The good news is the President’s Working Group on Financial Markets, A.K.A., the Plunge Protection Team (PPT), should be vigilant, at least until the election. 

The Negatives

During the last week, new lows exceeded new highs every day on the NASDAQ, and four out of five days on the NYSE.

The first chart covers the past six 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 first trading day of each month. New highs have all but disappeared.

The next chart is similar to the first one, except it shows the S&P 500 (SPX) in red and the NY NH in green. The information has been calculated with NYSE data. No new highs here, either.

The next chart covers the past nine months, showing the SPX in red and a 40% trend (four-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.

The NY HL Ratio collapsed to 36%. I extended the length of these charts so you could see how this indicator worked last spring.

The next chart is similar to the one above, except it shows the OTC in blue and the OTC HL Ratio in red. The information has been calculated with NASDAQ data. The OTC HL Ratio collapsed to 40%. 

The Positives

Positives are hard to find. Everything, including gold, took a hit last week.

Seasonality

Next week includes the last three trading days of September and the first two trading days of October, all during the fourth year of the Presidential Cycle. The tables below show the daily change on a percentage basis for that period.

The OTC data covers the period from 1963 to 2019, while the SPX data runs from 1928 to 2019. There are summaries for both the fourth year of the Presidential Cycle, and all years combined. Returns for coming week have been mostly negative.

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)

•                      Day3         Day2       Day1        Day1        Day2       Totals
•  1964-4      -0.05% 1   0.00% 2   0.26% 3   0.09% 4  -0.25% 5     0.05%
•  1968-4      -0.09% 4  -0.08% 5  -0.04% 1   0.20% 2   0.61% 4     0.60%
•  1972-4       1.16% 3   0.45% 4   0.37% 5  -0.24% 1   0.14% 2     1.89%
•  1976-4      -0.87% 2  -0.40% 3  -0.01% 4  -0.90% 5   0.02% 1    -2.16%
•  1980-4      -1.69% 5  -2.61% 1   1.06% 2   0.99% 3   0.63% 4    -1.62%
•  1984-4       0.09% 3   0.02% 4  -0.14% 5  -0.83% 1  -0.71% 2    -1.57%
•  1988-4       0.28% 3   0.72% 4   0.43% 5  -0.83% 1  -0.07% 2     0.52%
•  1992-4      -0.32% 1   0.40% 2   0.98% 3  -0.85% 4  -1.16% 5    -0.95%
•  1996-4       0.27% 4   0.17% 5  -0.26% 1  -0.44% 2   1.20% 3     0.94%
•  Avg               -0.28%    -0.26%     0.41%    -0.39%    -0.02%      -0.54%
•  2000-4      -0.89% 3   3.34% 4  -2.79% 5  -2.83% 1  -3.17% 2    -6.34%
•  2004-4       0.54% 2   1.29% 3   0.15% 4   2.39% 5   0.53% 1     4.89%
•  2008-4      -0.15% 5  -9.14% 1   4.97% 2  -0.62% 3  -4.48% 4    -9.42%
•  2012-4      -0.77% 3   1.39% 4  -0.65% 5  -0.09% 1   0.21% 2     0.09%
•  2016-4       0.24% 3  -0.93% 4   0.81% 5  -0.21% 1  -0.21% 2    -0.29%
•  Avg               -0.21%    -0.81%     0.50%    -0.27%    -1.42%      -2.21%

OTC summary for PY4 1964 - 2016

• Averages     -0.16%    -0.38%     0.37%    -0.30%    -0.48%      -0.96%
• % Winners       43%       57%       57%       29%       50%         50%
• MDD  10/2/2008  9.60% --  10/3/2000  8.54% --  9/29/1980  4.26%

OTC summary for all years 1963 - 2019

• Averages     -0.17%    -0.17%     0.00%    -0.12%    -0.06%      -0.52%
• % Winners       47%       45%       49%       50%       54%         49%
• MDD 10/2/2008  9.60% --  10/3/2000  8.54% --  10/3/2011  8.28%

