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Technical Market Report for October 19, 2013

The good news is:
• The NASDAQ composite (OTC) closed at a multi year high on Friday while all of the other broad based indices closed at all time highs.


The negatives

The chart below covers the past 6 months showing the S&P 500 (SPX) in red and a 10% trend (19 day EMA) of NYSE new highs (NY NH) in green. Dashed vertical lines have been drawn on the 1st trading day of each month.

The SPX closed at an all time high Friday while NY NH remains closer to its low of the past 6 months than its high. This is an example of an extreme non confirmation.

SPX versus NY NH Chart

The next chart is similar to the one above except it shows the OTC in blue and OTC NH, in green, has been calculated from NASDAQ data.

The OTC closed at a multi year high Friday while OTC NH is well below its July high.

OTC versus OTC NH Chart

New highs failing to confirm index highs is an indication of narrowing leadership.


The positives

New index highs are a strong positive. 52 week new highs of the individual issues have come up short, but, even more important, new lows have remained dormant.

The chart below covers the past 6 months showing the OTC in blue and a 40% trend (4 day EMA) of NASDAQ new highs divided by (new highs + new lows), (OTC HL Ratio) in red. Dashed horizontal lines have been drawn at 10% levels for the indicator, the line is solid at the neutral 50% level.

OTC HL Ratio finished the week above 90%.

There are trading systems that impose a NO SELL filter when variations of this indicator are above 80%.

OTC versus OTC HL Ratio Chart

The next chart is similar to the one above except it shows the SPX in red and NY HL Ratio, in blue, has been calculated from NYSE data.

NY HL Ratio also rallied to a very strong 89%.

SPX versus NY HL Ratio Chart


Seasonality

Next week includes the 5 trading days prior to the 4th Friday of October during the 1st year of the Presidential Cycle.

The tables below show the daily percentage return for the 5 trading days prior to the 4th Friday of October during the 1st year of the Presidential Cycle.

OTC data covers the period from 1963 - 2012 while SPX data runs from 1953 - 2012. There are summaries for both the 1st 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 modestly positive during the 1st year of the Presidential Cycle and modestly negative over all years.

Report for the week before the 4th Friday of October.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday through the 4th Friday.

OTC Presidential Year 1
Year Mon Tue Wed Thur Fri Totals
1965-1 0.41% 0.13% -0.15% 0.29% 0.16% 0.85%
1969-1 1.07% 0.34% 0.73% 2.00% 0.86% 5.01%
 
1973-1 -0.85% -0.43% 0.29% 0.16% 0.43% -0.40%
1977-1 -0.66% -1.08% 0.03% 0.22% 0.43% -1.06%
1981-1 -0.25% 0.77% 0.60% 0.03% -0.27% 0.88%
1985-1 -0.23% 0.29% 0.27% 0.44% -0.38% 0.39%
1989-1 -0.73% -1.18% 0.26% -1.02% -1.18% -3.86%
Avg -0.54% -0.33% 0.29% -0.04% -0.19% -0.81%
 
1993-1 -0.57% -1.81% -0.06% 0.39% 0.18% -1.87%
1997-1 1.12% 1.78% -0.43% -2.00% -1.22% -0.76%
2001-1 2.00% -0.21% 1.59% 2.00% -0.37% 5.01%
2005-1 1.61% -0.30% -0.45% -1.73% 1.26% 0.41%
2009-1 0.91% -0.59% -0.59% 0.68% -0.50% -0.10%
Avg 1.01% -0.23% 0.01% -0.13% -0.13% 0.54%
 
OTC summary for Presidential Year 1 1965 - 2009
Avg 0.32% -0.19% 0.17% 0.12% -0.05% 0.37%
Win% 50% 42% 58% 75% 50% 50%
 
OTC summary for all years 1963 - 2012
Avg 0.21% -0.33% 0.13% -0.06% -0.10% -0.14%
Win% 50% 36% 57% 50% 52% 48%
 
SPX Presidential Year 1
Year Mon Tue Wed Thur Fri Totals
1953-1 0.08% 0.04% 0.08% 0.45% 0.21% 0.87%
1957-1 -2.00% -0.43% 2.00% -0.05% -0.29% -0.78%
1961-1 -0.61% -0.12% 0.53% 0.18% -0.18% -0.20%
1965-1 0.33% 0.13% -0.02% 0.17% 0.04% 0.66%
1969-1 0.21% 0.77% 0.65% -0.38% 0.68% 1.92%
Avg -0.40% 0.08% 0.65% 0.08% 0.09% 0.49%
 
1973-1 -0.96% 0.54% 0.47% 0.21% 0.80% 1.06%
1977-1 -0.75% -0.69% 1.21% 0.26% 0.29% 0.33%
1981-1 -0.18% 1.09% -0.15% -0.38% -0.87% -0.49%
1985-1 -0.04% 0.58% 0.56% -0.31% -0.52% 0.26%
1989-1 -0.67% -0.33% -0.35% -1.33% -0.85% -3.53%
Avg -0.52% 0.24% 0.35% -0.31% -0.23% -0.47%
 
1993-1 -0.22% -0.48% -0.03% -0.15% -0.45% -1.33%
1997-1 1.21% 1.75% -0.39% -1.84% -0.95% -0.22%
2001-1 1.53% -0.47% 0.04% 1.37% 0.41% 2.88%
2005-1 1.68% -0.24% -0.43% -1.05% 1.65% 1.62%
2009-1 0.94% -0.62% -0.89% 1.06% -1.22% -0.72%
Avg 1.03% -0.01% -0.34% -0.12% -0.11% 0.44%
 
SPX summary for Presidential Year 1 1953 - 2009
Avg 0.04% 0.10% 0.22% -0.12% -0.08% 0.15%
Win% 47% 47% 53% 47% 47% 53%
 
SPX summary for all years 1953 - 2012
Avg 0.13% -0.17% 0.11% -0.17% -0.04% -0.15%
Win% 57% 42% 59% 38% 46% 43%


Money Supply (M2)

The money supply chart was provided by Gordon Harms. Money supply growth declined a little last week.

M2 Money Supply versus S&P500 Chart


Conclusion

The market had a strong week with the major indices up 1% - 3% with good strength in the breadth indicators. New highs are not confirming the index highs and volume leaves something to be desired, but, all time highs by all of the broad based indices suggest further advances.

I expect the major averages to be higher on Friday October 25 than they were on Friday October 18.

Last weeks negative forecast was a miss.

This report is free to anyone who wants it, so please tell your friends. They can sign up at: http://www.alphaim.net/signup.html. If it is not for you, reply with REMOVE in the subject line.

In his latest newsletter Jerry Minton discusses the Standard and Poor's Versus Active Funds (SPIVA) report and offers a simple method to significantly outperform both the indices and actively managed funds. You can subscribe to his free letter at: http://www.alphaim.net/

Good Luck,

YTD W 19/L 13/T 10

 

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