The good news is:
• The part of the 4th year of Presidential Cycle with the most extreme negative seasonal bias behind us.
The negatives
The breadth indicators had been holding up well until last week.
What we hope for is strength in the breadth indicators while the secondaries outperform the blue chips. We got none of that last week.
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 in green. Dashed vertical lines have been drawn on the 1st trading day of each month.
After holding up well, OTC NH fell sharply last week. Both the index and the indicator fell. The problem will only become serious if the OTC NH continues to fall while the index recovers.
The next chart is similar to the one above except it shows the S&P 500 (SPX) in red and NY NH has been calculated from NYSE data.
NY NH has been a little weaker than OTC NH.
The positives
New lows remained dormant on the NYSE last week, but picked up a bit on the NASDAQ.
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 dipped last week, but recovered a little on Friday while the SPX was down.
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 has been weaker than NY HL Ratio and barely held above the neutral level last week.
Seasonality
Next week includes the first 5 trading days prior to the 3rd Friday of October 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 3rd Friday of October 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 have been positive by all measures.
Report for the week before the 3rd Friday of October.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday through 3rd Friday.
| OTC Presidential Year 4 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1964-4 | 0.00% | 0.09% | -0.07% | -0.27% | 0.11% | -0.14% |
| 1968-4 | 0.04% | 0.35% | 0.00% | 0.27% | -0.01% | 0.65% |
| 1972-4 | -1.04% | 0.44% | 0.49% | -0.11% | 0.86% | 0.65% |
| 1976-4 | -0.40% | -0.29% | 0.61% | -0.64% | 0.37% | -0.35% |
| 1980-4 | 0.55% | 0.08% | 0.21% | -0.74% | -0.36% | -0.27% |
| 1984-4 | 0.63% | -0.16% | -0.07% | 1.08% | 0.57% | 2.05% |
| 1988-4 | 0.11% | 0.32% | -0.13% | 0.74% | -0.01% | 1.04% |
| Avg | -0.03% | 0.08% | 0.22% | 0.07% | 0.29% | 0.62% |
| 1992-4 | 0.58% | 0.45% | -0.04% | 0.42% | 0.69% | 2.10% |
| 1996-4 | 0.65% | 0.14% | -0.56% | -0.72% | 0.04% | -0.46% |
| 2000-4 | -0.80% | -2.32% | -1.32% | 7.79% | 1.89% | 5.24% |
| 2004-4 | 0.46% | -0.19% | -0.24% | -0.91% | 0.45% | -0.44% |
| 2008-4 | 11.81% | -3.54% | -8.47% | 5.49% | -0.37% | 4.91% |
| Avg | 2.54% | -1.09% | -2.13% | 2.41% | 0.54% | 2.27% |
| OTC summary for Presidential Year 4 1964 - 2008 | ||||||
| Avg | 1.14% | -0.39% | -0.87% | 1.03% | 0.35% | 1.25% |
| Win% | 73% | 58% | 27% | 50% | 67% | 58% |
| OTC summary for all years 1963 - 2011 | ||||||
| Avg | 0.38% | -0.04% | -0.27% | 0.48% | -0.13% | 0.42% |
| Win% | 60% | 53% | 48% | 65% | 55% | 53% |
| SPX Presidential Year 4 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1956-4 | -0.30% | -0.51% | -0.77% | 0.17% | -0.22% | -1.63% |
| 1960-4 | -0.42% | -0.51% | -0.18% | -0.72% | -1.00% | -2.84% |
| 1964-4 | 0.02% | -0.33% | -0.20% | -0.64% | 0.69% | -0.45% |
| 1968-4 | 0.14% | 0.20% | 0.00% | 0.46% | 0.78% | 1.58% |
| 1972-4 | -1.07% | 0.68% | 0.64% | -0.13% | 1.10% | 1.23% |
| 1976-4 | -0.90% | -0.82% | 1.30% | -1.21% | -0.03% | -1.66% |
| 1980-4 | 1.34% | -0.01% | 1.27% | -1.11% | -0.53% | 0.96% |
| 1984-4 | 0.97% | -0.60% | -0.39% | 2.41% | -0.08% | 2.31% |
| 1988-4 | 0.33% | 1.07% | -0.86% | 2.13% | 0.28% | 2.95% |
| Avg | 0.13% | 0.07% | 0.39% | 0.42% | 0.15% | 1.16% |
| 1992-4 | 1.19% | 0.46% | 0.02% | 0.06% | 0.52% | 2.24% |
| 1996-4 | 0.41% | -0.14% | 0.26% | 0.37% | 0.54% | 1.44% |
| 2000-4 | 0.03% | -1.79% | -0.58% | 3.47% | 0.59% | 1.72% |
| 2004-4 | 0.20% | -0.23% | -0.73% | -0.93% | 0.45% | -1.24% |
| 2008-4 | 11.58% | -0.53% | -9.03% | 4.25% | -0.62% | 5.64% |
| Avg | 2.68% | -0.45% | -2.01% | 1.44% | 0.30% | 1.96% |
| SPX summary for Presidential Year 4 1956 - 2008 | ||||||
| Avg | 0.97% | -0.22% | -0.71% | 0.61% | 0.18% | 0.88% |
| Win% | 71% | 29% | 38% | 57% | 57% | 64% |
| SPX summary for all years 1953 - 2011 | ||||||
| Avg | 0.42% | -0.01% | -0.29% | 0.26% | -0.17% | 0.21% |
| Win% | 64% | 37% | 47% | 59% | 48% | 59% |
Money supply (M2)
The money supply chart was provided by Gordon Harms. Money supply growth jumped sharply last week.
Conclusion
My estimate last week of seasonal weakness ending early was off by, at least, a week. Historically the blue chips hit their lows for the month right about now with another dip to a higher low near the end of the month. The secondaries, on average, hit their low point for the month near the end of the month.
I expect the major averages to be higher on Friday October 19 than they were on Friday October 12.
Last weeks positive forecast was a miss.
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 /L 16/T 12
