Technical Market Report - Monday, October 1

The good news is:

Prices have held up well in spite of a significant expansion in the number of new lows.

​The Negatives

Hindenburg Omens are triggered when both new highs and new lows exceed 2.8% of issues traded and the NYSE composite is above where it was 50 trading days earlier. The number of NYSE new highs last week never met the criteria. Our long run of Hindenburg Omens came to an end.

The first chart covers the past 9 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.

I extended the duration of this chart to 9 months to show the progressive deterioration of OTC NH while the index was rising. The OTC is only 0.8% off its all-time high while OTC NH is close to its low for the period.

The next chart is similar to the one above one except it shows the S&P 500 (SPX) in red and NY NH, in green, has been calculated with NYSE data.
NY NH continued its fall while the SPX closed only 0.6% off its all-time high.

The next chart covers the past 6 months showing the OTC in blue and a 10% trend of Nasdaq new lows (OTC NL) in brown. OTC NL has been plotted on an inverted Y axis so diminishing numbers of new lows move the indicator upward (up is good).

OTC NL turned downward last week and the number of new lows remains uncomfortably high.

The next chart is similar to the one above except it shows the SPX in red and NY NL, in blue, has been calculated with NYSE data.

You can see the SPX and NY NL move in similar patterns until September when NY NL moved sharply downward and the SPX continued moving upward.  This is a very unusual pattern.

The next chart covers the past 6 months showing the SPX in red and a 40% trend (4 day EMA) of NYSE new highs divided by new highs + new lows (NY HL Ratio), in blue.  Dashed horizontal lines have been drawn at 10% levels for the indicator; the line is solid at the 50%, neutral, level.

NY HL Ratio moved into negative territory finishing the week at 33%.

The Positives

In spite of deterioration of the breadth indicators prices have not broken their upward trends.

The next chart is similar to the one above except it shows the OTC in blue and OTC HL Ratio, in red, has been calculated with Nasdaq data.

OTC HL Ratio also declined finishing the week at the neutral line.

Seasonality

Next week includes the first 5 trading days of October during the 2nd 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 2018 while SPX data runs from 1928 to 2018. There are summaries for both the 2nd year of the Presidential Cycle and all years combined.

The OTC had a huge loss in 1998. Without that the average returns would all be positive.

Report for the first 5 days of October.
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 2
               Day1      Day2      Day3      Day4      Day5      Totals
 1966-2       0.00% 1  -1.66% 2  -0.63% 3  -1.54% 4  -0.88% 5    -4.72%
 1970-2       0.29% 4   0.89% 5   1.56% 1   0.69% 2   0.30% 3     3.73%
 1974-2      -0.34% 2   0.34% 3  -1.44% 4   0.53% 5   2.56% 1     1.65%

 1978-2       0.31% 1  -0.14% 2  -0.01% 3   0.33% 4   0.34% 5     0.83%
 1982-2       0.56% 5  -0.36% 1   0.40% 2   1.70% 3   1.88% 4     4.18%
 1986-2       0.45% 3   0.01% 4   0.05% 5   0.13% 1  -0.23% 2     0.40%
 1990-2       2.94% 1   0.49% 2  -1.39% 3  -0.44% 4  -0.72% 5     0.88%
 1994-2      -0.45% 1  -1.78% 2  -0.14% 3  -0.28% 4   0.78% 5    -1.87%

 Avg          0.76%    -0.36%    -0.22%     0.29%     0.41%       0.88%

 1998-2      -4.81% 4   0.17% 5  -4.85% 1  -1.68% 2  -3.20% 3   -14.37%
 2002-2       3.55% 2  -2.18% 3  -1.83% 4  -2.20% 5  -1.80% 1    -4.45%
 2006-2      -0.92% 1   0.27% 2   2.11% 3   0.67% 4  -0.28% 5     1.85%
 2010-2       0.09% 5  -1.11% 1   2.36% 2  -0.80% 3   0.13% 4     0.67%
 2014-2      -1.59% 3   0.18% 4   1.03% 5  -0.47% 1  -1.56% 2    -2.41%

 Avg         -0.74%    -0.53%    -0.24%    -0.89%    -1.34%      -3.74%

OTC summary for Presidential Year 2 1966 - 2014
Averages      0.01%    -0.38%    -0.21%    -0.26%    -0.21%      -1.05%
% Winners       54%       54%       46%       46%       46%         62%
MDD  10/7/1998  13.65% --  10/7/2002  7.77% --  10/7/1966  4.64%

OTC summary for all years 1963 - 2017
Averages     -0.10%    -0.03%     0.19%     0.09%    -0.12%       0.04%
% Winners       52%       56%       62%       62%       58%         62%
MDD 10/7/2008  15.73% --  10/7/1998  13.65% --  10/6/2000  8.49%


SPX Presidential Year 2
               Day1      Day2      Day3      Day4      Day5      Totals
 1930-2       4.46% 3  -1.24% 4   1.25% 5  -0.98% 6  -3.22% 1     0.28%
 1934-2      -2.97% 1   0.34% 2  -0.34% 3  -0.11% 4   2.04% 5    -1.04%

