The good news is:
• New lows remained insignificant on the NASDAQ.
The negatives
New lows, while still at benign levels, increased last week and new highs remained minimal.
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 (OTC NH) in green. Dashed vertical lines have been drawn on the 1st trading day of the month.
After failing to confirm the OTC high of a week ago, OTC NH resumed its decline.
The next chart is similar to the one above except it shows the S&P 500 (SPX) in red and NY NH, in green, has been calculated from NYSE data.
NY NH fell sharply last week.
The next chart covers the past 6 months showing the SPX in red and a 10% trend of NYSE new lows (NY NL) in blue. NY NL has been plotted on an inverted Y axis so decreasing new lows move the indicator upward (up is good).
This is the most alarming of all of the charts. If NY NL continues falling sharply, prices will follow.
The positives
New lows remained at non threatening levels, but have been increasing.
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 sharply last week, but remains positive by a hair.
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 its fall was arrested in positive territory.
This is the first time in a long time that NASDAQ derived breadth indicators have been stronger than those from the NYSE.
Seasonality
Next week includes the 5 trading days prior to the 3rd 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 3rd 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 positive by all measures.
Report for the week before the 3rd Friday of September.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday through 3rd Friday.
| OTC Presidential Year 2 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1966-2 | -0.08% | 1.31% | 0.15% | 0.91% | 0.63% | 2.93% |
| 1970-2 | 0.09% | -0.13% | -1.14% | 0.20% | 1.15% | 0.18% |
| 1974-2 | 1.02% | 0.84% | 0.69% | 2.41% | 0.64% | 5.60% |
| 1978-2 | 0.43% | 0.21% | 0.01% | -0.65% | -0.71% | -0.72% |
| 1982-2 | 0.24% | 0.93% | 0.93% | 0.26% | -0.10% | 2.25% |
| 1986-2 | -0.27% | -0.63% | 0.94% | 0.49% | 0.24% | 0.77% |
| 1990-2 | -0.08% | -0.51% | -0.14% | -1.95% | -0.60% | -3.28% |
| Avg | 0.27% | 0.17% | 0.48% | 0.11% | -0.11% | 0.92% |
| 1994-2 | -0.49% | 0.77% | 0.36% | 1.31% | -0.10% | 1.85% |
| 1998-2 | 1.47% | 0.72% | 0.73% | -2.58% | 1.06% | 1.40% |
| 2002-2 | -1.20% | -1.25% | -0.62% | -2.85% | 0.38% | -5.54% |
| 2006-2 | 0.34% | 1.96% | 0.53% | 0.05% | 0.31% | 3.19% |
| 2010-2 | 1.93% | 0.18% | 0.50% | 0.08% | 0.54% | 3.23% |
| Avg | 0.41% | 0.47% | 0.30% | -0.80% | 0.44% | 0.83% |
| OTC summary for Presidential Year 2 1966 - 2010 | ||||||
| Avg | 0.28% | 0.37% | 0.25% | -0.19% | 0.29% | 0.99% |
| Win% | 58% | 67% | 75% | 67% | 67% | 75% |
| OTC summary for all years 1963 - 2013 | ||||||
| Avg | 0.05% | 0.19% | 0.03% | 0.19% | 0.36% | 0.81% |
| Win% | 45% | 55% | 60% | 63% | 73% | 63% |
| SPX Presidential Year 2 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1954-2 | 0.91% | 0.51% | 0.03% | 0.54% | 0.79% | 2.79% |
| 1958-2 | 0.89% | 0.80% | -0.04% | -0.51% | 0.65% | 1.79% |
| 1962-2 | 0.32% | -0.08% | -0.14% | -0.70% | -1.45% | -2.05% |
| 1966-2 | 2.12% | 0.53% | 1.03% | 1.20% | -0.11% | 4.77% |
| 1970-2 | -0.55% | -0.87% | 0.53% | 0.61% | 0.40% | 0.13% |
| Avg | 0.74% | 0.18% | 0.28% | 0.23% | 0.06% | 1.49% |
| 1974-2 | 1.63% | 1.69% | 0.50% | 3.50% | 0.07% | 7.39% |
| 1978-2 | 0.18% | 0.01% | -0.61% | -1.17% | -0.93% | -2.52% |
| 1982-2 | 1.05% | 0.70% | 0.97% | -0.42% | -0.99% | 1.32% |
| 1986-2 | 0.55% | -0.09% | -0.02% | 0.27% | -0.04% | 0.67% |
| 1990-2 | 0.30% | 0.26% | -0.63% | -1.62% | -0.05% | -1.74% |
| Avg | 0.74% | 0.51% | 0.04% | 0.11% | -0.39% | 1.02% |
| 1994-2 | -0.42% | 0.28% | 0.27% | 1.28% | -0.76% | 0.65% |
| 1998-2 | 2.04% | 0.78% | 0.75% | -2.54% | 0.12% | 1.14% |
| 2002-2 | 0.14% | -1.97% | -0.46% | -3.01% | 0.25% | -5.05% |
| 2006-2 | 0.05% | 1.04% | 0.38% | -0.14% | 0.27% | 1.61% |
| 2010-2 | 1.11% | -0.07% | 0.35% | -0.04% | 0.08% | 1.44% |
| Avg | 0.59% | 0.01% | 0.26% | -0.89% | -0.01% | -0.04% |
| SPX summary for Presidential Year 2 1954 - 2010 | ||||||
| Avg | 0.69% | 0.23% | 0.20% | -0.18% | -0.11% | 0.82% |
| Win% | 87% | 67% | 60% | 40% | 53% | 73% |
| SPX summary for all years 1953 - 2013 | ||||||
| Avg | 0.08% | 0.12% | 0.09% | 0.16% | 0.18% | 0.62% |
| Win% | 52% | 54% | 63% | 56% | 59% | 62% |
Money Supply (M2)
The money supply chart was provided by Gordon Harms. M2 growth picked up a little last week.
Conclusion
The breadth indicators are overwhelmingly negative, but the market has been following the seasonal pattern with a positive bias. The seasonal pattern next week has been, on average positive.
I expect the major averages to be higher on Friday September 20 than they were on Friday September 13.
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Good Luck,
YTD W 10 / L 15 / T 12
