Technical Market Report - Monday, September 3

The good news is:
The Russell 2000 (R2K), Nasdaq composite (OTC) and the S&P 500 (SPX) all closed at all time highs last Wednesday.​

​The Negatives

New highs failed to confirm the new all time index highs.
NYSE Volume is at its lowest level in more than 3 Years.

The first chart covers the past 6 months showing the 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.

The next chart is similar to the one above one except it shows the SPX in red and NY NH, in green, has been calculated with NYSE data.
 NY NH also failed to confirm the new index high. 

The chart above doesn’t look too bad.
The chart below is similar to the chart above except it looks back 9 months.

In this chart the non confirmation is pretty extreme.

The next chart covers the past 3 years showing the SPX in red and a 5% trend of total NYSE volume in grey. Dashed vertical lines have been drawn on the 1st trading day of each year.

 NYSE volume is at its lowest level in over 3 years.  

The Positives

New lows continued to disappear.

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 new lows move the indicator upward (up is good).

OTC NL continued to move sharply upward last week.

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

NY NL is close to its lowest level of the past 6 months.

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 leveled off at a high level, finishing the week at a strong 82%.

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 also leveled off finishing the week at a comfortable 71%.

Seasonality
Next week includes the first 4 trading days of September 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.

Average returns for the coming week have been modestly positive.

Report for the first 4 days 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 2
               Day1      Day2      Day3      Day4      Totals
 1966-2       1.44% 4  -0.23% 5  -0.12% 2  -0.40% 3     0.69%
 1970-2       0.00% 2  -0.80% 3   0.05% 4   0.98% 5     0.23%

 1974-2      -2.00% 2  -2.00% 3   2.00% 4   0.80% 5    -1.20%
 1978-2       0.25% 5   0.82% 2   0.23% 3   0.23% 4     1.53%
 1982-2      -0.23% 3   1.24% 4   1.42% 5  -0.64% 2     1.79%
 1986-2      -0.71% 2  -0.33% 3   0.57% 4  -0.70% 5    -1.18%
 1990-2       0.12% 2   0.20% 3  -0.96% 4   0.42% 5    -0.21%

 Avg         -0.51%    -0.01%     0.65%     0.02%       0.15%

 1994-2      -0.87% 4   0.04% 5   0.03% 2   0.63% 3    -0.17%
 1998-2       2.00% 2   1.12% 3  -1.31% 4  -0.34% 5     1.47%
 2006-2       0.43% 5   0.57% 2  -1.72% 3  -0.58% 4    -1.29%
 2010-2       2.00% 3   1.06% 4   1.53% 5  -1.11% 2     3.49%
 2014-2       0.39% 2  -0.56% 3  -0.22% 4   0.45% 5     0.06%

 Avg          0.79%     0.45%    -0.34%    -0.19%       0.71%

OTC summary for Presidential Year 2 1966 - 2014
Averages      0.24%     0.09%     0.13%    -0.02%       0.43%
% Winners       58%       58%       58%       50%         58%
MDD  9/4/1974  3.96% --  9/7/2006  2.29% --  9/5/2002  2.04%

OTC summary for all years 1963 - 2017
Averages      0.01%     0.11%     0.04%     0.14%       0.31%
% Winners       61%       62%       60%       62%         57%
MDD 9/7/2001  5.52% --  9/6/2000  3.96% --  9/4/1974  3.96%


SPX Presidential Year 2
               Day1      Day2      Day3      Day4      Totals
 1930-2       0.05% 2  -0.98% 3  -0.71% 4   1.52% 5    -0.12%
 1934-2      -0.22% 6  -0.77% 2   1.66% 3  -2.00% 4    -1.33%

 1938-2      -1.16% 4   2.00% 5   0.73% 6  -1.05% 2     0.52%
 1942-2       0.00% 2   0.12% 3  -0.12% 4  -0.12% 5    -0.12%
 1946-2      -2.00% 2  -0.45% 3   2.00% 4  -0.94% 5    -1.39%
 1950-2       0.71% 5   0.70% 2  -0.75% 3   0.27% 4     0.93%
 1954-2       0.70% 3   0.77% 4   0.76% 5   0.52% 2     2.75%

