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Technical Market Report for September 22, 2012

The good news is:
• All of the major, broad based, indices were down slightly last week, but there was no significant increase in the number of new lows.


The negatives

The major indices paused last week after rising sharply in the first half of September. The secondaries underperformed the blue chips while the breadth indicators held up pretty well.

Seasonality is the problem.

For the next 2 weeks the market has, on average, been up nearly half of the time, but the average returns have been negative. In the years the market has been up the gains have been modest while some of the losses in the down years have been substantial.


The positives

The breadth indicators have held up well.

The chart below covers the past 6 months showing the S&P 500 (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 held above 90%, very strong.

NYSE HL Ratio

The next chart is similar to the one above except it shows the NASDAQ composite (OTC) in blue and OTC HL Ratio, in red, has been calculated from NASDAQ data.

OTC HL Ratio held above 80%. There are trading systems that impose a no sell filter when variations of this indicator are above 80%.

OTC HL Ratio


Seasonality

Next week includes the last 5 trading days of September during the 4th year of the Presidential Cycle.

The tables below show the daily return on a percentage basis for the last 5 trading days September during the 4th year of the Presidential Cycle.

OTC data covers the period from 1963 - 2011 and SPX data covers the period from 1928 - 2011. There are summaries for both the 4th year of the Presidential Cycle and all years combined.

Last week I showed tables for the week before the 4th Friday of September while the coming Friday was only the 3rd Friday of September. Unfortunately, the difference between the 2 weeks was considerable. Average returns for the week prior to the 3rd Friday have been strong, while average returns prior to the 4th Friday (which I showed) have been weak. My apologies for the error.

Average returns for the coming week have been negative by all measures.

Last 5 days of September.
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 4
  Day5 Day4 Day3 Day2 Day1 Totals
1964-4 0.21% 4 0.56% 5 -0.05% 1 0.00% 2 0.26% 3 0.98%
1968-4 0.03% 1 0.14% 2 -0.09% 4 -0.08% 5 -0.04% 1 -0.04%
 
1972-4 -0.50% 1 0.20% 2 1.16% 3 0.45% 4 0.37% 5 1.68%
1976-4 0.04% 5 0.14% 1 -0.87% 2 -0.40% 3 -0.01% 4 -1.10%
1980-4 0.07% 3 -0.58% 4 -1.69% 5 -2.61% 1 1.06% 2 -3.75%
1984-4 -0.74% 1 -0.31% 2 0.09% 3 0.02% 4 -0.14% 5 -1.09%
1988-4 -0.58% 1 -0.14% 2 0.28% 3 0.72% 4 0.43% 5 0.71%
Avg -0.34% -0.14% -0.21% -0.36% 0.34% -0.71%
 
1992-4 0.51% 4 -1.49% 5 -0.32% 1 0.40% 2 0.98% 3 0.07%
1996-4 0.31% 2 0.77% 3 0.27% 4 0.17% 5 -0.26% 1 1.27%
2000-4 -1.65% 1 -1.39% 2 -0.89% 3 3.34% 4 -2.79% 5 -3.38%
2004-4 -0.37% 5 -1.04% 1 0.54% 2 1.29% 3 0.15% 4 0.57%
2008-4 0.11% 3 1.43% 4 -0.15% 5 -9.14% 1 4.97% 2 -2.78%
Avg -0.22% -0.34% -0.11% -0.79% 0.61% -0.85%
 
OTC summary for Presidential Year 4 1964 - 2008
Averages -0.21% -0.14% -0.14% -0.49% 0.41% -0.57%
% Winners 58% 50% 42% 58% 58% 50%
MDD 9/29/2008 9.28% -- 9/29/1980 4.81% -- 9/27/2000 3.88%
 
OTC summary for all years 1963 - 2011
Averages -0.02% 0.00% -0.17% -0.18% -0.07% -0.44%
% Winners 57% 52% 47% 46% 47% 47%
MDD 9/29/2008 9.28% -- 9/30/1974 6.69% -- 9/30/2003 6.04%
 
