Technical Market Report - Monday, October 7

The good news is:​ The market is oversold and ready for a bounce.

The Negatives

New highs on both the NYSE & Nasdaq have disappeared.

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. 

OTC NH hit another 6 month low Friday.

The next chart is similar to the 1st chart except it shows the S&P 500 (SPX) in red and NY NH has been calculated with NYSE data.

NY NH also hit a new 6 month low.

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 dropped to its lowest level of the year.

The Positives

New lows remained at non-threatening levels on the NYSE.

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 with NYSE data.

NY HL Ratio fell into negative territory before recovering to a slightly positive 52%.

Seasonality

Next week includes the 5 trading days prior to the 2nd Friday of October during the 3rd 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 1953 to 2018. 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.

Average returns for the coming week have been mixed, but, slightly stronger in the 3rd year of the Presidential Cycle than other years.

Report for the week before the 2nd Friday of October.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday to 2nd Friday.

OTC Presidential Year 3 (PY3)
 Year       Mon     Tue     Wed    Thur    Fri    Totals
 1963-3  -0.26%  -0.17%   0.20%  -0.58%   0.09%  -0.72%
 1967-3   0.49%   0.36%  -0.51%  -0.41%  -0.39%  -0.45%
 1971-3   0.35%   0.03%   0.63%   0.27%  -0.22%   1.06%
 1975-3   0.70%  -0.20%   0.96%   0.34%   0.12%   1.92%

 1979-3  -0.86%  -3.83%  -4.06%   0.56%   0.44%  -7.74%
 1983-3   0.02%  -0.68%  -1.29%  -0.39%  -0.14%  -2.48%
 1987-3   0.45%  -1.35%  -0.64%  -1.04%  -0.36%  -2.94%
 1991-3  -0.81%   0.20%  -0.67%   0.41%   0.60%  -0.25%
 1995-3  -2.69%  -0.13%   1.84%   1.40%   0.28%   0.69%

 Avg     -0.78%  -1.16%  -0.96%   0.19%   0.16%  -2.54%

 1999-3   2.16%   0.13%   2.05%   0.12%   0.91%   5.37%
 2003-3   0.69%   0.76%  -0.74%   0.96%   0.18%   1.84%
 2007-3   0.25%   0.59%   0.27%  -1.40%   1.21%   0.93%
 2011-3   3.50%   0.66%   0.84%   0.60%   1.82%   7.41%
 2015-3   1.56%  -0.69%   0.90%   0.41%   0.41%   2.59%

 Avg      1.63%   0.29%   0.67%   0.14%   0.90%   3.63%

OTC summary for PY3 1963 - 2015
 Avg      0.40%  -0.31%  -0.01%   0.09%   0.35%   0.52%
 Win%       71%     50%     57%     64%     71%     57%

OTC summary for all years 1963 - 2018
 Avg     -0.03%  -0.36%  -0.12%   0.16%   0.52%   0.16%
 Win%       57%     46%     49%     66%     71%     55%


SPX PY3
 Year       Mon     Tue     Wed    Thur    Fri    Totals
 1955-3  -2.90%  -0.85%   1.76%  -0.31%  -0.41%  -2.71%

 1959-3  -0.10%  -0.09%  -0.26%  -0.23%   0.33%  -0.35%
 1963-3  -0.21%  -0.14%  -0.58%   0.03%   0.10%  -0.80%
 1967-3   0.26%  -0.69%  -0.49%  -0.64%   0.26%  -1.30%
 1971-3   0.28%  -0.10%   0.72%   0.20%  -0.66%   0.44%
 1975-3   1.08%  -0.13%   1.35%   0.49%  -0.18%   2.61%

 Avg      0.26%  -0.23%   0.15%  -0.03%  -0.03%   0.12%

 1979-3  -1.25%  -2.96%  -1.25%  -0.24%  -0.53%  -6.22%
 1983-3   1.08%  -1.34%  -0.42%   0.15%  -0.01%  -0.54%
 1987-3   0.00%  -2.70%  -0.21%  -1.38%  -0.98%  -5.27%
 1991-3  -0.46%   0.31%  -1.02%   1.00%   0.24%   0.07%
 1995-3  -0.71%  -0.15%   0.33%   0.37%   0.49%   0.35%

 Avg     -0.27%  -1.37%  -0.51%  -0.02%  -0.16%  -2.32%

 1999-3   1.70%  -0.25%   1.84%  -0.58%   1.39%   4.11%
 2003-3   0.44%   0.47%  -0.53%   0.48%  -0.06%   0.80%
 2007-3  -0.32%   0.81%  -0.17%  -0.52%   0.48%   0.28%
 2011-3   3.41%   0.05%   0.98%  -0.30%   1.74%   5.89%
 2015-3   1.83%  -0.36%   0.80%   0.88%   0.07%   3.23%

 Avg      1.41%   0.15%   0.59%  -0.01%   0.72%   2.86%

SPX summary for PY3 1955 - 2015 
 Avg      0.26%  -0.51%   0.18%  -0.04%   0.14%   0.04%
 Win%       56%     25%     44%     50%     56%     56%

SPX summary for all years 1953 - 2018
 Avg      0.11%  -0.27%   0.09%  -0.11%   0.17%  -0.01%
 Win%       54%     35%     49%     42%     58%     56%

Conclusion

The SPX is 2.4% off its all-time high. If it hits a new all-time high anytime soon, that high will be unconfirmed by everything that matters and likely a cycle top.

I expect the major averages to be higher on Friday, October 11 than they were on Friday, October 4.

Last week's positive forecast was a miss.