The good news is:
The breadth indicators firmed up pretty nicely last week.
The Negatives
We saw a nice rally last week with the secondaries outperforming the blue chips and new lows dropping to non-threatening levels. The rally was consistent with the seasonal pattern which begins to deteriorate in the coming week.
The first chart 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 each month.
New highs picked up a bit last week, but not enough to turn this indicator upward.
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.
On the NYSE, new highs increased enough to turn the indicator upward.
The Positives
The most impressive statistic from last week was how new lows disappeared.
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 jumped into positive territory finishing the week at 56%.
The next chart is similar to the one above one except it shows the SPX in red and NY HL Ratio, in blue, has been calculated with NYSE data.
NY HL Ratio also moved sharply upward finishing the week at a comfortable 70%.
Seasonality
Next week includes the last 4 trading days of August and the 1st trading day of September during the 1st 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 2016 while SPX data runs from 1928 to 2016. There are summaries for both the 1st year of the Presidential Cycle and all years combined.
Average returns have been modestly negative for the OTC and modestly positive for the SPX. The opposite of last week.
Report for the last 4 days of August and the first day of September.
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 1
Day4 Day3 Day2 Day1 Day1 Totals
1965-1 0.36% 4 0.20% 5 0.26% 1 0.20% 2 0.22% 3 1.22%
1969-1 -0.24% 2 -0.59% 3 0.06% 4 0.97% 5 0.32% 2 0.51%
1973-1 0.08% 2 0.78% 3 0.19% 4 0.85% 5 0.60% 2 2.49%
1977-1 -0.25% 5 0.48% 1 -0.26% 2 -0.01% 3 0.30% 4 0.26%
1981-1 0.02% 3 -0.50% 4 0.37% 5 -0.91% 1 -0.30% 2 -1.32%
1985-1 -0.10% 2 0.34% 3 0.11% 4 0.13% 5 -0.39% 2 0.09%
1989-1 0.09% 1 -0.13% 2 0.36% 3 0.23% 4 0.43% 5 0.98%
1993-1 -0.31% 4 0.37% 5 0.45% 1 0.74% 2 0.45% 3 1.69%
Avg -0.11% 0.11% 0.21% 0.04% 0.10% 0.34%
1997-1 -0.64% 2 0.26% 3 -0.89% 4 0.38% 5 1.94% 2 1.05%
2001-1 -2.48% 2 -1.17% 3 -2.79% 4 0.77% 5 -1.92% 2 -7.59%
2005-1 -0.64% 5 0.80% 1 -0.37% 2 1.05% 3 -0.19% 4 0.64%
2009-1 0.01% 3 0.16% 4 0.05% 5 -0.97% 1 -2.00% 2 -2.75%
2013-1 -2.16% 2 0.41% 3 0.75% 4 -0.84% 5 0.63% 2 -1.20%
Avg -1.18% 0.09% -0.65% 0.08% -0.31% -1.97%
OTC summary for Presidential Year 1 1965 - 2013
Averages -0.48% 0.11% -0.13% 0.20% 0.01% -0.30%
% Winners 38% 69% 69% 69% 62% 69%
MDD 9/4/2001 7.41% -- 9/1/2009 2.95% -- 8/27/2013 2.16%
OTC summary for all years 1963 - 2016
Averages -0.10% 0.11% -0.13% 0.09% 0.03% 0.00%
% Winners 54% 63% 61% 70% 60% 63%
MDD 8/31/1998 16.63% -- 9/3/2002 9.19% -- 9/4/2001 7.41%
SPX Presidential Year 1
Day4 Day3 Day2 Day1 Day1 Totals
1929-1 -0.06% 2 -0.19% 3 0.97% 4 1.34% 5 0.35% 2 2.40%
1933-1 -0.18% 1 -0.53% 2 -0.89% 3 -0.09% 4 1.26% 5 -0.43%
1937-1 -1.67% 5 0.19% 6 1.32% 1 -0.50% 2 -2.68% 3 -3.34%
1941-1 0.10% 3 0.29% 4 -0.10% 5 0.19% 6 0.39% 2 0.88%
1945-1 0.33% 2 -0.13% 3 0.33% 4 1.04% 5 0.00% 2 1.57%
1949-1 0.39% 5 -1.05% 1 0.60% 2 0.07% 3 0.59% 4 0.60%
1953-1 -0.29% 3 -0.29% 4 -0.21% 5 -1.77% 1 0.43% 2 -2.14%
Avg -0.23% -0.20% 0.39% -0.19% -0.25% -0.49%
1957-1 1.64% 2 0.07% 3 -0.40% 4 1.71% 5 0.49% 2 3.50%
1961-1 0.04% 1 -0.22% 2 0.38% 3 0.38% 4 0.18% 5 0.77%
1965-1 0.38% 4 0.07% 5 0.01% 1 -0.05% 2 0.00% 3 0.41%
1969-1 -0.66% 2 0.20% 3 0.42% 4 0.65% 5 0.03% 2 0.65%
1973-1 0.59% 2 0.98% 3 -0.14% 4 0.36% 5 0.25% 2 2.03%
Avg 0.40% 0.22% 0.05% 0.61% 0.19% 1.47%
1977-1 -0.09% 5 0.90% 1 -0.56% 2 0.40% 3 0.06% 4 0.71%
1981-1 -0.14% 3 -1.16% 4 0.46% 5 -1.04% 1 0.19% 2 -1.69%
1985-1 0.42% 2 0.39% 3 0.05% 4 -0.16% 5 -0.38% 2 0.32%
1989-1 0.45% 1 -0.64% 2 0.23% 3 0.23% 4 0.65% 5 0.92%
