The good news is the market is oversold and ripe for a rebound.

The Negatives

Last week new lows increased dramatically.

The first chart covers the past 6 months showing the S&P 500 (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 vertical lines have been drawn on the first trading day of each month and dashed horizontal lines have been drawn at 10% levels for the indicator; the line is solid at the 50%, neutral, level.

NY HL Ratio fell sharply to a very weak 26%.

 

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

OTC HL Ratio also tumbled to a negative 28%. 

 

The next chart covers the past 6 months showing the 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 decreasing new lows move the indicator upward (up is good). 

There was a significant increase in the number of new lows last week causing NY NL to move sharply downward.

 

The next chart is similar to the one above except is shows the OTC in blue and OTC NL has been calculated with NASDAQ data.

OTC NL also moved sharply downward last week.

 

The Positives

Typically sharp declines come with a huge increase in volume and that did not happen last week.

The next chart covers the past 6 months showing the SPX in red and a 5% (39 day EMA) trend of NYSE downside volume (NY DV) in brown.  Like the last 2 charts above NY DV has been plotted on an inverted Y axis so decreasing downside volume moves the indicator upward (up is good).

The drop in NY DV was not as dramatic as the decline in prices.

 

The next chart is similar to the one above except is shows the OTC in blue and OTC DV, in orange, has been calculated with NASDAQ data.

The pattern is similar; there was a minimal increase in downside volume to go with the more dramatic decline in prices.

 

The two charts above indicate the price decline last week was not caused by a big sell off, but just a lack of buyers.

Seasonality

Next week includes the first 5 trading days of November during the 4th 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 2019 while SPX data runs from 1928 to 2019.  There are summaries for both the 4^th year of the Presidential Cycle and all years combined. 

Average returns for the coming week have been positive by all measures.  

Report for the first 5 days of November.

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 4 (PY4)

               Day1      Day2      Day3      Day4      Day5      Totals

 1964-4       0.14% 1   0.14% 3  -0.21% 4   0.00% 5   0.25% 1     0.32%

 1968-4      -0.10% 5  -0.68% 1  -0.54% 3   0.06% 4  -0.09% 5    -1.35%

 1972-4       1.04% 3   0.40% 4   0.92% 5   0.18% 1  -0.39% 3     2.15%

 1976-4       0.64% 1  -1.70% 3   0.76% 4  -0.66% 5  -0.82% 1    -1.77%

 1980-4       0.19% 1   1.49% 3  -1.06% 4  -0.23% 5  -0.21% 1     0.18%

 1984-4       0.38% 4  -0.02% 5   0.20% 1   0.86% 2  -0.32% 3     1.10%

 1988-4      -0.03% 2  -0.15% 3   0.26% 4  -0.46% 5  -1.18% 1    -1.56%

 1992-4       0.40% 1  -0.49% 2   0.16% 3   1.41% 4   0.45% 5     1.92%

 1996-4       0.02% 5  -0.11% 1   0.70% 2   1.37% 3   0.66% 4     2.65%

 

 Avg          0.19%     0.14%     0.05%     0.59%    -0.12%       0.86%

 

 2000-4      -1.07% 3   2.87% 4   0.66% 5  -1.03% 1  -0.01% 2     1.42%

 2004-4       0.25% 1   0.25% 2   0.98% 3   0.96% 4   0.76% 5     3.20%

 2008-4       0.31% 1   3.12% 2  -5.53% 3  -4.34% 4   2.41% 5    -4.04%

 2012-4       1.44% 4  -1.26% 5   0.59% 1   0.41% 2  -2.48% 3    -1.30%

 2016-4      -0.69% 2  -0.93% 3  -0.92% 4  -0.24% 5   2.37% 1    -0.40%

 

 Avg          0.05%     0.81%    -0.84%    -0.85%     0.61%      -0.22%

 

OTC summary for PY4 1964 - 2016

Averages      0.21%     0.21%    -0.22%    -0.12%     0.10%       0.18%

% Winners       71%       43%       64%       50%       43%         57%

MDD  11/6/2008  9.63% --  11/4/2016  2.75% --  11/7/2012  2.74%

OTC summary for all years 1963 - 2019

Averages      0.28%     0.20%     0.23%     0.17%     0.00%       0.87%

% Winners       65%       53%       65%       58%       54%         72%

MDD 11/6/2008  9.63% --  11/7/2007  3.86% --  11/4/1993  3.61%
 

SPX PY4

               Day1      Day2      Day3      Day4      Day5      Totals

 1928-4       1.43% 4  -0.18% 5   0.09% 6   1.23% 1   1.17% 3     3.74%

 1932-4      -2.87% 2  -3.55% 3  -0.61% 4   6.17% 5   1.45% 6     0.59%

 1936-4      -0.23% 1   1.51% 3   0.75% 4  -0.74% 5   1.43% 6     2.72%

 

 1940-4       0.00% 5   0.36% 6   0.36% 1  -3.32% 3   5.56% 4     2.97%

 1944-4       0.39% 3   0.55% 4  -0.08% 5   0.23% 6   0.31% 1     1.40%

 1948-4       0.97% 1  -4.61% 3   1.32% 4  -4.40% 5   0.52% 6    -6.21%

 1952-4       0.33% 1   0.28% 3   0.41% 4   0.04% 5  -0.04% 1     1.02%

 1956-4       2.06% 4   0.99% 5   1.32% 1  -1.03% 3  -0.81% 4     2.53%

 

