The good news is:
• The market is oversold and due for a bounce.
The negatives
Prices began following the breadth indicators downward last week and there is no evidence of a bottom.
The first chart covers the past 6 months showing the S&P 500 (SPX) in red and a 10% trend (19 day EMA) of NYSE new lows (NY NL), in blue. Dashed vertical lines have been drawn on the 1st trading day of each month. NY NL has been plotted on an inverted Y axis so decreasing new lows move the indicator upward (up is good).
NY NL moved sharply downward last week.
The next chart is similar to the one above except it shows the NASDAQ composite (OTC) in blue and OTC NL has been calculated from NASDAQ data.
OTC NL also moved sharply downward last week.
The next chart 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 blue. Dashed horizontal lines have been drawn at 10% levels for the indicator, the line is solid at the 50%, neutral level.
NY HL Ratio moved downward finishing the week at a very weak 18%.
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 fell to 40%.
The positives
Many of the breadth oscillators are near extremes so the market is due for a bounce.
New lows are at dangerous levels, however, this will make the identification of a bottom easy when it comes because new lows will suddenly disappear.
Seasonality
Next week includes the last 5 trading days of July during the 3rd year of the Presidential Cycle.
The tables below show the daily change, on a percentage basis for the last 5 trading days of July during the 3rd year of the Presidential Cycle.
OTC data covers the period from 1963 to 2014 while SPX data runs from 1928 to 2014 There are summaries for both the 3rd year of the Presidential Cycle and all years combined.
Average returns for the coming week have been modestly negative by most measures.
Report for the Last 5 days of July.
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 3 | ||||||
| Day5 | Day4 | Day3 | Day2 | Day1 | Totals | |
| 1963-3 | 0.99% 4 | -0.36% 5 | -0.36% 1 | 0.18% 2 | 0.90% 3 | 1.35% |
| 1967-3 | -0.33% 2 | -0.06% 3 | 0.37% 4 | 0.76% 5 | 0.09% 1 | 0.83% |
| 1971-3 | -0.26% 1 | -0.71% 2 | -1.03% 3 | -1.53% 4 | -0.51% 5 | -4.04% |
| 1975-3 | -0.64% 5 | -0.61% 1 | -0.51% 2 | 0.44% 3 | 0.19% 4 | -1.13% |
| 1979-3 | 0.69% 3 | 0.40% 4 | 0.36% 5 | 0.37% 1 | 0.56% 2 | 2.38% |
| 1983-3 | 0.04% 1 | -0.15% 2 | 1.50% 3 | -2.09% 4 | -1.54% 5 | -2.24% |
| 1987-3 | -0.06% 1 | 0.26% 2 | 0.29% 3 | 0.55% 4 | 0.31% 5 | 1.35% |
| 1991-3 | 0.59% 4 | 0.49% 5 | 0.13% 1 | 1.00% 2 | 0.76% 3 | 2.97% |
| Avg | 0.12% | 0.08% | 0.35% | 0.05% | 0.06% | 0.66% |
| 1995-3 | 1.55% 2 | 0.65% 3 | 1.05% 4 | -0.53% 5 | -0.41% 1 | 2.31% |
| 1999-3 | -2.72% 1 | 2.31% 2 | 0.97% 3 | -2.43% 4 | -0.06% 5 | -1.92% |
| 2003-3 | 1.72% 5 | 0.27% 1 | -0.23% 2 | -0.60% 3 | 0.82% 4 | 1.98% |
| 2007-3 | 0.31% 3 | -1.84% 4 | -1.43% 5 | 0.82% 1 | -1.43% 2 | -3.57% |
| 2011-3 | -0.56% 1 | -0.10% 2 | -2.65% 3 | 0.05% 4 | -0.36% 5 | -3.61% |
| Avg | 0.06% | 0.26% | -0.46% | -0.54% | -0.29% | -0.96% |
| OTC summary for Presidential Year 3 1963 - 2011 | ||||||