1993-1 0.20% 4 -0.11% 5 0.30% 1 0.36% 2 -0.09% 3 0.66%
Avg 0.17% -0.12% 0.10% -0.04% 0.09% 0.18%
1997-1 -0.78% 2 0.07% 3 -1.10% 4 -0.46% 5 3.13% 2 0.86%
2001-1 -1.50% 2 -1.11% 3 -1.70% 4 0.40% 5 -0.06% 2 -3.97%
2005-1 -0.60% 5 0.60% 1 -0.32% 2 0.99% 3 0.10% 4 0.76%
2009-1 0.01% 3 0.28% 4 -0.20% 5 -0.81% 1 -2.21% 2 -2.93%
2013-1 -1.59% 2 0.27% 3 0.20% 4 -0.32% 5 0.42% 2 -1.02%
Avg -0.89% 0.02% -0.62% -0.04% 0.28% -1.26%
SPX summary for Presidential Year 1 1929 - 2013
Averages -0.14% -0.05% -0.02% 0.13% 0.14% 0.07%
% Winners 50% 55% 55% 59% 68% 68%
MDD 8/30/2001 4.26% -- 9/1/1937 3.34% -- 9/1/2009 3.20%
SPX summary for all years 1928 - 2016
Averages -0.06% 0.04% -0.09% 0.11% -0.07% -0.07%
% Winners 46% 64% 49% 61% 63% 63%
MDD 8/31/1998 12.39% -- 9/3/1946 11.10% -- 9/3/2002 7.38%
September
Since 1963, over all years, the OTC in September has been up 59% of the time and as been on average flat for the month. During the 1st year of the Presidential Cycle September has been up 69% time with an average gain of (+0.3%). The best September ever for the OTC was 1998 (+13.0%), the worst 2001 (-17.0%).
The average month has 21 trading days. The chart below has been calculated by averaging the daily percentage change of the OTC for each of the 1st 11 trading days and each of the last 10. In months when there were more than 21 trading days some of the days in the middle were not counted. In months when there were less than 21 trading days some of the days in the middle of the month were counted twice. Dashed vertical lines have been drawn after the 1st trading day and at 5 trading day intervals after that. The line is solid on the 11th trading day, the dividing point.
In the chart below the blue line shows the average of the OTC in September over all years since 1963 while the green line shows the average during the 1st year of the Presidential Cycle over the same period.
Since 1928 the SPX has been up 44% of the time in September with an average loss of (-1.1%). During the 1st year of the Presidential Cycle, the SPX has been up 41% of the time with an average loss of (-1.6%). The best September ever for the SPX was 1939 (+16.5%) the worst 1931 (-29.9%).
The chart below is similar to the one above except it shows the average daily performance over all years for the SPX in September in red and the performance during the 1st year of the Presidential Cycle in green.
Since 1979 the Russell 2000 (R2K) has been up 55% of the time in September with an average loss of (-0.5%). During the 1st year of the Presidential Cycle, the R2K has been up 67% of the time with an average loss of (-0.7%) (helped considerably by a 13.6% loss in 2001). The best September ever for the R2K, 2010 (+12.3%), the worst 2001 (-13.6%)
The chart below is similar to those above except it shows the daily performance over all years of the R2K in September in magenta and the performance during the 1st year of the Presidential Cycle in green.
Since 1885 the DJIA has been up 44% of the time in September with an average loss of (-0.9%). During the 1st year of the Presidential Cycle, the DJIA has been up 52% of the time in September with an average loss of (-1.1%). The best September ever for the DJIA, 1939 (+13.5%), the worst 1930 -30.7%.
The chart below is similar to those above except it shows the daily performance over all years of the DJIA in September in cyan and the performance during the 1st year of the Presidential Cycle in grey.
Conclusion
The market is following the average seasonal pattern for the 1st year of the Presidential Cycle pretty closely. That pattern is not as strong for the coming week as it was last week, but new lows declined nicely last week.
I expect the major averages to be higher on Friday, September 1 than they were on Friday, August 25.
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