The good news is:
All of the major indices except the Russell 2000 (R2K) closed at all time highs last Friday.
The Negatives
New lows increased last week.
The blue chips outperformed the secondaries.
Another Hindenburg omen was triggered last Thursday and there was a very close call again on Friday.
Last week was similar to the previous week in both breadth and index performance.
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. NY NL has been plotted on an inverted Y axis so increasing new lows move the indicator downward (up is good). Dashed vertical lines have been drawn on the 1st trading day of each month.
NY NL is continuing to move downward as the index is making new highs
The next chart is similar to the one above except it shows the Nasdaq composite (OTC) in blue and OTC NL, in dark red, has been calculated with Nasdaq data.
Same story on the NASDAQ; new lows increasing while the index is making new highs.
The next chart covers the past 6 months showing the SPX in red and a 10% trend (19 day EMA) of NYSE new highs (NY NH) in green.
NY NH again failed to confirm the new high in the SPX.
The next chart is similar to the one above except it shows the OTC in blue and OTC NH, in green, has been calculated using NASDAQ data.
OTC NH continued its fall easily failing to confirm the index high.
Summation Indices (SI) are running totals of oscillator values. The charts below show SI’s calculated from advance-decline (AD), new high – new low (HL) and upside-downside volume (UD) oscillators.
The signals from SI’s are often ambiguous; however, when they are all heading in the same direction, they deserve attention.
The chart below covers the past 6 months showing the SPX in red and SI’s calculated with NYSE data.
The net chart is similar to the one above except it shows the OTC in blue and the SI’s have been calculated with Nasdaq data.
The Positives
The breadth indicators continue to deteriorate while Seasonality is strong.
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 moved very little last week and remained comfortably in positive territory.
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 finished the week near the comfortable level where it started.
Seasonality
Next week includes the 5 trading days prior to the 2nd Friday of November 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 1953 to 2016. There are summaries for both the 1st 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 positive by all measures and much stronger during the 1st year of the Presidential Cycle than other years.
Report for the week before the 2nd Friday of November.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday to 2nd Friday.
OTC Presidential Year 1
Year Mon Tue Wed Thur Fri Totals
1965-1 -0.13% -0.27% -0.36% 0.09% -0.04% -0.70%
1969-1 0.79% 0.38% -0.21% 0.44% -0.37% 1.03%
1973-1 -1.66% -0.77% 0.40% 0.55% -1.44% -2.91%
1977-1 0.66% 0.37% 0.50% 1.30% 0.96% 3.78%
1981-1 -0.03% -0.01% 0.08% 0.47% -0.41% 0.10%
1985-1 0.04% 0.35% 0.50% 0.25% 0.86% 2.00%
1989-1 -1.09% 0.31% 1.03% 0.00% 0.47% 0.72%
1993-1 0.42% 0.47% 0.87% 0.32% 0.04% 2.12%
Avg 0.00% 0.30% 0.60% 0.47% 0.38% 1.74%
1997-1 -0.73% -0.36% -2.73% 1.04% 1.66% -1.13%
2001-1 2.74% 2.31% 0.13% -0.53% 0.04% 4.70%
2005-1 0.41% -0.28% 0.17% 0.96% 0.26% 1.52%
2009-1 1.97% -0.14% 0.74% -0.83% 0.88% 2.62%
2013-1 0.37% 0.08% -0.20% -1.90% 1.60% -0.04%
Avg 0.95% 0.32% -0.38% -0.25% 0.89% 1.53%
OTC summary for Presidential Year 1 1965 - 2013
Avg 0.29% 0.19% 0.07% 0.17% 0.35% 1.06%
Win% 62% 54% 69% 77% 69% 69%
OTC summary for all years 1963 - 2016
Avg 0.04% 0.14% -0.19% 0.14% -0.08% 0.04%
Win% 50% 61% 54% 56% 60% 50%
SPX Presidential Year 1
Year Mon Tue Wed Thur Fri Totals
1953-1 0.20% -1.18% 0.00% 0.37% 0.33% -0.28%
1957-1 -0.17% 0.00% 0.15% 0.59% -1.18% -0.61%
1961-1 0.78% 0.00% 1.23% -0.14% 0.42% 2.29%
1965-1 -0.15% -0.33% -0.11% 0.30% 0.48% 0.20%
1969-1 0.07% -0.26% -0.18% -0.48% -0.36% -1.22%
1973-1 -1.45% -0.53% 0.80% 1.15% -1.61% -1.63%
Avg -0.18% -0.37% 0.38% 0.29% -0.45% -0.19%
1977-1 0.78% 0.18% 0.56% 1.86% 1.34% 4.72%
1981-1 0.51% -0.48% 0.18% 0.22% -1.23% -0.81%
1985-1 -0.15% 0.59% 0.20% -0.07% 0.57% 1.14%
1989-1 -1.48% 0.66% 1.00% -0.47% 0.75% 0.46%
1993-1 0.14% 0.03% 0.74% -0.23% 0.59% 1.26%
Avg -0.04% 0.20% 0.54% 0.26% 0.40% 1.36%
1997-1 -0.69% 0.29% -1.93% 1.18% 1.27% 0.13%
2001-1 1.44% 1.45% -0.27% 0.25% 0.16% 3.02%
2005-1 0.22% -0.35% 0.17% 0.84% 0.31% 1.19%
2009-1 2.22% -0.01% 0.50% -1.03% 0.57% 2.27%
2013-1 0.36% -0.28% 0.43% -1.32% 1.34% 0.53%
Avg 0.71% 0.22% -0.22% -0.01% 0.73% 1.43%
SPX summary for Presidential Year 1 1953 - 2013
Avg 0.16% -0.01% 0.23% 0.19% 0.24% 0.79%
Win% 63% 43% 73% 56% 75% 69%
SPX summary for all years 1953 - 2016
Avg 0.02% 0.11% -0.08% 0.19% -0.04% 0.17%
Win% 53% 53% 57% 58% 57% 56%
Conclusion
The breadth indicators suggest the market is ripe for a fall. We saw similar conditions in late 1999 when the blue chips pushed higher until mid-March of 2000.
I expect the major averages to be lower on Friday, November 10 than they were on Friday, November 3.
Last week all of the major indices were up except the R2K so I am calling last weeks negative forecast a tie.
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