 Avg         -0.35%     0.63%     0.53%    -0.26%       0.54%

 1958-2       0.52% 2   0.38% 3  -0.17% 4  -0.27% 5     0.46%
 1962-2      -0.95% 2  -0.75% 3   0.41% 4   0.03% 5    -1.25%
 1966-2       0.78% 4  -0.36% 5  -0.59% 2  -0.81% 3    -0.98%
 1970-2      -0.70% 2   0.01% 3   1.40% 4   0.90% 5     1.61%
 1974-2      -2.00% 2  -2.00% 3   2.00% 4   0.78% 5    -1.22%

 Avg         -0.47%    -0.54%     0.61%     0.13%      -0.28%

 1978-2       0.38% 5   0.78% 2   0.85% 3   0.04% 4     2.05%
 1982-2      -1.05% 3   1.72% 4   2.00% 5  -1.07% 2     1.59%
 1986-2      -1.74% 2   0.63% 3   1.50% 4  -1.32% 5    -0.94%
 1990-2       0.16% 2   0.40% 3  -1.21% 4   0.92% 5     0.27%
 1994-2      -0.49% 4  -0.46% 5   0.18% 2  -0.18% 3    -0.95%

 Avg         -0.55%     0.61%     0.66%    -0.32%       0.40%

 1998-2       2.00% 2  -0.38% 3  -0.83% 4  -0.85% 5    -0.06%
 2002-2      -2.00% 2   1.75% 3  -1.60% 4   1.68% 5    -0.16%
 2006-2       0.55% 5   0.17% 2  -0.99% 3  -0.48% 4    -0.75%
 2010-2       2.00% 3   0.91% 4   1.32% 5  -1.15% 2     3.08%
 2014-2      -0.05% 2  -0.08% 3  -0.15% 4   0.50% 5     0.22%

 Avg          0.50%     0.47%    -0.45%    -0.06%       0.47%

SPX summary for Presidential Year 2 1930 - 2014
Averages     -0.21%     0.19%     0.35%    -0.14%       0.19%
% Winners       45%       59%       55%       45%         45%
MDD  9/4/1974  3.96% --  9/4/1946  2.44% --  9/4/1998  2.05%

SPX summary for all years 1928 - 2017
Averages     -0.01%     0.11%     0.13%    -0.08%       0.15%
% Winners       63%       54%       58%       44%         56%
MDD 9/4/1931  4.26% --  9/7/2001  3.98% --  9/4/1987  3.97%

September
September has the reputation of being the worst month of the year and, by some measures, it is.  Since 1963, over all years the OTC in September has been up 60% of the time with, on average, no gain or loss.  During the 2nd year of the Presidential Cycle September has been up 46% time with an average loss of -0.1%.  The worst September ever, 2001 (-17.0%) the best 1998 (+13.0%)

Because of the turmoil in September 2001 I have capped the daily changes at +/- 2.0% for calculating the charts below.

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.

 The blue line shows the average of the OTC in September over all years since 1963 while the grey line shows the average during the 2nd year of the Presidential Cycle.

Since 1928 the SPX has been up 45% of the time in September with an average loss of -1.0%.  During the 2nd year of the Presidential Cycle the SPX has also been up 45% of the time with an average loss of -1.2%.  The best ever September 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 daily performance over all years for the SPX in September 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 September with an average loss of -0.4%.  During the 2nd year of the Presidential Cycle the R2K has only been up 44% of the time with an average loss of -0.6%.  The best ever September 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 2nd year of the Presidential Cycle in grey.

Since 1885 the Dow Jones Industrial Average (DJIA) has been up 44% of the time in September with an average loss of -0.9%.  During the 2nd year of the Presidential Cycle the DJIA has only been up 38% of the time with an average loss of -1.6%.  The best September ever for the DJIA 1939, up 13.5%, the worst 1931 (-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 light grey and the performance during the 2nd year of the Presidential Cycle in dark grey.

Conclusion

New lows continued to decline suggesting there was an intermediate term low 2 weeks ago.

I expect the major averages to be higher on Friday September 7 than they were on Friday August 31.