The good news is:
• The blue chip indices closed at multi year highs Friday.
The negatives
September got off to a nice start, most of the breadth indicators advanced with the indices, however there were a few significant laggards.
The chart below covers the past 6 months showing the NASDAQ composite (OTC) in blue and a 10% trend (19 day EMA) of NASDAQ new highs (OTC NH) in green. Dashed vertical lines have been drawn on the 1st trading day of each month.
OTC NH moved up nicely last week, however it is still well below its high point for the year established last March.
The next chart is similar to the first one except it shows the S&P 500 (SPX) in red and NY NH has been calculated from NYSE data.
NY NH has been stronger than OTC NH, but, it too, came up a little short of its high for the year set in July.
Advance - Decline lines are running totals of declining issues subtracted from advancing issues. The Advance - Decline line calculated from NYSE data hit an all time high last Friday. The Advance - Decline line calculated from NASDAQ data, shown in green below, has not been as strong.
The positives
Last week new highs expanded nicely on both the NYSE and NASDAQ while new lows, which have been dormant for months remained that way.
The chart below covers 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 for the indicator, the line is solid at the neutral 50% level.
NY HL Ratio jumped back up over 90% last week.
The next chart is similar to the one above except it shows the OTC in blue and OTC HL Ratio, in red, has been calculated from NASDAQ data.
OTC HL Ratio closed at a very strong 81% on Friday. There are trading systems that impose a no sell filter when versions of this indicator are above 80%.
Seasonality
Next week includes the 5 trading days prior to the 2nd Friday of September during the 4th year of the Presidential Cycle.
The tables below show the daily return on a percentage basis for the 5 trading days prior to the 2nd Friday of September during the 4th year of the Presidential Cycle.
OTC data covers the period from 1963 - 2011 and SPX data covers the period from 1953 - 2011. There are summaries for both the 4th 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 for the coming week have been positive during the 4th year of the Presidential Cycle, but, on average, negative over all years.
Report for the week before the 2nd Friday of September.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday to 2nd Friday.
| OTC Presidential Year 4 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1964-4 | 0.00% | 0.29% | 0.38% | 0.07% | -0.24% | 0.50% |
| 1968-4 | 0.16% | 0.27% | 0.00% | -0.01% | -0.50% | -0.09% |
| 1972-4 | 0.00% | -0.28% | -0.54% | -0.32% | -0.06% | -1.21% |
| 1976-4 | 0.00% | 0.21% | 0.05% | -0.44% | 0.36% | 0.19% |
| 1980-4 | -0.62% | 0.21% | 0.80% | 0.99% | 0.75% | 2.13% |
| 1984-4 | -0.46% | 0.51% | -0.14% | 0.75% | 0.89% | 1.55% |
| 1988-4 | 0.00% | 0.22% | 0.17% | 0.47% | 0.49% | 1.35% |
| Avg | -0.54% | 0.17% | 0.07% | 0.29% | 0.49% | 0.80% |
| 1992-4 | 0.00% | -0.40% | 0.65% | 1.10% | 0.30% | 1.66% |
| 1996-4 | 0.82% | 0.06% | 0.40% | 1.02% | 1.96% | 4.26% |
| 2000-4 | 0.00% | -2.15% | -3.14% | 2.12% | -2.93% | -6.09% |
| 2004-4 | 0.00% | 0.76% | -0.43% | 1.03% | 1.32% | 2.68% |
| 2008-4 | 0.62% | -2.64% | 0.85% | 1.32% | 0.14% | 0.29% |
| Avg | 0.72% | -0.87% | -0.33% | 1.32% | 0.16% | 0.56% |
| OTC summary for PresidentiL Year 4 1964 - 2008 | ||||||
| Avg | 0.10% | -0.25% | -0.08% | 0.68% | 0.21% | 0.60% |
| Win% | 60% | 67% | 64% | 75% | 67% | 75% |
| OTC summary for all years 1963 - 2011 | ||||||
| Avg | -0.39% | -0.03% | -0.12% | 0.06% | 0.08% | -0.17% |
| Win% | 45% | 49% | 54% | 63% | 59% | 59% |
| SPX Presidential Year 4 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1956-4 | -0.52% | -0.38% | -0.70% | -0.13% | 0.47% | -1.26% |
| 1960-4 | 0.00% | -0.89% | -1.24% | -0.09% | 0.66% | -1.56% |
| 1964-4 | 0.00% | 0.13% | 0.22% | 0.06% | 0.42% | 0.83% |
| 1968-4 | 0.03% | -0.49% | 0.00% | -0.21% | 0.34% | -0.33% |
| 1972-4 | 0.00% | -0.25% | -0.61% | -0.24% | -0.13% | -1.22% |
| 1976-4 | 0.00% | 0.70% | -0.09% | -0.51% | 0.24% | 0.34% |
| 1980-4 | -1.26% | 0.62% | 0.60% | 0.68% | -0.10% | 0.54% |
| 1984-4 | -0.07% | 0.12% | 0.14% | 1.98% | 0.50% | 2.67% |
| 1988-4 | 0.00% | 0.42% | 0.11% | 0.00% | 0.36% | 0.89% |
| Avg | -0.66% | 0.32% | 0.03% | 0.38% | 0.18% | 0.64% |
| 1992-4 | 0.00% | -0.63% | 0.46% | 0.86% | -0.09% | 0.60% |
| 1996-4 | 1.23% | 0.01% | 0.52% | 0.58% | 1.40% | 3.74% |
| 2000-4 | 0.00% | -0.90% | -0.98% | 0.69% | -0.53% | -1.73% |
| 2004-4 | 0.00% | 0.69% | -0.45% | 0.19% | 0.50% | 0.92% |
| 2008-4 | 2.05% | -3.41% | 0.61% | 1.38% | 0.21% | 0.84% |
| Avg | 1.64% | -0.85% | 0.03% | 0.74% | 0.30% | 0.88% |
| SPX summary for Presidential Year 4 1956 - 2008 | ||||||
| Avg | 0.24% | -0.31% | -0.11% | 0.37% | 0.30% | 0.38% |
| Win% | 50% | 50% | 54% | 64% | 71% | 64% |
| SPX summary for all years 1953 - 2011 | ||||||
| Avg | -0.30% | -0.05% | -0.05% | -0.19% | 0.07% | -0.35% |
| Win% | 46% | 51% | 55% | 47% | 63% | 51% |
Money supply (M2)
The money supply chart was provided by Gordon Harms. Money supply growth has been modestly positive.
Conclusion
The seasonal pattern calls for another week or so of gains.
I expect the major averages to be higher on Friday September 14 than they were on Friday September 7.
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.
Gordon Harms produces a Power Point for our local timing group meetings. You can get a copy of that at: http://www.stockmarket-ta.com/
Good Luck,
YTD W 10 /L14/T 12