SPX Presidential Year 4
  Day5 Day4 Day3 Day2 Day1 Totals
1928-4 -0.09% 2 -0.05% 3 -1.26% 4 0.05% 5 1.09% 6 -0.27%
 
1932-4 -5.63% 1 1.12% 2 2.83% 3 -3.11% 4 -0.25% 5 -5.04%
1936-4 -1.79% 5 0.94% 6 0.62% 1 -0.43% 2 -0.31% 3 -0.97%
1940-4 -0.18% 3 -0.65% 4 -1.76% 5 0.66% 6 0.09% 1 -1.84%
1944-4 -0.24% 2 0.00% 3 -0.31% 4 0.39% 5 0.31% 6 0.16%
1948-4 0.26% 5 -2.63% 1 1.12% 2 1.24% 3 -0.39% 4 -0.40%
Avg -1.52% -0.24% 0.50% -0.25% -0.11% -1.62%
 
1952-4 0.36% 3 0.08% 4 -0.32% 5 -0.20% 1 -0.57% 2 -0.65%
1956-4 -0.39% 1 -1.40% 2 0.15% 3 -0.48% 4 -0.55% 5 -2.66%
1960-4 -1.56% 1 -0.23% 2 -0.87% 3 0.27% 4 1.71% 5 -0.68%
1964-4 0.11% 4 0.25% 5 0.08% 1 -0.05% 2 -0.07% 3 0.32%
1968-4 0.57% 1 0.34% 2 -0.22% 4 -0.05% 5 0.35% 1 0.99%
Avg -0.18% -0.19% -0.24% -0.10% 0.18% -0.53%
 
1972-4 -0.43% 1 0.11% 2 1.38% 3 0.63% 4 0.18% 5 1.87%
1976-4 -0.11% 5 0.44% 1 -1.26% 2 -0.52% 3 -0.12% 4 -1.57%
1980-4 0.73% 3 -1.27% 4 -1.84% 5 -2.22% 1 1.55% 2 -3.05%
1984-4 -0.24% 1 0.21% 2 0.40% 3 0.41% 4 -0.52% 5 0.26%
1988-4 -0.33% 1 -0.23% 2 0.31% 3 1.30% 4 -0.25% 5 0.80%
Avg -0.08% -0.15% -0.20% -0.08% 0.17% -0.34%
 
1992-4 0.25% 4 -0.98% 5 0.55% 1 0.04% 2 0.24% 3 0.09%
1996-4 -0.13% 2 0.03% 3 0.01% 4 0.05% 5 0.17% 1 0.12%
2000-4 -0.67% 1 -0.82% 2 -0.04% 3 2.22% 4 -1.49% 5 -0.81%
2004-4 0.16% 5 -0.59% 1 0.59% 2 0.43% 3 -0.02% 4 0.56%
2008-4 -0.20% 3 1.97% 4 0.32% 5 -8.79% 1 5.27% 2 -1.43%
Avg -0.12% -0.08% 0.28% -1.21% 0.83% -0.29%
 
SPX summary for Presidential Year 4 1928 - 2008
Averages -0.46% -0.16% 0.02% -0.39% 0.31% -0.68%
% Winners 33% 48% 57% 57% 48% 43%
MDD 9/29/2008 8.79% -- 9/26/1932 5.63% -- 9/29/1980 5.24%
 
SPX summary for all years 1928 - 2011
Averages -0.17% -0.09% 0.09% -0.23% -0.03% -0.42%
% Winners 49% 47% 57% 52% 46% 51%
MDD 9/30/1931 11.08% -- 9/29/2008 8.79% -- 9/30/1974 8.47%


Conclusion

The seasonal pattern suggests weakness over the next two weeks.

I expect the major averages to be lower on Friday September 28 than they were on Friday September 21.

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 Big Picture and asks when the next "secular" bull market will begin, You can read it and sign up for his free newsletter at Alpha's homepage: http://alphaim.net/

Good Luck,

YTD W 12 /L14/T 12

 

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