| Averages | 0.10% | 0.04% | -0.12% | -0.23% | -0.05% | -0.26% |
| % Winners | 54% | 46% | 54% | 62% | 54% | 54% |
| MDD 7/30/1971 3.98% -- 7/31/2007 3.85% -- 7/29/1983 3.60% | ||||||
| OTC summary for all years 1963 - 2014 | ||||||
| Averages | 0.03% | 0.02% | -0.12% | 0.00% | -0.05% | -0.12% |
| % Winners | 54% | 46% | 44% | 62% | 50% | 58% |
| MDD 7/28/2000 9.10% -- 7/31/1974 6.22% -- 7/31/1969 4.97% | ||||||
| SPX Presidential Year 3 | ||||||
| Day5 | Day4 | Day3 | Day2 | Day1 | Totals | |
| 1931-3 | 0.79% 1 | 1.07% 2 | -3.10% 3 | 0.44% 4 | -0.51% 5 | -1.31% |
| 1935-3 | 0.56% 5 | 1.20% 6 | 1.10% 1 | -0.91% 2 | 1.28% 3 | 3.24% |
| 1939-3 | 1.00% 3 | 0.08% 4 | -0.33% 5 | -0.25% 6 | -0.58% 1 | -0.08% |
| 1943-3 | -3.17% 2 | -0.34% 3 | 1.68% 4 | -1.90% 5 | -1.43% 6 | -5.16% |
| 1947-3 | -0.25% 5 | -0.87% 1 | -2.20% 2 | -0.45% 3 | 1.55% 4 | -2.22% |
| 1951-3 | -0.53% 3 | 0.67% 4 | 0.27% 5 | 0.44% 1 | -1.02% 2 | -0.17% |
| Avg | -0.48% | 0.15% | 0.11% | -0.61% | -0.04% | -0.88% |
| 1955-3 | 1.12% 1 | 0.23% 2 | 0.41% 3 | -0.59% 4 | 0.05% 5 | 1.21% |
| 1959-3 | 0.62% 1 | 0.50% 2 | 0.50% 3 | -0.20% 4 | 0.02% 5 | 1.44% |
| 1963-3 | -0.03% 4 | 0.41% 5 | 0.19% 1 | 0.83% 2 | -0.16% 3 | 1.24% |
| 1967-3 | 0.01% 2 | 0.34% 3 | 0.31% 4 | 0.15% 5 | 0.28% 1 | 1.08% |
| 1971-3 | -0.27% 1 | -0.90% 2 | -0.73% 3 | -1.08% 4 | -0.46% 5 | -3.44% |
| Avg | 0.29% | 0.12% | 0.14% | -0.18% | -0.06% | 0.31% |
| 1975-3 | -0.87% 5 | -0.67% 1 | -0.56% 2 | 0.73% 3 | -0.09% 4 | -1.47% |
| 1979-3 | 1.09% 3 | 0.02% 4 | 0.00% 5 | 0.05% 1 | 0.64% 2 | 1.80% |
| 1983-3 | 0.38% 1 | 0.48% 2 | -1.62% 3 | -1.52% 4 | -1.50% 5 | -3.78% |
| 1987-3 | 0.45% 1 | 0.54% 2 | 1.06% 3 | 0.76% 4 | 0.19% 5 | 3.00% |
| 1991-3 | 0.61% 4 | -0.01% 5 | 0.58% 1 | 0.92% 2 | 0.29% 3 | 2.40% |
| Avg | 0.33% | 0.07% | -0.11% | 0.19% | -0.09% | 0.39% |
| 1995-3 | 0.80% 2 | 0.09% 3 | 0.64% 4 | -0.41% 5 | -0.15% 1 | 0.98% |
| 1999-3 | -0.68% 1 | 1.12% 2 | 0.18% 3 | -1.79% 4 | -0.92% 5 | -2.08% |
| 2003-3 | 1.74% 5 | -0.22% 1 | -0.73% 2 | -0.18% 3 | 0.29% 4 | 0.90% |
| 2007-3 | 0.47% 3 | -2.33% 4 | -1.60% 5 | 1.03% 1 | -1.26% 2 | -3.71% |
| 2011-3 | -0.56% 1 | -0.41% 2 | -2.03% 3 | -0.32% 4 | -0.65% 5 | -3.97% |
| Avg | 0.35% | -0.35% | -0.71% | -0.33% | -0.54% | -1.58% |
| SPX summary for Presidential Year 3 1931 - 2011 | ||||||
| Averages | 0.16% | 0.05% | -0.28% | -0.20% | -0.20% | -0.48% |
| % Winners | 62% | 62% | 52% | 43% | 43% | 48% |
| MDD 7/31/1943 5.12% -- 7/29/1983 4.57% -- 7/31/2007 4.14% | ||||||
| SPX summary for all years 1928 - 2014 | ||||||
| Averages | -0.04% | 0.02% | 0.08% | 0.15% | 0.05% | 0.26% |
| % Winners | 55% | 57% | 52% | 62% | 60% | 56% |
| MDD 7/26/1934 7.83% -- 7/31/1933 6.84% -- 7/31/1974 6.68% | ||||||
Money supply (M2)
The money supply chart was provided by Gordon Harms. M2 growth has leveled off at its trend line.
Conclusion
There is no evidence of a bottom and seasonally this period of weakness is scheduled to last 2 more weeks.
I expect the major averages to be lower on Friday July 31 than they were on Friday July 24.
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Good Luck,
YTD W 10 / L 11 / T 8