 Avg          0.75%    -0.49%     0.67%    -1.69%     1.11%       0.34%

 

 1960-4       1.03% 2   0.52% 3   0.39% 4   0.86% 5   0.38% 1     3.18%

 1964-4       0.38% 1  -0.05% 3   0.02% 4   0.08% 5  -0.05% 1     0.39%

 1968-4      -0.34% 5   0.04% 1   0.16% 3   0.22% 4   0.43% 5     0.52%

 1972-4       0.98% 3   0.50% 4   0.87% 5  -0.21% 1  -0.55% 3     1.59%

 1976-4       0.19% 1  -1.14% 3   0.48% 4  -1.55% 5  -1.21% 1    -3.23%

 

 Avg          0.45%    -0.03%     0.39%    -0.12%    -0.20%       0.49%

 

 1980-4       1.23% 1   1.77% 3  -1.84% 4   0.21% 5   0.23% 1     1.61%

 1984-4       0.84% 4  -0.04% 5   0.69% 1   1.09% 2  -0.73% 3     1.85%

 1988-4       0.03% 2   0.00% 3   0.05% 4  -1.04% 5  -0.86% 1    -1.81%

 1992-4       0.97% 1  -0.67% 2  -0.67% 3   0.29% 4  -0.18% 5    -0.25%

 1996-4      -0.21% 5   0.42% 1   1.05% 2   1.46% 3   0.42% 4     3.14%

 

 Avg          0.57%     0.30%    -0.14%     0.40%    -0.22%       0.91%

 

 2000-4      -0.57% 3   0.50% 4  -0.11% 5   0.39% 1  -0.02% 2     0.18%

 2004-4       0.03% 1   0.00% 2   1.12% 3   1.62% 4   0.39% 5     3.15%

 2008-4      -0.25% 1   4.08% 2  -5.27% 3  -5.03% 4   2.86% 5    -3.61%

 2012-4       1.09% 4  -0.94% 5   0.22% 1   0.79% 2  -2.37% 3    -1.23%

 2016-4      -0.68% 2  -0.65% 3  -0.44% 4  -0.17% 5   2.22% 1     0.28%

 

 Avg         -0.08%     0.60%    -0.90%    -0.48%     0.62%      -0.24%

 

SPX summary for PY4 1928 - 2016

Averages      0.30%    -0.01%     0.01%    -0.12%     0.46%       0.63%

% Winners       65%       57%       70%       61%       57%         74%

MDD  11/6/2008  10.03% --  11/5/1948  7.60% --  11/3/1932  6.90%

 

SPX summary for all years 1928 - 2019

Averages      0.24%    -0.02%     0.26%     0.06%    -0.05%       0.47%

% Winners       63%       57%       65%       54%       51%         67%

MDD 11/11/1929  17.76% --  11/6/2008  10.03% --  11/6/1937  9.95%

 

November

Since 1963, over all years, the OTC in November has been up 72% of the time with an average gain of 1.6%.  During the 4th year of the Presidential Cycle November has been up 71% time and, on average, has had no gain or loss for the month.  The best November ever for the OTC was 1999 (+12.5%), the worst 2000 (-22.9%).

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 daily average of the OTC in November over all years since 1963 while the green line shows the average during the 4th year of the Presidential Cycle over the same period.

 

Since 1928 the SPX has been up 61% of the time in November with an average gain of 0.7%.  During the 4th year of the Presidential Cycle the SPX has been up 57% of the time with an average gain of 0.7%.  The best November ever for the SPX was 1928 (+12.0%), the worst 1929 (-13.4%).

The chart below is similar to the one above except it shows the average daily performance over all years for the SPX in November in red and the performance during the 4th year of the Presidential Cycle in green.

 

Since 1979 the Russell 2000 (R2K) has been up 68% of the time in November with an average gain of 2.1%.  During the 4th year of the Presidential Cycle the R2K has been up 60% of the time with an average gain of 1.0%.  The best November ever for the R2K, 1982 (+8.8%), the worst 2008 (-12.0%)

The chart below is similar to those above except it shows the daily performance over all years of the R2K in November in magenta and the performance during the 4th year of the Presidential Cycle in green.

 

Since 1885 the Dow Jones Industrial Average (DJIA) has been up 59% of the time in November with an average gain of 0.8%.  During the 4th year of the Presidential Cycle the DJIA has been up 61% of the time in November with an average gain of 1.7%.  The best November ever for the DJIA, 1928 (+16.3%); the worst 1973 (-14.0%).

The chart below is similar to those above except it shows the daily performance over all years of the DJIA in November in grey and the performance during the 4th year of the Presidential Cycle in green.

 

Conclusion

I believe the market is manipulated.  It began in the late 1980’s with what was known as the Greenspan put.  The Fed would lower interest rates whenever there was weakness in the market.  Now, with interest rates at 0% the Fed has to be more creative.  They are now buying corporate securities and even Junk Bonds.

Trump has taken credit for the rising market and along with that assumes responsibility for a falling market.

Trump appears to be comfortable enough with his chances for victory in the election that he can let the market get oversold just before the election.  This way, if he wins there is likely to be a rally that he can take credit for and if he loses he will blame Democrats for the falling market.

The strongest sectors last week were Banks and Biotech the weakest were Retail and Precious Metals. 

I expect the major averages to be higher on Friday November 6 than they were on Friday October 30. 

Last week's positive forecast was a miss.