The good news is:
• Money supply as measured by M2 is growing at its fastest rate in years.
Short Term
NASDAQ volume of issues rising in price hit its all time high in early August. Since then it has been falling and, during the past week, fell while prices were rising.
The chart below covers the past 6 months showing the NASDAQ composite (OTC) in blue and a 5% trend (39 day EMA) of NASDAQ volume of advancing issues (OTC UV) in green. Dashed vertical lines have been drawn on the 1st trading day of each month.
Usually OTC UV moves with prices, however, last week it fell while prices rose.
It would be nice to see a little more exuberance.
Intermediate Term
The secondaries lead both up and down.
The following two charts are from FastTrack (http://fasttrack.net/). They show the Russell 2000 (R2K) in red, the S&P500 (SPX) in green and a relative strength indicator called Accutrack (AT) as a histogram in yellow. When AT is rising or above the 0 line the R2K is outperforming the SPX. Since late August AT has been falling.
The next chart is similar to the one above except it begins on the last day of 2005. AT has had lower highs and lower lows since late February indicating R2K leadership over the SPX has been deteriorating.
Seasonality
Next week includes the week prior to the 3rd. Friday of September during the 3rd year of the Presidential Cycle.
The tables show the daily returns for the week during the 3rd year of the Presidential Cycle. OTC data covers the period from 1963 - 2003 and SPX data from 1955 - 2003. There are summaries for both the 3rd 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.
The OTC has been up 45% of the time in the coming week with an average return of 0.25%. A little weaker that the average over all years. The SPX has been a little stronger on average up 62% of the time with an average gain of 0.59% and a little weaker over all years, up 59% of the time with an average gain of 0.45%.
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 to 2nd Friday.
| OTC Presidential Year 3 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1963-3 | 0.03% | -0.34% | -0.36% | -0.39% | 0.37% | -0.70% |
| 1967-3 | 0.23% | 0.07% | -0.17% | 0.50% | -0.06% | 0.57% |
| 1971-3 | -0.18% | -0.41% | 0.02% | -0.01% | 0.29% | -0.29% |
| 1975-3 | -0.33% | -0.93% | 0.12% | 1.23% | 2.15% | 2.25% |
| 1979-3 | -0.07% | -0.84% | 0.17% | 0.51% | 0.30% | 0.07% |
| 1983-3 | -0.49% | -0.94% | 0.14% | -0.39% | 0.36% | -1.31% |
| Avg | -0.17% | -0.61% | 0.06% | 0.37% | 0.61% | 0.26% |
| 1987-3 | -0.15% | -0.80% | -0.25% | -0.02% | 0.02% | -1.19% |
| 1991-3 | -0.20% | -0.10% | 0.66% | 0.79% | 0.86% | 2.02% |
| 1995-3 | 0.62% | -0.15% | 0.23% | -0.04% | -1.49% | -0.83% |
| 1999-3 | -1.46% | 0.83% | -1.89% | -0.27% | 2.24% | -0.55% |
| 2003-3 | -0.50% | 2.25% | -0.22% | 1.40% | -0.20% | 2.73% |
| Avg | -0.34% | 0.41% | -0.29% | 0.37% | 0.29% | 0.44% |
| OTC summary for Presidential Year 3 1963 - 2003 | ||||||
| Avg | -0.23% | -0.12% | -0.14% | 0.30% | 0.44% | 0.25% |
| Win% | 27% | 27% | 55% | 45% | 73% | 45% |
| OTC summary for all years 1963 - 2006 | ||||||
| Avg | 0.08% | 0.06% | 0.02% | 0.09% | 0.30% | 0.56% |
| Win% | 45% | 50% | 56% | 64% | 70% | 59% |
| SPX Presidential Year 3 | ||||||
| Year | Mon | Tue | Wed | Thur | Fri | Totals |
| 1955-3 | 0.68% | 1.38% | 0.42% | -0.53% | 0.76% | 2.71% |
| 1959-3 | -0.73% | -0.54% | 0.07% | -0.55% | -0.57% | -2.32% |
| 1963-3 | -0.14% | 0.07% | -0.44% | 0.58% | 0.11% | 0.18% |
| 1967-3 | 0.19% | 0.48% | 1.05% | 0.22% | 0.07% | 2.01% |
| 1971-3 | -0.35% | -0.73% | 0.43% | -0.11% | 0.30% | -0.45% |
| 1975-3 | -0.50% | -0.95% | 0.34% | 2.05% | 2.17% | 3.10% |
| 1979-3 | 0.07% | -0.77% | 0.26% | 2.06% | -0.04% | 1.58% |
| 1983-3 | -0.86% | -0.41% | 0.34% | -0.59% | 1.13% | -0.39% |
| Avg | -0.29% | -0.48% | 0.49% | 0.73% | 0.73% | 1.17% |
| 1987-3 | 0.34% | -1.65% | -0.91% | 0.02% | -0.02% | -2.22% |
| 1991-3 | 0.57% | -0.07% | 0.37% | 0.16% | 0.09% | 1.13% |
| 1995-3 | 0.21% | 0.45% | 0.39% | 0.84% | -0.04% | 1.85% |
| 1999-3 | -0.55% | -0.59% | -1.37% | 0.04% | 1.28% | -1.19% |
| 2003-3 | -0.38% | 1.43% | -0.33% | 1.33% | -0.32% | 1.74% |
| Avg | 0.04% | -0.09% | -0.37% | 0.48% | 0.20% | 0.26% |
| SPX summary for Presidential Year 3 1955 - 2003 | ||||||
| Avg | -0.11% | -0.15% | 0.05% | 0.42% | 0.38% | 0.59% |
| Win% | 46% | 38% | 69% | 69% | 62% | 62% |
| SPX summary for all years 1953 - 2006 | ||||||
| Avg | 0.14% | 0.02% | 0.09% | 0.09% | 0.12% | 0.45% |
| Win% | 52% | 52% | 60% | 59% | 57% | 59% |
Mutual Fund
Compliance issues demand that I not mention the mutual fund that I manage by name or symbol in this letter.
To see a current chart of the fund go to: http://finance.yahoo.com/q/bc?s=APHAX&t=6m&l=on&z=m&q=l&c=.
For information about the fund go to: http://www.thealphafunds.com/index.htm. The fund now has service class shares available.
Conclusion
The rise from the August lows has been led by the blue chips on declining volume this suggests a retest of the August lows is still likely.
I expect the major indices to be lower on Friday September 21 than they were on Friday September 14.
This report is free to anyone who wants it, so please tell your friends. They can sign up at: http://alphaim.net/signup.html. If it is not for you, reply with REMOVE in the subject line.
Last weeks negative forecast was a miss.