 1938-2       1.80% 6   0.48% 1  -0.32% 2   3.04% 3  -0.31% 4     4.69%
 1942-2       0.79% 4   1.46% 5   0.33% 6   0.55% 1   0.00% 2     3.13%
 1946-2      -0.27% 2   0.80% 3  -0.40% 4  -1.13% 5  -0.74% 6    -1.74%
 1950-2       1.23% 1  -0.15% 2   1.73% 3  -0.55% 4   1.16% 5     3.42%
 1954-2      -0.06% 5   0.56% 1   0.49% 2   0.40% 3  -0.21% 4     1.17%

 Avg          0.70%     0.63%     0.37%     0.46%    -0.02%       2.13%

 1958-2      -0.16% 3   0.38% 4   0.40% 5   0.62% 1   0.57% 2     1.81%
 1962-2      -1.39% 1   1.10% 2   0.11% 3   0.96% 4   0.65% 5     1.43%
 1966-2      -2.17% 1   0.27% 2  -0.55% 3  -0.86% 4  -1.15% 5    -4.45%
 1970-2       0.13% 4   1.00% 5   1.54% 1   0.44% 2   0.05% 3     3.15%
 1974-2      -0.24% 2  -0.02% 3  -1.74% 4   0.10% 5   4.19% 1     2.30%

 Avg         -0.76%     0.55%    -0.05%     0.25%     0.86%       0.85%

 1978-2       0.41% 1  -0.35% 2   0.45% 3   0.20% 4   0.24% 5     0.95%
 1982-2       1.26% 5  -0.38% 1   0.39% 2   3.27% 3   2.25% 4     6.79%
 1986-2       0.99% 3   0.14% 4  -0.09% 5   0.46% 1  -0.16% 2     1.33%
 1990-2       2.90% 1   0.09% 2  -1.21% 3   0.41% 4  -0.38% 5     1.82%
 1994-2      -0.21% 1  -1.55% 2  -0.24% 3  -0.26% 4   0.61% 5    -1.64%

 Avg          1.07%    -0.41%    -0.14%     0.82%     0.51%       1.85%

 1998-2      -3.01% 4   1.64% 5  -1.40% 1  -0.40% 2  -1.41% 3    -4.58%
 2002-2       4.00% 2  -2.36% 3  -1.08% 4  -2.24% 5  -1.91% 1    -3.59%
 2006-2      -0.34% 1   0.21% 2   1.21% 3   0.22% 4  -0.27% 5     1.03%
 2010-2       0.44% 5  -0.80% 1   2.09% 2  -0.07% 3  -0.16% 4     1.49%
 2014-2      -1.32% 3   0.00% 4   1.12% 5  -0.16% 1  -1.51% 2    -1.88%

 Avg         -0.05%    -0.26%     0.39%    -0.53%    -1.05%      -1.51%

SPX summary for Presidential Year 2 1930 - 2014
Averages      0.29%     0.07%     0.17%     0.18%     0.01%       0.72%
% Winners       50%       64%       55%       55%       41%         68%
MDD  10/7/2002  7.39% --  10/7/1998  4.55% --  10/7/1966  4.39%

SPX summary for all years 1928 - 2017
Averages      0.05%     0.16%     0.20%    -0.13%     0.21%       0.49%
% Winners       50%       66%       55%       56%       51%         63%
MDD 10/7/2008  14.47% --  10/5/1932  9.33% --  10/5/1931  9.17%

October

Since 1963, over all years, the OTC in October has been up 56% of the time with an average gain of 1.0%. During the 2nd year of the Presidential Cycle October has been up 77% time with an average gain of 3.6%. The best October ever for the OTC was 1974 (+17.2%), the worst 1987 (-27.2%).

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 2nd 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 2nd 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 October over all years since 1963 while the grey line shows the average during the 2nd year of the Presidential Cycle over the same period.

Since 1928 the SPX has been up 58% of the time in October with an average gain of 0.5%. During the 2nd year of the Presidential Cycle the SPX has been up 68% of the time with an average gain of 2.6%. The best October ever for the SPX was 1974 +16.3% the worst 1987 -21.8%.

The chart below is similar to the one above except it shows the average daily performance over all years for the SPX in October in red and the performance during the 2nd year of the Presidential Cycle in grey.

Since 1979 the Russell 2000 (R2K) has been up 56% of the time in October with an average loss of -0.3%.  During the 2nd year of the Presidential Cycle the R2K has been up 78% of the time with an average gain of 3.9%.  The best October ever for the R2K, 2011 (+15.0%), the worst 1987 (-30.7%)

The chart below is similar to those above except it shows the daily performance over all years of the R2K in October in magenta and the performance during the 2nd year of the Presidential Cycle in grey.

Since 1885 the DJIA has been up 56% of the time in October with an average gain of 0.4%.  During the 2nd year of the Presidential Cycle the DJIA has been up 59% of the time in October with an average gain of 1.5%.  The best October ever for the DJIA,1885 (+12.3%), the worst 1987 (-23.2%).
The chart below is similar to those above except it shows the daily performance over all years of the DJIA in October in light grey and the performance during the 2nd year of the Presidential Cycle in dark grey.

Conclusion

New lows have been at threatening levels while the major indices have continued to move upward. Something has to give.

Seasonality turns positive in a little over a week

I expect the major averages to be lower on Friday, October 5 than they were on Friday, September 28.

Last week the OTC was up while everything else was down. So, I am calling last weeks negative forecast a tie.