The good news is:
• All of the intermediate term indicators are heading sharply upward.
Short term
The NASDAQ new low indicator (OTC NL) is a 10% trend (19 day EMA) of NASDAQ new lows. OTC NL is plotted on an inverted Y axis so that when new lows are increasing the indicator moves downward and when new lows are decreasing the indicator moves upward (up is good). OTC NL is the best indicator I know of for identifying market bottoms.
In the chart below the NASDAQ composite (OTC) is shown in red and OTC NL in blue vertical dashed lines are drawn at the 1st trading day of each month.
This indicator has continued to move upward, but the number of daily new lows has remained stubbornly high. There were 37 new lows last Monday and 35 on Friday, but new lows numbered in the low 50's Tuesday - Thursday. The current value of the indicator is 57 so any number less than that will keep it moving upward.
The next chart shows the OTC in red and the NASDAQ new high indicator (OTC NH) in green. OTC NH is a 10% trend of NASDAQ new highs. The indicator is moving sharply upward but the highest number of new highs for the week was 149 on Friday and that was less than the 162 recorded on Thursday November 3. The current value of the indicator is 89 so any number greater than that will keep that indicator moving upward.
The next chart shows a momentum indicator applied to oscillators of NASDAQ new highs - new lows, advancing issues - declining issues and upside - downside volume. Oscillators and Momentum indicators have upper and lower limits and will regress to 0 when the data stream they are measuring goes flat. There are two considerations when looking at oscillators and momentum indicators, direction and level. Up is good while down is not and above 0 is good while below 0 is not.
The current pattern of the indicators is similar to mid July when the high low indicator was falling, the advance decline indicator was weakening and the volume indicator was rising.
The next chart shows the OTC in red and momentum of NASDAQ (advanced /(advances + declines)) in purple. The indicator is as high as it has been at any time in the past year suggesting it is time for a little consolidation.
Intermediate term
Summation indices (SI) are running totals of oscillator values.
The chart below shows the OTC in red, OTC AD SI calculated from NASDAQ advancing issues - declining issues, OTC HL SI calculated from NASDAQ new highs - new lows and OTC UD SI calculated from NASDAQ upside - downside volume. The direction of SI's make good intermediate term indicators and they are all moving sharply upward.
The chart below is an update of one I showed last week
The OTC is shown in red and the indicator in brown is the average daily point change of the NASDAQ AD line over the preceding 10 days. Absolute values are used so you are looking at total ADL points both ways.
The indicator normally rises in down markets and falls in up markets. You can see a spike near the April bottom on the left side of the chart.
Last week I pointed out the anomaly of rising prices and increasing ADL point change to a high not seen since the April bottom.
During the past week that indicator has fallen sharply, an event that has preceded weakness or consolidation in the past.
Seasonality
Options expire next Friday. Options were not an issue prior to the mid 1980's. The tables below show daily performance during the week prior to the 3rd. Friday in November during the 1st year of the Presidential Cycle. There are summaries for both the 1st year of the Presidential Cycle and all years combined. Data for the OTC covers the period from 1963 - 2004 while S&P 500 (SPX) data runs from 1928 - 2004. Since the mid 1980's the market has preformed much better than it did in earlier periods.
Report for the week before November Options expiration
The number following the year is the position in the presidential cycle.
Daily returns from Monday to expiration Friday.
