The good news is:

• Too hard to find.

The Negatives

The first chart covers the last 6 months showing the S&P 500 (SPX) in red and a 10% trend (19 day EMA) of NYSE new highs (NY NH) in green.  Dashed vertical lines have been drawn on the 1st trading day of each month.

In spite of a strong rally NY NH remained near its 6 month low.

The next chart is similar to the one above except it shows the Nasdaq composite (OTC) in blue and OTC NH, in green, has been calculated with Nasdaq data.

Ditto OTC NH

Summation indices are running totals of oscillator values.

Short term momentum indicators applied to summation indices make them nearly binary so direction is less important than position.

The next chart covers the past 6 months showing the SPX in red and momentum of summation indices of oscillators of advancing and declining issues, new highs and new lows and upside and downside volume on the NYSE.  

NYSE SI’s all turned upward.

The next chart is similar to the one above, except it shows the OTC, in blue, as the index and the SI’s have been generated from Nasdaq breadth data.  

HL AD SI has turned downward while the others are still moving upward.

The next chart covers the last 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 appears to be ratcheting upward from its low of the past 6 months; The numbers are very large so this is not encouraging.

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

Ditto NY NL.

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 (equal numbers of new highs and new lows).

OTC HL Ratio remained extremely negative. 

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 rallied with prices, but turned downward Thursday and Friday. 

The Positives

We saw a dead cat bounce last week.

Seasonality

Next week includes the 5 trading days prior to the 3rd 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 2022 while SPX data runs from 1953 to 2022.  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; weaker during the 3rd year of the Presidential Cycle than other years. 

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 3 (PY3)

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1963-3   0.26%  -0.03%   0.14%   0.90%   0.26%   1.53%

 1967-3  -0.29%  -0.91%  -0.45%   0.24%   0.04%  -1.38%

 1971-3  -0.03%   0.18%  -0.20%  -0.74%  -0.25%  -1.03%

 1975-3   0.96%   0.63%   0.01%   0.03%  -0.75%   0.88%

 1979-3  -1.65%  -0.04%   0.51%   0.30%  -2.00%  -2.88%


 Avg     -0.15%  -0.03%   0.00%   0.14%  -0.54%  -0.58%


 1983-3  -0.12%  -2.00%  -1.33%   0.50%  -0.63%  -3.58%

 1987-3  -1.23%   0.41%  -1.50%  -1.35%  -2.00%  -5.67%

 1991-3   1.27%   1.61%   1.28%  -0.86%   0.49%   3.79%

 1995-3  -0.03%   1.70%   0.97%   0.15%  -0.72%   2.07%

 1999-3   1.02%  -1.50%  -2.00%   0.20%  -2.00%  -4.28%


 Avg      0.18%   0.04%  -0.52%  -0.27%  -0.97%  -1.53%


 2003-3   0.95%   0.50%  -0.21%   0.57%  -1.94%  -0.13%

 2007-3  -0.91%  -0.58%   1.04%   0.24%  -2.00%  -2.22%

 2011-3  -1.98%   1.63%  -2.00%  -0.21%   1.49%  -1.07%

 2015-3   0.17%  -0.87%  -0.29%   1.82%   0.34%   1.18%

 2019-3  -0.10%   1.24%  -0.30%   0.40%  -0.83%   0.41%


 Avg     -0.38%   0.38%  -0.35%   0.57%  -0.59%  -0.36%


OTC summary for PY3 1963 - 2019 

 Avg     -0.11%   0.13%  -0.29%   0.15%  -0.70%  -0.82%

 Win%       40%     53%     40%     73%     33%     40%


OTC summary for all years 1963 - 2022

 Avg      0.15%   0.04%  -0.04%   0.18%  -0.01%   0.32%

 Win%       59%     53%     47%     62%     57%     55%


SPX PY3

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1955-3   0.32%   0.73%   1.01%   1.24%   0.00%   3.29%

 1959-3   0.56%  -0.28%  -0.79%   0.28%   0.81%   0.59%


 1963-3   0.04%   0.14%   0.79%   0.40%   0.08%   1.45%

 1967-3  -0.78%  -0.26%   0.26%   0.19%  -0.05%  -0.64%

 1971-3  -0.20%   0.41%  -0.54%  -0.91%  -0.35%  -1.59%

 1975-3   1.42%  -0.20%  -0.06%   0.16%  -0.57%   0.75%

 1979-3  -1.08%  -0.16%   0.19%   0.21%  -1.94%  -2.78%


 Avg     -0.12%  -0.02%   0.13%   0.01%  -0.57%  -0.56%


 1983-3   0.34%  -1.54%  -0.64%   0.15%  -0.62%  -2.31%

 1987-3  -0.54%   1.66%  -2.00%  -2.00%  -2.00%  -4.88%

 1991-3   1.32%   1.17%   0.46%  -0.22%   0.15%   2.87%

 1995-3  -0.25%   0.64%   0.11%   0.55%  -0.54%   0.51%

 1999-3  -0.06%  -1.66%  -2.00%  -0.17%  -2.00%  -5.89%


 Avg      0.16%   0.06%  -0.81%  -0.34%  -1.00%  -1.94%


 2003-3   0.70%   0.40%  -0.26%   0.32%  -1.02%   0.13%

 2007-3  -0.84%  -0.66%   0.18%  -0.08%  -2.00%  -3.39%

 2011-3  -1.94%   2.00%  -1.26%   0.46%   1.88%   1.13%

 2015-3   0.13%  -0.68%  -0.47%   1.49%   0.46%   0.92%

 2019-3  -0.14%   1.00%  -0.20%   0.28%  -0.39%   0.54%


 Avg     -0.42%   0.41%  -0.40%   0.49%  -0.22%  -0.13%


SPX summary for PY3 1955 - 2019 

 Avg     -0.06%   0.16%  -0.31%   0.14%  -0.51%  -0.55%

 Win%       47%     53%     41%     71%     31%     59%


SPX summary for all years 1953 - 2022

 Avg      0.22%   0.01%  -0.13%   0.14%  -0.03%   0.21%

 Win%       62%     41%     46%     59%     51%     63%

Money supply (M2) and Interest Rates

The following charts were supplied by Gordon Harms.

The first chart, made with FastTrack, covers the past 5 years showing the SPX in red and M2 money supply in green.

Money supply has remained constant for several months.

Treasury rates at their close last Friday and their changes from last month:

• 2yr yield 5.050% up from 5.037%
• 5yr yield 4.646% up from 4.463%
• 10yr yield 4.627% up from 4.331% 
• 30yr yield 4.766% up from 4.419%

Everything is inverted (shorter term maturities yield more than longer term maturities) except the 30 yr which is higher than the 5yr and 10 yr.

The next chart covers the past 15 months showing the 30 year yield over the 5 year yield on top, The 1, 2, 5, 10 & 30 year treasury rates in the middle group and the SPX with a 50 day simple moving average on the bottom.

Conclusion

Last week we saw a “dead cat bounce”; the indices moved sharply upward for a few days while the breadth indicators were dormant.

The strongest sectors last week were Precious metals and Energy while the weakest were Leisure and Transportation.

I expect the major averages to be lower on Friday October 20 than they were on Friday October 13. 

Last week the DJIA and SPX were up while Russell 2000 and OTC were down so I am calling last week's negative forecast a tie.

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