SPX PY4

•                      Day3        Day2        Day1        Day1       Day2        Totals
•  1928-4      -1.26% 4   0.05% 5   1.09% 6  -0.05% 1  -0.47% 2    -0.64%
•  1932-4       2.83% 3  -3.11% 4  -0.25% 5   0.87% 6  -1.10% 1    -0.77%
•  1936-4       0.62% 1  -0.43% 2  -0.31% 3   0.19% 4   1.93% 5     2.00%
•  1940-4      -1.76% 5   0.66% 6   0.09% 1   1.41% 2   0.46% 3     0.86%
•  1944-4      -0.31% 4   0.39% 5   0.31% 6   0.16% 1   0.00% 2     0.55%
•  1948-4       1.12% 2   1.24% 3  -0.39% 4   1.16% 5   0.51% 6     3.64%
•  1952-4      -0.32% 5  -0.20% 1  -0.57% 2  -0.24% 3   0.16% 4    -1.17%
•  1956-4       0.15% 3  -0.48% 4  -0.55% 5  -1.43% 1   1.83% 2    -0.47%
•  Avg                -0.23%     0.32%    -0.22%     0.21%     0.59%       0.68%
•  1960-4      -0.87% 3   0.27% 4   1.71% 5  -0.30% 1  -0.69% 2     0.12%
•  1964-4       0.08% 1  -0.05% 2  -0.07% 3  -0.12% 4   0.33% 5     0.18%
•  1968-4      -0.22% 4  -0.05% 5   0.35% 1   0.19% 2   0.47% 4     0.73%
•  1972-4       1.38% 3   0.63% 4   0.18% 5  -0.35% 1   0.13% 2     1.96%
•  1976-4      -1.26% 2  -0.52% 3  -0.12% 4  -1.02% 5  -0.13% 1    -3.05%
•  Avg                -0.18%     0.06%     0.41%    -0.32%     0.02%      -0.01%
•  1980-4      -1.84% 5  -2.22% 1   1.55% 2   1.33% 3   0.76% 4    -0.42%
•  1984-4       0.40% 3   0.41% 4  -0.52% 5  -0.89% 1  -0.63% 2    -1.22%
•  1988-4       0.31% 3   1.30% 4  -0.25% 5  -0.19% 1  -0.28% 2     0.89%
•  1992-4       0.55% 1   0.04% 2   0.24% 3  -0.36% 4  -1.40% 5    -0.93%
•  1996-4       0.01% 4   0.05% 5   0.17% 1   0.26% 2   0.71% 3     1.19%
•  Avg                -0.12%    -0.08%     0.24%     0.03%    -0.17%      -0.10%
•  2000-4      -0.04% 3   2.22% 4  -1.49% 5  -0.02% 1  -0.68% 2    -0.01%
•  2004-4       0.59% 2   0.43% 3  -0.02% 4   1.52% 5   0.32% 1     2.84%
•  2008-4       0.32% 5  -8.79% 1   5.27% 2  -0.32% 3  -4.03% 4    -7.54%
•  2012-4      -0.57% 3   0.96% 4  -0.45% 5   0.27% 1   0.09% 2     0.30%
•  2016-4       0.53% 3  -0.93% 4   0.80% 5  -0.33% 1  -0.50% 2    -0.43%
•  Avg                 0.16%    -1.22%     0.82%     0.22%    -0.96%      -0.97%

SPX summary for PY4 1928 - 2016

• Averages      0.02%    -0.35%     0.30%     0.07%    -0.10%      -0.06%
• % Winners       57%       57%       48%       43%       52%         52%
• MDD  9/29/2008  8.79% --  9/29/1980  4.02% --  10/3/1932  3.59%

SPX summary for all years 1928 - 2019

• Averages      0.06%    -0.22%     0.00%     0.04%     0.14%       0.03%
• % Winners       57%       52%       46%       50%       64%         53%
• MDD 10/1/1931  11.18% --  9/29/2008  8.79% --  10/3/2011  6.48%

October

Since 1963, over all years, the OTC in October has been up 56% of the time with an average gain of 0.8%. During the fourth year of the Presidential Cycle, October has been up 36% of the time with an average loss of -1.8%. The best October ever for the OTC was 1974 (+17.2%). The worst was 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 first 11 trading days and each of the last 10. In months where there were more than 21 trading days, some of the days in the middle were not counted. In months where 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 first trading day and at five trading day intervals after that. The line is solid on the eleventh 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 green line shows the average during the fourth 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 0.4%. During the fourth year of the Presidential Cycle, the SPX has been up 59% of the time with an average loss of -0.3% (helped by losses of 13.9% in 1932 and 16.8% in 2008). The best October ever for the SPX was 1974 (+16.3%). The worst was 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 fourth year of the Presidential Cycle in green.

Since 1979, the Russell 2000 (R2K) has been up 56% of the time in October with an average loss of -0.4%. During the fourth year of the Presidential Cycle, the R2K has been up 30% of the time with an average loss of -2.9%. The best October ever for the R2K was 2011 (+15.0%). The worst was 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 fourth year of the Presidential Cycle in green.

Since 1885, the Dow Jones Industrial Average (DJIA) has been up 56% of the time in October with an average gain of 0.3%. During the fourth year of the Presidential Cycle, the DJIA has been up 61% of the time in October with an average gain of 0.7%. The best October ever for the DJIA was 1885 (+12.3%). The worst was 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 grey and the performance during the fourth year of the Presidential Cycle in green.

Conclusion

New lows outnumbered new highs for the first time since last spring. The seasonality for the next few weeks does not offer much comfort. The strongest sectors last week were utilities (up from the bottom the week before) and technology, while the weakest were banks (stuck near the bottom) and precious metals. 

I expect the major averages to be lower on Friday, October 2 than they were on Friday, September 15. During the last week, everything else was down except the OTC, so I am calling last week's negative forecast a tie.