| OTC Presidential Year 1 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1965-1 | 0.25% | 0.27% | -0.11% | 0.14% | -0.22% | 0.35% |
| 1969-1 | -0.07% | 0.05% | -0.23% | 0.26% | -0.88% | -0.88% |
| 1973-1 | -0.65% | -0.32% | -2.00% | -0.34% | -0.25% | -3.57% |
| 1977-1 | 0.04% | 0.53% | 0.04% | 0.30% | 0.35% | 1.26% |
| 1981-1 | -1.50% | 0.26% | -0.04% | -0.14% | 0.65% | -0.77% |
| Avg | -0.39% | 0.16% | -0.47% | 0.04% | -0.07% | -0.72% |
| 1985-1 | 0.76% | 0.69% | -0.18% | 0.45% | 0.31% | 2.04% |
| 1989-1 | -0.05% | -0.42% | 0.40% | -0.12% | 0.32% | 0.12% |
| 1993-1 | -0.88% | -0.10% | -1.21% | -1.05% | -0.37% | -3.61% |
| 1997-1 | 1.93% | -0.85% | 0.05% | 1.59% | -0.36% | 2.36% |
| 2001-1 | 0.64% | 2.00% | 0.59% | -0.14% | -0.10% | 2.98% |
| Avg | 0.48% | 0.27% | -0.07% | 0.14% | -0.04% | 0.78% |
| OTC summary for Presidential year 1 1965 - 2001 | ||||||
| Avg | 0.05% | 0.21% | -0.27% | 0.09% | -0.05% | 0.03% |
| Win% | 50% | 60% | 40% | 50% | 40% | 60% |
| OTC summary for all years 1963 - 2004 | ||||||
| Avg | -0.08% | -0.07% | 0.12% | 0.16% | -0.04% | 0.09% |
| Win% | 49% | 50% | 60% | 57% | 52% | 52% |
| SPX Presidential Year 1 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1929-1 | -1.03% | 2.00% | 2.00% | 1.60% | -0.37% | 4.19% |
| 1933-1 | -0.30% | -1.22% | -1.14% | 2.00% | -1.10% | -1.76% |
| 1937-1 | -2.00% | -0.43% | -0.78% | -2.00% | -2.00% | -7.22% |
| 1941-1 | -0.32% | -0.22% | 0.86% | 0.00% | 0.43% | 0.75% |
| 1945-1 | 0.00% | -0.35% | -0.53% | 0.77% | 0.76% | 0.65% |
| 1949-1 | -0.68% | 0.50% | 0.25% | 0.00% | -0.56% | -0.49% |
| 1953-1 | -0.65% | -0.53% | 0.16% | 0.45% | 0.16% | -0.40% |
| 1957-1 | -0.02% | -1.44% | -0.13% | -0.28% | 2.00% | 0.13% |
| 1961-1 | 0.28% | 0.55% | 0.01% | -0.07% | 0.00% | 0.77% |
| Avg | -0.27% | -0.26% | -0.05% | 0.22% | 0.59% | 0.13% |
| 1965-1 | 0.09% | -0.24% | 0.21% | -0.41% | 0.02% | -0.33% |
| 1969-1 | -0.68% | -0.02% | -0.51% | -1.03% | -0.62% | -2.86% |
| 1973-1 | -0.82% | -0.08% | -1.83% | -0.02% | 1.42% | -1.33% |
| 1977-1 | -0.69% | 0.64% | -0.50% | -0.30% | 0.18% | -0.67% |
| 1981-1 | -1.18% | 0.76% | -0.73% | 0.37% | 0.83% | 0.05% |
| Avg | -0.65% | 0.21% | -0.67% | -0.28% | 0.36% | -1.03% |
| 1985-1 | 1.84% | 0.41% | -0.49% | 0.99% | -0.48% | 2.27% |
| 1989-1 | 0.13% | -0.46% | 0.75% | 0.01% | 0.30% | 0.74% |
| 1993-1 | -0.35% | 0.64% | -0.41% | -0.26% | -0.22% | -0.60% |
| 1997-1 | 1.92% | -0.84% | 0.68% | 1.52% | 0.43% | 3.71% |
| 2001-1 | -0.18% | 1.86% | 0.19% | 0.09% | -0.31% | 1.64% |
| Avg | 0.67% | 0.32% | 0.14% | 0.47% | -0.06% | 1.55% |
| SPX summary for Presidential year 1 1929 -2001 | ||||||
| Avg | -0.26% | 0.08% | -0.10% | 0.20% | 0.05% | -0.04% |
| Win% | 28% | 42% | 47% | 53% | 56% | 53% |
| SPX summary for all years 1928 - 2004 | ||||||
| Avg | -0.10% | -0.04% | 0.03% | 0.11% | -0.03% | -0.02% |
| Win% | 45% | 42% | 58% | 53% | 53% | 49% |
Conclusion
Most of the recent rally can be attributed to seasonal strength and, although the rally has been impressive, new lows have remained stubbornly high. AD line strength has also been deteriorating. The market looks ripe for a period of consolidation.
I expect the major indices to be lower on Friday November 18 than they were on Friday November 11.
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