The good news is:
• The Dow Jones Industrial Average (DJIA) and S&P 500 (SPX) closed at all time highs last Friday and the NASDAQ composite closed at a multi year high on Tuesday.
The negatives
New lows hit their highest levels in 3 weeks and the secondaries were weaker than the blue chips last week. New highs picked up early in the week before falling off sharply on Friday.
The chart below covers the past 6 months showing the 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 the month.
OTC NH failed to confirm the index high on Tuesday.
The next chart is similar to the one above except it shows the SPX in red and NY NH has been calculated from NYSE data.
NY NH also failed to confirm the all time SPX high on Friday.
The positives
New lows remained at non threatening levels.
The chart below covers the past 6 months showing the SPX in red and a 40% trend (4 day EMA) of NYSE new highs / (new highs + new lows) (NY HL Ratio), in blue. Dashed horizontal lines have been drawn at 10% levels for the indicator, the line is solid at the neutral 50% level.
NY HL Ratio fell last week, but finished the week at a very strong 84%.
The next chart is similar to the one above except is shows the OTC in blue and OTC HL Ratio, in red, has been calculated from NASDAQ data.
OTC HL Ratio also fell last week, but is still strong at 66%.
Seasonality
Next week includes the 5 trading days prior to the 2nd Friday of September during the 2nd year of the Presidential Cycle.
The tables below show the change, on a percentage basis, of the OTC and SPX for the 5 trading days prior to the 2nd Friday of September during the 2nd year of the Presidential Cycle.
OTC data covers the period from 1963 to 2013 while SPX data runs from 1953 through 2013. There are summaries for both the 2nd 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 negative by all measures, helped considerably by 9/11/2001.
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 2 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1966-2 | 0.00% | -0.12% | -0.40% | -0.99% | -0.27% | -1.78% |
| 1970-2 | 0.00% | 1.45% | 1.99% | -0.24% | -0.26% | 2.93% |
| 1974-2 | -2.19% | -0.67% | -0.02% | -2.12% | -1.82% | -6.82% |
| 1978-2 | 0.00% | 0.82% | 0.23% | 0.23% | 0.93% | 2.21% |
| 1982-2 | 0.00% | -0.64% | 0.50% | 0.54% | -0.16% | 0.24% |
| 1986-2 | -1.47% | -0.87% | -0.74% | -3.67% | -1.86% | -8.61% |
| 1990-2 | 0.35% | -0.59% | 0.22% | -1.09% | -0.47% | -1.57% |
| Avg | -1.10% | -0.39% | 0.04% | -1.22% | -0.68% | -2.91% |
| 1994-2 | 0.00% | 0.03% | 0.63% | 0.66% | -0.72% | 0.60% |
| 1998-2 | 0.00% | 6.03% | -2.19% | -2.42% | 3.55% | 4.97% |
| 2002-2 | 0.72% | 1.19% | -0.35% | -2.72% | 0.92% | -0.25% |
| 2006-2 | 0.00% | 0.57% | -1.72% | -0.58% | 0.49% | -1.24% |
| 2010-2 | 0.00% | -1.11% | 0.90% | 0.33% | 0.28% | 0.40% |
| Avg | 0.72% | 1.34% | -0.54% | -0.95% | 0.90% | 0.90% |
| OTC summary for Presidential Year 2 1966 - 2010 | ||||||
| Avg | -0.65% | 0.51% | -0.08% | -1.01% | 0.05% | -0.74% |
| Win% | 50% | 50% | 50% | 33% | 42% | 50% |
| OTC summary for all years 1963 - 2013 | ||||||
| Avg | -0.34% | -0.02% | -0.11% | 0.08% | 0.10% | -0.10% |
| Win% | 45% | 51% | 54% | 63% | 61% | 61% |
| SPX Presidential Year 2 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1954-2 | 0.00% | 0.52% | 0.07% | 0.16% | 0.36% | 1.11% |
| 1958-2 | 0.33% | 0.69% | -0.31% | 0.68% | -0.23% | 1.17% |
| 1962-2 | 0.12% | 0.24% | 0.43% | -0.24% | 0.32% | 0.87% |
| 1966-2 | 0.00% | -0.59% | -0.81% | -0.38% | 0.32% | -1.46% |
| 1970-2 | 0.00% | 0.25% | -0.30% | -0.59% | 0.27% | -0.37% |
| Avg | 0.23% | 0.22% | -0.18% | -0.07% | 0.21% | 0.26% |
| 1974-2 | -2.38% | -0.69% | -1.00% | -2.68% | -2.26% | -9.01% |
| 1978-2 | 0.00% | 0.78% | 0.85% | 0.04% | 1.30% | 2.97% |
| 1982-2 | 0.00% | -1.07% | 0.68% | -0.19% | -0.82% | -1.39% |
| 1986-2 | -0.93% | -0.19% | -0.25% | -4.81% | -1.92% | -8.09% |
| 1990-2 | -0.55% | -0.18% | 0.47% | -1.21% | -0.57% | -2.04% |
| Avg | -1.29% | -0.27% | 0.15% | -1.77% | -0.85% | -3.51% |
| 1994-2 | 0.00% | 0.18% | -0.18% | 0.46% | -1.05% | -0.59% |
| 1998-2 | 0.00% | 5.10% | -1.69% | -2.59% | 2.95% | 3.77% |
| 2002-2 | 1.01% | 0.73% | -0.01% | -2.48% | 0.33% | -0.42% |
| 2006-2 | 0.00% | 0.17% | -0.99% | -0.48% | 0.38% | -0.92% |
| 2010-2 | 0.00% | -1.15% | 0.64% | 0.48% | 0.49% | 0.47% |
| Avg | 1.01% | 1.01% | -0.45% | -0.92% | 0.62% | 0.46% |
| SPX summary for Presidential Year 2 1954 - 2010 | ||||||
| Avg | -0.40% | 0.32% | -0.16% | -0.92% | -0.01% | -0.93% |
| Win% | 50% | 60% | 40% | 33% | 60% | 40% |
| SPX summary for all years 1953 - 2013 | ||||||
| Avg | -0.26% | -0.03% | -0.04% | -0.16% | 0.08% | -0.27% |
| Win% | 46% | 52% | 57% | 48% | 64% | 52% |
Money Supply (M2)
The money supply chart was provided by Gordon Harms. M2 growth continued to fall last week.
Conclusion
Last week there was deterioration in the breadth indicators while the blue chips moved to all time highs. Seasonally the next few weeks have been very weak.
I expect the major averages to be lower on Friday September 12 than they were on Friday September 5.
Last week the blue chips were up a little while the secondaries were down a little so I am calling last weeks positive forecast a tie.
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Good Luck,
YTD W 9/L 15/T 12
