The good news is:

• Last week the secondaries outperformed the blue chips.

The Negatives

The first chart covers the last 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 continued declining as prices fell last week.

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

NY NH continued declining from a very low level.

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 in extremely negative territory. 

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, ditto,

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 numbers of New Lows move the indicator upward (up is good).  

NY NL There was a little hiccup in the indicator Wednesday, but the numbers have remained gigantic. 

The next chart is similar to the previous one except it shows the OTC in blue and OTC NL, in brown, has been calculated with Nasdaq data.

OTC NL ditto.  

The Positives

Positives are pretty hard to find.  Liquidity is a problem worldwide. 

Seasonality

Next week includes the first 5 trading days of October 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 2021 while SPX data runs from 1928 to 2021.  There are summaries for both the 2nd year of the Presidential Cycle and all years combined. 

Average returns for the coming week have been mixed.  

Report for the first 5 days of October.

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 (PY2)

               Day1      Day2      Day3      Day4      Day5      Totals

 1966-2       0.00% 1  -1.66% 2  -0.63% 3  -1.54% 4  -0.88% 5    -4.72%

 1970-2       0.29% 4   0.89% 5   1.56% 1   0.69% 2   0.30% 3     3.73%

 1974-2      -0.34% 2   0.34% 3  -1.44% 4   0.53% 5   2.56% 1     1.65%

 1978-2       0.31% 1  -0.14% 2  -0.01% 3   0.33% 4   0.34% 5     0.83%


 1982-2       0.56% 5  -0.36% 1   0.40% 2   1.70% 3   1.88% 4     4.18%

 1986-2       0.45% 3   0.01% 4   0.05% 5   0.13% 1  -0.23% 2     0.40%

 1990-2       2.94% 1   0.49% 2  -1.39% 3  -0.44% 4  -0.72% 5     0.88%

 1994-2      -0.45% 1  -1.78% 2  -0.14% 3  -0.28% 4   0.78% 5    -1.87%

 1998-2      -4.81% 4   0.17% 5  -4.85% 1  -1.68% 2  -3.20% 3   -14.37%


 Avg         -0.26%    -0.29%    -1.19%    -0.11%    -0.30%      -2.16%


 2002-2       3.55% 2  -2.18% 3  -1.83% 4  -2.20% 5  -1.80% 1    -4.45%

 2006-2      -0.92% 1   0.27% 2   2.11% 3   0.67% 4  -0.28% 5     1.85%

 2010-2       0.09% 5  -1.11% 1   2.36% 2  -0.80% 3   0.13% 4     0.67%

 2014-2      -1.59% 3   0.18% 4   1.03% 5  -0.47% 1  -1.56% 2    -2.41%

 2018-2      -0.11% 1  -0.47% 2   0.32% 3  -1.81% 4  -1.16% 5    -3.23%


 Avg          0.20%    -0.66%     0.80%    -0.92%    -0.93%      -1.51%


OTC summary for PY2 1966 - 2018

Averages      0.00%    -0.38%    -0.18%    -0.37%    -0.27%      -1.20%

% Winners       50%       50%       50%       43%       43%         57%

MDD  10/7/1998  13.65% --  10/7/2002  7.77% --  10/7/1966  4.64%


OTC summary for all years 1963 - 2021

Averages     -0.07%    -0.13%     0.26%     0.06%    -0.09%       0.03%

% Winners       52%       53%       64%       61%       58%         61%

MDD 10/7/2008  15.73% --  10/7/1998  13.65% --  10/6/2000  8.49%


SPX PY2

               Day1      Day2      Day3      Day4      Day5      Totals

 1930-2       4.46% 3  -1.24% 4   1.25% 5  -0.98% 6  -3.22% 1     0.28%

 1934-2      -2.97% 1   0.34% 2  -0.34% 3  -0.11% 4   2.04% 5    -1.04%

 1938-2       1.80% 6   0.48% 1  -0.32% 2   3.04% 3  -0.31% 4     4.69%


 1942-2       0.79% 4   1.46% 5   0.33% 6   0.55% 1   0.00% 2     3.13%

 1946-2      -0.27% 2   0.80% 3  -0.40% 4  -1.13% 5  -0.74% 6    -1.74%

 1950-2       1.23% 1  -0.15% 2   1.73% 3  -0.55% 4   1.16% 5     3.42%

 1954-2      -0.06% 5   0.56% 1   0.49% 2   0.40% 3  -0.21% 4     1.17%

 1958-2      -0.16% 3   0.38% 4   0.40% 5   0.62% 1   0.57% 2     1.81%


 Avg          0.31%     0.61%     0.51%    -0.02%     0.15%       1.56%


