The good news is:
• There was no significant increase in new lows last week.
The negatives
NYSE new highs hit 174 and NASDAQ new highs hit 110 a week and a half ago before falling to a low of 12 on both markets last week. This is a huge drop, but it may mean nothing because of the remarkable volatility in the past week.
The positives
In spite of the volatility last week there was no significant build up of new lows.
The first chart 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 orange. 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.
OTC NL is not a good top indicator, it usually lags, but, it shows no signs of altering its upward trajectory.
The next chart is similar to the one above except it shows the S&P 500 (SPX) in red and NY NL has been calculated from NYSE data.
NY NL is also moving sharply upward.
Seasonality
Next week includes the 5 trading days prior to the 2nd Friday of October 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 2nd Friday of October 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 slightly positive over all years and slightly negative during the 3rd year of the Presidential Cycle.
Report for the week before the 2nd Friday of November.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday to 2nd Friday.
| OTC Presidential Year 3 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1963-3 | 0.06% | 0.00% | -0.93% | -0.20% | 0.11% | -0.96% |
| 1967-3 | -0.42% | 0.00% | -0.48% | -0.62% | 0.08% | -1.45% |
| 1971-3 | -0.03% | 0.28% | -0.81% | -1.07% | 0.16% | -1.47% |
| 1975-3 | 0.32% | 0.70% | 1.63% | -0.06% | -0.30% | 2.28% |
| 1979-3 | -0.56% | -0.33% | -1.12% | 0.47% | 0.81% | -0.74% |
| 1983-3 | -0.75% | -0.57% | 0.53% | 0.77% | 1.48% | 1.46% |
| 1987-3 | -1.83% | -1.64% | 0.83% | 1.95% | -0.32% | -1.00% |
| Avg | -0.57% | -0.31% | 0.21% | 0.41% | 0.37% | 0.11% |
| 1991-3 | -0.63% | 0.25% | 0.12% | 1.08% | 0.51% | 1.32% |
| 1995-3 | -0.34% | -1.71% | 0.38% | 1.69% | -0.16% | -0.14% |
| 1999-3 | 1.34% | -0.61% | 0.99% | 1.32% | 0.74% | 3.78% |
| 2003-3 | -1.48% | -0.56% | 2.19% | -0.29% | -1.89% | -2.02% |
| 2007-3 | -0.54% | 1.07% | -2.70% | -1.92% | -2.52% | -6.62% |
| Avg | -0.33% | -0.31% | 0.20% | 0.37% | -0.66% | -0.73% |
| OTC summary for Presidential Year 3 1963 - 2007 | ||||||
| Avg | -0.40% | -0.31% | 0.05% | 0.26% | -0.11% | -0.46% |
| Win% | 25% | 40% | 58% | 50% | 58% | 33% |
| OTC summary for all years 1963 - 2010 | ||||||
| Avg | -0.02% | 0.11% | -0.10% | 0.26% | -0.15% | 0.09% |
| Win% | 46% | 58% | 56% | 58% | 57% | 52% |
| SPX Presidential Year 3 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1955-3 | 0.43% | 0.00% | 1.04% | 0.25% | 1.16% | 2.88% |
| 1959-3 | -0.17% | -0.03% | 0.02% | -0.56% | -0.56% | -1.31% |
| 1963-3 | -0.51% | 0.00% | -0.87% | 0.34% | 0.41% | -0.63% |
| 1967-3 | -0.33% | 0.00% | -0.37% | 0.49% | 0.68% | 0.47% |
| 1971-3 | -0.07% | 0.07% | -1.11% | -1.38% | 0.00% | -2.49% |
| 1975-3 | 0.01% | 0.59% | 1.47% | -0.16% | -0.08% | 1.83% |
| 1979-3 | -0.67% | -0.61% | -1.31% | 0.43% | 1.21% | -0.96% |
| 1983-3 | -0.33% | -0.09% | 1.37% | 0.27% | 1.14% | 2.36% |
| 1987-3 | -2.89% | -1.71% | 1.21% | 2.74% | -1.16% | -1.81% |
| Avg | -0.79% | -0.35% | 0.32% | 0.38% | 0.28% | -0.22% |
| 1991-3 | -0.27% | -0.40% | 0.32% | 0.96% | -0.21% | 0.41% |
| 1995-3 | -0.36% | -0.36% | 0.92% | 0.26% | -0.09% | 0.37% |
| 1999-3 | 0.49% | -0.85% | 0.60% | 0.58% | 1.06% | 1.88% |
| 2003-3 | -0.58% | -0.05% | 1.15% | -0.01% | -0.76% | -0.26% |
| 2007-3 | -0.50% | 1.20% | -2.94% | -0.06% | -1.43% | -3.71% |
| Avg | -0.24% | -0.09% | 0.01% | 0.35% | -0.29% | -0.26% |
| SPX summary for Presidential Year 3 1955 - 2007 | ||||||
| Avg | -0.41% | -0.20% | 0.11% | 0.30% | 0.11% | -0.07% |
| Win% | 21% | 27% | 64% | 64% | 46% | 50% |
| SPX summary for all years 1953 - 2010 | ||||||
| Avg | -0.03% | 0.07% | -0.01% | 0.26% | -0.09% | 0.20% |
| Win% | 50% | 49% | 60% | 59% | 56% | 55% |
Money supply (M2)
The money supply chart was provided by Gordon Harms. M2 grew rapidly when the market was falling and is now falling sharply.
Conclusion
None of the technical indicators look very bad, but the market has had a very tight correlation with the dollar and the dollar has been experiencing wide swings. Seasonally average returns have been slightly negative for the coming week, however, the market has broken with the seasonal pattern for the past 2 weeks.
I expect the major averages to be lower on Friday November 11 than they were on Friday November 4.
Last weeks positive forecast was a miss.
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In his latest newsletter, titled "Foot-Shooting", Jerry Minton takes a look the performance persistence of mutual funds. To read about it and to sign up for his free newsletter, go to www.alphaim.net.
Thank you,
