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Technical Market Report for September 29, 2012

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


The negatives

Seasonality is the problem.

Except for March, the market has followed the seasonal pattern of the 4th year of the Presidential Cycle pretty closely and that pattern calls for another down week.


The positives

There will not be a serious decline unless new lows start building and, so far, that has not happened.

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 continued to hold above 90%, very strong.

NY 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 dipped a little below 80%, but remained very strong.

OTC HL Ratio


Seasonality

Next week includes the first 5 trading days of October during the 4th year of the Presidential Cycle.

The tables below show the daily return on a percentage basis for the first 5 trading days October 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.

Average returns are negatively skewed by a really bad week in 2008, but, omitting 2008, average returns have not been attractive.

Report for the first 5 days of October.
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
  Day1 Day2 Day3 Day4 Day5 Totals
1964-4 0.09% 4 -0.25% 5 0.07% 1 0.19% 2 0.30% 3 0.39%
1968-4 0.20% 2 0.61% 4 0.37% 5 -0.12% 1 -0.53% 2 0.52%
 
1972-4 -0.24% 1 0.14% 2 -0.15% 3 -0.99% 4 0.09% 5 -1.14%
1976-4 -0.90% 5 0.02% 1 -0.78% 2 -0.80% 3 0.67% 4 -1.79%
1980-4 0.99% 3 0.63% 4 1.37% 5 1.33% 1 0.08% 2 4.41%
1984-4 -0.83% 1 -0.71% 2 -0.52% 3 0.16% 4 0.11% 5 -1.80%
1988-4 -0.83% 1 -0.07% 2 0.08% 3 0.16% 4 0.14% 5 -0.52%
Avg -0.36% 0.00% 0.00% -0.03% 0.22% -0.17%
 
1992-4 -0.85% 4 -1.16% 5 -1.12% 1 0.94% 2 -0.24% 3 -2.42%
1996-4 -0.44% 2 1.20% 3 -0.23% 4 1.17% 5 0.26% 1 1.95%
2000-4 -2.83% 1 -3.17% 2 1.95% 3 -1.45% 4 -3.20% 5 -8.70%
2004-4 2.39% 5 0.53% 1 0.16% 2 0.79% 3 -1.14% 4 2.73%
2008-4 -0.62% 3 -4.48% 4 -1.48% 5 -4.34% 1 -5.80% 2 -16.72%
Avg -0.47% -1.42% -0.15% -0.58% -2.02% -4.63%
 
OTC summary for Presidential Year 4 1964 - 2008
Averages -0.32% -0.56% -0.02% -0.25% -0.77% -1.92%
% Winners 33% 50% 50% 58% 58% 42%
MDD 10/7/2008 15.73% -- 10/6/2000 8.49% -- 10/5/1992 3.10%
 
OTC summary for all years 1963 - 2011
Averages -0.11% -0.07% 0.16% 0.09% -0.09% -0.02%
% Winners 52% 55% 59% 63% 61% 63%
MDD 10/7/2008 15.73% -- 10/7/1998 13.65% -- 10/6/2000 8.49%
 
SPX Presidential Year 4
  Day1 Day2 Day3 Day4 Day5 Totals
1928-4 -0.05% 1 -0.47% 2 -0.33% 3 0.33% 4 -0.19% 5 -0.70%
 
1932-4 0.87% 6 -1.10% 1 -0.12% 2 -8.20% 3 0.54% 4 -8.02%
1936-4 0.19% 4 1.93% 5 0.98% 6 0.12% 1 0.91% 2 4.13%
1940-4 1.41% 2 0.46% 3 0.09% 4 -0.83% 5 0.00% 6 1.13%
1944-4 0.16% 1 0.00% 2 0.55% 3 0.62% 4 0.15% 5 1.48%
1948-4 1.16% 5 0.51% 6 0.63% 1 -0.19% 2 0.13% 3 2.24%
Avg 0.76% 0.36% 0.43% -1.69% 0.35% 0.19%
 
1952-4 -0.24% 3 0.16% 4 -0.08% 5 -0.24% 1 -0.16% 2 -0.57%
1956-4 -1.43% 1 1.83% 2 1.67% 3 0.02% 4 0.35% 5 2.44%
1960-4 -0.30% 1 -0.69% 2 0.75% 3 0.62% 4 0.58% 5 0.96%
1964-4 -0.12% 4 0.33% 5 0.45% 1 0.06% 2 0.01% 3 0.74%
1968-4 0.19% 2 0.47% 4 0.36% 5 -0.01% 1 0.04% 2 1.04%
Avg -0.38% 0.42% 0.63% 0.09% 0.16% 0.92%
 
