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Technical Market Report for October 22, 2016

The good news is:
• Last week the secondaries outperformed the blue chips.


The Negatives

Last week the market followed the average seasonal pattern and rose.

However, the breadth indicators did not follow.

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 highs (NY NH) in green. Dashed vertical lines have been drawn on the 1st trading day of each month.

New highs leveled off at their lowest level in the last 6 months.

SPX and NY NH Chart

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

OTC NH continued its fall.

OTC and OTC NH Chart


The positives

New lows remained at non threatening levels; otherwise the breadth indicators are not very encouraging.

The next chart 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 50%, neutral level.

OTC HL Ratio recovered to a neutral level.

OTC and 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 rose to a comfortable level of 76% and, for the very short term, is in a positive trend.

SPX and NY HL Ratio Chart


Seasonality

Next week includes the 5 trading days prior to the 4th Friday of October during the 4th year of the Presidential Cycle. The tables below show the daily change, on a percentage basis for that period.

OTC data covers the period from 1963 to 2015 while SPX data runs from 1953 to 2015. There are summaries for both the 4th 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 and worse during the 4th year of the Presidential Cycle than other periods.

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 4
Year Mon Tue Wed Thur Fri Totals
1964-4 -0.43% 0.25% -0.18% -0.23% 0.44% -0.16%
1968-4 0.71% -0.65% 0.00% -0.63% -0.76% -1.33%
1972-4 0.52% 0.19% -0.02% 0.37% 0.12% 1.19%
 
1976-4 0.45% -0.01% 0.20% -0.16% -0.26% 0.23%
1980-4 -0.05% -0.35% 0.73% -1.06% 0.18% -0.53%
1984-4 -0.25% 0.02% 0.09% -0.73% -0.65% -1.52%
1988-4 -0.35% -0.29% -0.24% -0.89% 0.27% -1.50%
1992-4 1.38% 0.34% 0.75% -0.01% 0.03% 2.50%
Avg 0.24% -0.06% 0.31% -0.57% -0.09% -0.16%
 
1996-4 -0.49% -1.33% 0.65% -0.07% -0.36% -1.60%
2000-4 -0.41% -1.41% -5.56% 1.32% 0.19% -5.88%
2004-4 1.31% -0.70% 0.52% 1.07% -1.97% 0.23%
2008-4 3.43% -4.14% -4.77% -0.73% -3.23% -9.45%
2012-4 0.38% -0.88% -0.29% 0.15% 0.06% -0.58%
Avg 0.84% -1.69% -1.89% 0.35% -1.06% -3.46%
 
OTC summary for Presidential Year 4 1964 - 2012
Avg 0.48% -0.69% -0.68% -0.12% -0.46% -1.42%
Win% 54% 31% 50% 31% 54% 31%
 
OTC summary for all years 1963 - 2015
Avg 0.09% -0.45% 0.10% 0.00% -0.05% -0.32%
Win% 53% 38% 54% 53% 55% 51%
 
SPX Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1956-4 -0.02% -0.24% -0.41% -0.17% 0.92% 0.07%
Avg -0.02% -0.24% -0.41% -0.17% 0.92% 0.07%
 
1960-4 -1.16% -0.76% 1.43% 1.07% -0.39% 0.20%
1964-4 0.12% 0.29% -0.09% -0.19% 0.24% 0.37%
1968-4 0.16% -0.40% 0.00% -0.70% 0.35% -0.59%
1972-4 1.02% 0.42% -0.08% 0.24% -0.33% 1.26%
1976-4 0.61% -0.02% 0.29% -0.95% -0.80% -0.88%
Avg 0.15% -0.09% 0.39% -0.10% -0.19% 0.07%
 
1980-4 0.83% -0.58% 0.06% -1.81% 0.25% -1.26%
1984-4 -0.36% -0.16% 0.07% -0.53% -0.61% -1.60%
1988-4 -0.49% 0.04% -0.35% -1.46% 0.45% -1.81%
1992-4 0.79% 0.12% 0.05% -0.19% -0.19% 0.58%
1996-4 -0.14% -0.46% 0.10% -0.70% -0.19% -1.40%
Avg 0.13% -0.21% -0.02% -0.94% -0.06% -1.10%
 
2000-4 -0.08% 0.17% -2.38% -0.03% 1.11% -1.21%
2004-4 0.53% -0.97% 0.04% 0.26% -0.97% -1.12%
2008-4 4.77% -3.08% -6.10% 1.26% -3.45% -6.60%
2012-4 0.04% -1.44% -0.31% 0.30% -0.07% -1.48%
 
SPX summary for Presidential Year 4 1956 - 2012
Avg 0.44% -0.47% -0.55% -0.24% -0.25% -1.03%
Win% 60% 33% 50% 33% 40% 33%
 
SPX summary for all years 1953 - 2015
Avg -0.12% -0.10% 0.17% -0.12% -0.02% -0.20%
Win% 59% 44% 56% 41% 48% 48%


Conclusion

The market had a weak rally last week, unconfirmed by the breadth indicators. Seasonality next week is weak.

I expect the major averages to be lower on Friday October 28 than they were on Friday October 21.

These reports are archived at: http://www.safehaven.com/

Good Luck,

YTD W 17 / L 17 / T 8

 

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