 1962-2      -1.39% 1   1.10% 2   0.11% 3   0.96% 4   0.65% 5     1.43%

 1966-2      -2.17% 1   0.27% 2  -0.55% 3  -0.86% 4  -1.15% 5    -4.45%

 1970-2       0.13% 4   1.00% 5   1.54% 1   0.44% 2   0.05% 3     3.15%

 1974-2      -0.24% 2  -0.02% 3  -1.74% 4   0.10% 5   4.19% 1     2.30%

 1978-2       0.41% 1  -0.35% 2   0.45% 3   0.20% 4   0.24% 5     0.95%


 Avg         -0.65%     0.40%    -0.04%     0.17%     0.80%       0.68%


 1982-2       1.26% 5  -0.38% 1   0.39% 2   3.27% 3   2.25% 4     6.79%

 1986-2       0.99% 3   0.14% 4  -0.09% 5   0.46% 1  -0.16% 2     1.33%

 1990-2       2.90% 1   0.09% 2  -1.21% 3   0.41% 4  -0.38% 5     1.82%

 1994-2      -0.21% 1  -1.55% 2  -0.24% 3  -0.26% 4   0.61% 5    -1.64%

 1998-2      -3.01% 4   1.64% 5  -1.40% 1  -0.40% 2  -1.41% 3    -4.58%


 Avg          0.39%    -0.01%    -0.51%     0.70%     0.18%       0.74%


 2002-2       4.00% 2  -2.36% 3  -1.08% 4  -2.24% 5  -1.91% 1    -3.59%

 2006-2      -0.34% 1   0.21% 2   1.21% 3   0.22% 4  -0.27% 5     1.03%

 2010-2       0.44% 5  -0.80% 1   2.09% 2  -0.07% 3  -0.16% 4     1.49%

 2014-2      -1.32% 3   0.00% 4   1.12% 5  -0.16% 1  -1.51% 2    -1.88%

 2018-2       0.36% 1  -0.04% 2   0.07% 3  -0.82% 4  -0.55% 5    -0.97%


 Avg          0.63%    -0.60%     0.68%    -0.61%    -0.88%      -0.78%


SPX summary for PY2 1930 - 2018

Averages      0.29%     0.07%     0.17%     0.13%    -0.01%       0.65%

% Winners       52%       61%       57%       52%       39%         65%

MDD  10/7/2002  7.39% --  10/7/1998  4.55% --  10/7/1966  4.39%


SPX summary for all years 1928 - 2021

Averages      0.06%     0.11%     0.23%    -0.12%     0.22%       0.49%

% Winners       51%       63%       57%       55%       51%         63%

MDD 10/7/2008  14.47% --  10/5/1932  9.33% --  10/5/1931  9.17%

October

Since 1963, over all years, the OTC in October has been up 56% of the time with an average gain of 0.9%.  During the 2nd year of the Presidential Cycle October has been up 71% time with an average gain of 2.7%.  The best October ever for the OTC was 1974 (+17.2%), the worst 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 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 average of the OTC in October over all years since 1963 while the grey line shows the average during the 2nd 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 0.5%.  During the 2nd year of the Presidential Cycle the SPX has been up 65% of the time with an average gain of 2.2%.  The best October ever for the SPX was 1974 +16.3% the worst 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 2nd year of the Presidential Cycle in grey.

Since 1979 the Russell 2000 (R2K) has been up 58% of the time in October with an average loss of -0.3%.  During the 2nd year of the Presidential Cycle the R2K has been up 70% of the time with an average gain of 2.4%.  The best October ever for the R2K, 2011 (+15.0%), the worst 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 2nd year of the Presidential Cycle in grey.

Since 1885 the DJIA has been up 56% of the time in October with an average gain of 0.3%.  During the 2nd year of the Presidential Cycle the DJIA has been up 58% of the time in October with an average gain of 1.3%.  The best October ever for the DJIA,1885 (+12.3%), the worst 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 light grey and the performance during the 2nd year of the Presidential Cycle in dark grey.

Conclusion

Liquidity is a problem worldwide.  The central bank of Great Britain capitulated last week trashing the Pound Sterling. 

The strongest sectors last week were Precious Metals and Basic Materials while the weakest were Utilities and Electronics.

I expect the major averages to be lower on Friday, October 7 than they were on Friday, September 30.

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