary for Presidential Year 3 1963 - 2007 | ||||||
| Avg | -0.05% | -0.05% | 0.03% | -0.51% | -0.28% | -0.87% |
| Win% | 25% | 58% | 67% | 33% | 33% | 42% |
| OTC summary for all years 1963 - 2010 | ||||||
| Avg | -0.26% | -0.02% | 0.10% | -0.33% | -0.16% | -0.67% |
| Win% | 41% | 52% | 58% | 37% | 48% | 43% |
| SPX Presidential Year 3 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1955-3 | 0.16% | -0.07% | 0.58% | 0.00% | 0.53% | 1.19% |
| 1959-3 | -1.46% | -0.24% | 1.23% | 1.72% | -0.09% | 1.17% |
| 1963-3 | -0.46% | 0.47% | -0.56% | -0.85% | -0.19% | -1.60% |
| 1967-3 | 0.27% | -0.37% | -0.04% | 0.64% | 0.26% | 0.76% |
| 1971-3 | -0.28% | -0.34% | -0.88% | -0.09% | -0.23% | -1.82% |
| 1975-3 | -0.94% | -0.15% | 0.94% | -0.12% | 0.64% | 0.37% |
| 1979-3 | -0.78% | 0.06% | 0.26% | 0.23% | -0.81% | -1.04% |
| 1983-3 | 0.83% | 0.97% | -0.50% | 0.80% | -0.15% | 1.96% |
| 1987-3 | -1.37% | 2.89% | 0.53% | -0.46% | 0.14% | 1.72% |
| Avg | -0.51% | 0.69% | 0.07% | 0.07% | -0.08% | 0.24% |
| 1991-3 | -0.52% | 0.46% | -0.21% | -0.10% | -0.15% | -0.52% |
| 1995-3 | -0.10% | 0.25% | 0.44% | -0.64% | -0.22% | -0.27% |
| 1999-3 | 0.01% | -2.10% | 0.22% | -2.27% | -0.27% | -4.39% |
| 2003-3 | -1.30% | 0.61% | -1.91% | -0.61% | -0.64% | -3.85% |
| 2007-3 | -0.53% | -0.03% | 0.54% | 0.39% | -0.30% | 0.07% |
| Avg | -0.49% | -0.16% | -0.18% | -0.64% | -0.32% | -1.79% |
| SPX summary for Presidential Year 3 1955 - 2007 | ||||||
| Avg | -0.46% | 0.17% | 0.05% | -0.10% | -0.11% | -0.45% |
| Win% | 29% | 50% | 57% | 38% | 29% | 50% |
| SPX summary for all years 1953 - 2010 | ||||||
| Avg | -0.43% | 0.01% | -0.01% | -0.19% | -0.16% | -0.77% |
| Win% | 32% | 49% | 53% | 38% | 41% | 38% |
Money supply (M2)
The money supply chart was provided by Gordon Harms. M2's spectacular assent of the past 10 weeks is continuing.
Conclusion
Last weeks 5% rally did not generate many new highs making it look like a counter trend rally.
I expect the major averages to be lower on Friday September 23 than they were on Friday September 16.
Last weeks negative forecast was a miss.
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Thank you,