1972-4 -0.35% 1 0.13% 2 -0.19% 3 -1.09% 4 0.67% 5 -0.84%
1976-4 -1.02% 5 -0.13% 1 -0.77% 2 -0.25% 3 0.55% 4 -1.62%
1980-4 1.33% 3 0.76% 4 0.97% 5 1.86% 1 -0.55% 2 4.36%
1984-4 -0.89% 1 -0.63% 2 -0.70% 3 0.30% 4 -0.15% 5 -2.07%
1988-4 -0.19% 1 -0.28% 2 0.46% 3 0.19% 4 2.09% 5 2.26%
Avg -0.22% -0.03% -0.05% 0.20% 0.52% 0.42%
 
1992-4 -0.36% 4 -1.40% 5 -0.71% 1 -0.10% 2 -0.72% 3 -3.28%
1996-4 0.26% 2 0.71% 3 -0.18% 4 1.25% 5 0.27% 1 2.32%
2000-4 -0.02% 1 -0.68% 2 0.55% 3 0.14% 4 -1.90% 5 -1.91%
2004-4 1.52% 5 0.32% 1 -0.06% 2 0.67% 3 -1.00% 4 1.45%
2008-4 -0.32% 3 -4.03% 4 -1.35% 5 -3.85% 1 -5.74% 2 -15.29%
Avg 0.22% -1.01% -0.35% -0.38% -1.82% -3.34%
 
SPX summary for Presidential Year 4 1928 - 2008
Averages 0.08% -0.09% 0.14% -0.41% -0.20% -0.46%
% Winners 43% 52% 52% 57% 57% 57%
MDD 10/7/2008 14.47% -- 10/5/1932 9.33% -- 10/7/1992 3.24%
 
SPX summary for all years 1928 - 2011
Averages -0.03% 0.31% 0.26% -0.34% 0.49% 0.70%
% Winners 48% 67% 52% 33% 62% 62%
MDD 10/5/1937 6.61% -- 10/4/1929 5.13% -- 10/6/2005 3.04%


Money supply (M2)

The money supply chart was provided by Gordon Harms. Money supply growth has been accelerating.

M2


October

Since 1963, over all years, the OTC in October has been up 58% of the time with an average gain of 1.0%. During the 4th year of the Presidential Cycle October has been up 45% time with an average loss of 1.4% (helped considerably by a 16.8% loss in 2008). The best October ever for the OTC was 1974 (+17.6%), the worst 1987 (-27.9%).

The average month has 21 trading days. The chart below has been calculated by averaging the daily percentage change of the OTC for each of the 1st 11 trading days and each of the last 10. In months when there were more than 21 trading days some of the days in the middle were not counted. In months when there were less than 21 trading days some of the days in the middle of the month were counted twice. Dashed vertical lines have been drawn after the 1st trading day and at 5 trading day intervals after that. The line is solid on the 11th trading day, the dividing point.

In the chart below the blue line shows the average of the OTC in October over all years since 1963 while the black line shows the average during the 4th year of the Presidential Cycle over the same period.

OTC October 1963-2012

Since 1928 the SPX has been up 61% of the time in October with an average gain of 0.3%. During the 4th year of the Presidential Cycle the SPX has been up 71% of the time with an average loss of -0.2% (helped by losses of 14.6% in 1932 and 16.6% in 2008). The best October ever for the SPX was 1974 (+16.6%), the worst 1987 (-23.1%).

The chart below is similar to the one above except it shows the average daily performance over all years for the SPX in October in red and the performance during the 4th year of the Presidential Cycle in black.

SPX October 1928-2012

Since 1979 the Russell 2000 (R2K) has been up 55% of the time in October with an average loss of -0.2%. During the 4th year of the Presidential Cycle the R2K has been up 25% of the time with an average loss of -2.4%. The best October ever for the R2K, 2011 (+21.6%), the worst 1987 (-30.9%)

The chart below is similar to those above except it shows the daily performance over all years of the R2K in October in green and the performance during the 4th year of the Presidential Cycle in black.

R2K October 1979-2012

Since 1885 the Dow Jones Industrial Average (DJIA) has been up 56% of the time in October with an average gain of 0.2%. During the 4th year of the Presidential Cycle the DJIA has been up 65% of the time in October with an average gain of 0.7%. The best October ever for the DJIA, 1988 (+12.6%), the worst 1987 (-24.5%).

The chart below is similar to those above except it shows the daily performance over all years of the DJIA in October in grey and the performance during the 4th year of the Presidential Cycle in black.

DJIA October 1885-2012


Conclusion

The seasonal pattern suggests continued weakness for another week or so.

I expect the major averages to be lower on Friday October 5 than they were on Friday September 28.

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 13 /L14/T 12

 

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