Technical Market Report For Saturday, Oct. 9

The good news is:

  • The market is still ready to start its run for the roses.

The Negatives

Except for the Russell 2000 (R2K) all of the major indices were up last week.  Unfortunately, if we are rising from a bottom, it is important R2K performs well.

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 bounced off its lowest point in nearly a year.

 

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

Ditto NY NH.

 

The next chart covers the past 6 months showing the OTC in blue and a 10% trend (19 day EMA) of NASDAQ new lows (OTC NL), in brown.  OTC NL has been plotted on an inverted Y axis so decreasing numbers of new lows move the indicator upward (up is good).

OTC NL fell sharply last week.  There is hope the decline may have been arrested on Friday.  If that plays out we are still looking at a non confirmation of the recent lows relative to the low in August.

 

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

NY NL also fell last week reaching its August low.  NY NL must not go lower or my enthusiasm for a rally will be dampened.

 

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 declined well into negative territory, near the level of its August low.


The Positives

There is still hope.  At this late stage of the cycle the expectation is for an impressive blue chip rally to new all time highs with narrow leadership.  Breadth figures on the NYSE have been much better than those on the NASDAQ.

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

NY HL Ratio made a brief dip into negative territory last week before recovering. 



Seasonality

Next week includes the 5 trading days prior to the 3rd Friday of October 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 2020 while SPX data runs from 1953 to 2020.  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, 

Report for the week before the 3rd Friday of October.

The number following the year is the position in the Presidential Cycle.

Daily returns from Monday through 3rd Friday.

OTC Presidential Year 1 (PY1)

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1965-1   0.13%   0.39%   0.37%   0.26%   0.04%   1.19%

 1969-1   0.65%   1.26%   1.27%   0.83%   0.36%   4.37%

 1973-1  -0.85%   0.01%  -0.42%   0.14%   0.38%  -0.74%

 1977-1   0.09%   0.11%  -0.81%   0.15%  -0.06%  -0.51%

 

 1981-1   0.01%   0.33%  -1.30%   0.22%   0.21%  -0.53%

 1985-1   0.89%   0.25%   0.60%   0.55%   0.05%   2.33%

 1989-1  -1.35%  -0.23%   0.73%   1.62%  -0.03%   0.75%

 1993-1   0.44%   0.63%   0.84%   0.83%   0.26%   2.99%

 1997-1   0.18%  -0.53%  -0.54%  -1.38%  -1.93%  -4.20%

 

 Avg      0.03%   0.09%   0.07%   0.37%  -0.29%   0.27%

 

 2001-1  -0.42%   1.52%  -4.40%   0.39%   1.12%  -1.78%

 2005-1   0.26%  -0.69%   1.71%  -1.11%   0.68%   0.86%

 2009-1  -0.01%   0.04%   1.51%   0.05%  -0.76%   0.83%

 2013-1   0.62%  -0.56%   1.20%   0.62%   1.32%   3.20%

 2017-1   0.27%  -0.01%   0.01%  -0.29%   0.36%   0.35%

 

 Avg      0.15%   0.06%   0.01%  -0.07%   0.55%   0.69%

 

OTC summary for PY1 1965 - 2017 

 Avg      0.07%   0.18%   0.06%   0.21%   0.14%   0.65%

 Win%       71%     64%     64%     79%     71%     64%

 

OTC summary for all years 1963 - 202

 Avg      0.35%   0.05%  -0.23%   0.39%  -0.12%   0.43%

 Win%       60%     53%     47%     62%     55%     55%


 

SPX PY1

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1953-1   0.00%  -0.38%   0.47%   1.14%   0.79%   2.02%

 1957-1   0.73%   1.04%  -0.82%  -1.65%  -0.79%  -1.47%

 

 1961-1  -0.28%   0.03%   0.50%   0.35%   0.04%   0.65%

 1965-1   0.57%  -0.02%  -0.01%  -0.16%   0.21%   0.58%

 1969-1   1.06%   1.22%   0.02%   0.68%  -0.11%   2.86%

 1973-1  -1.25%   0.13%  -0.20%   0.04%   0.19%  -1.09%

 1977-1  -0.10%  -0.01%  -1.16%   0.31%  -0.38%  -1.33%

 

 Avg      0.00%   0.27%  -0.17%   0.24%  -0.01%   0.33%

 

 1981-1  -0.20%  -0.35%  -1.64%   0.77%  -0.43%  -1.86%

 1985-1   1.13%  -0.16%   1.02%  -0.17%  -0.33%   1.50%

 1989-1   2.76%  -0.49%   0.18%   1.57%   0.01%   4.02%

 1993-1   0.12%   0.05%   0.08%   1.16%   0.57%   1.99%

 1997-1   0.12%   0.23%  -0.47%  -1.09%  -1.16%  -2.37%

 

 Avg      0.79%  -0.15%  -0.17%   0.45%  -0.27%   0.65%

 

 2001-1  -0.15%   0.69%  -1.86%  -0.79%   0.46%  -1.65%

 2005-1   0.30%  -1.00%   1.50%  -1.50%   0.15%  -0.56%

 2009-1   0.44%  -0.28%   1.75%   0.42%  -0.81%   1.52%

 2013-1   0.41%  -0.71%   1.38%   0.67%   0.65%   2.41%

 2017-1   0.18%   0.07%   0.07%   0.03%   0.51%   0.86%

 

 Avg      0.23%  -0.25%   0.57%  -0.23%   0.19%   0.52%

 

SPX summary for PY1 1953 - 2017 

 Avg      0.36%   0.00%   0.05%   0.10%  -0.02%   0.47%

 Win%       69%     47%     59%     65%     59%     59%

 

SPX summary for all years 1953 - 2020

 Avg      0.37%   0.04%  -0.25%   0.23%  -0.14%   0.25%

 Win%       63%     41%     46%     59%     49%     63%

 

Conclusion

There was a decent blue chip rally last week, unfortunately the secondaries and breadth indicators did not participate. 

The strongest sectors last week were Energy and Banks (same as last week) while the weakest were Health care and Electronics.

I expect the major averages to be higher on Friday October 15 than they were on Friday October 8.

Except for the R2K all of the major indices were up last week.  So, I am calling last week's positive forecast a tie.

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