The good news is:

• The secondaries outperformed the blue chips for the 3rd week.

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 moving upward, however, the numbers were very small.

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 at a value of 20 it does not have much further that it can fall.

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 fell into 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 The indicator fell sharply last week.  There are non confirmations going back a day, two weeks and to last June, however 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 5 trading days prior to the 3rd Friday 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 1953 to 2021.  There are summaries for both the 2nd 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 2 (PY2)

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1966-2  -0.02%   0.77%   1.80%  -1.12%  -0.21%   1.22%

 1970-2  -0.66%  -0.85%  -0.56%   0.19%   0.39%  -1.50%

 1974-2   2.17%  -0.53%  -0.34%   1.39%   1.14%   3.83%

 1978-2  -1.21%  -2.22%  -1.56%  -1.32%  -2.67%  -8.98%


 1982-2   1.72%  -0.07%   1.49%  -0.16%  -0.19%   2.79%

 1986-2   0.15%  -0.08%   0.53%   0.20%  -0.18%   0.62%

 1990-2   0.61%  -1.24%   0.41%   2.22%   1.00%   2.99%

 1994-2  -0.17%  -0.13%   0.76%  -0.31%  -0.37%  -0.22%

 1998-2   3.59%  -2.37%   2.11%   4.52%   0.62%   8.47%


 Avg      1.18%  -0.78%   1.06%   1.30%   0.17%   2.93%


 2002-2   0.83%   5.07%  -3.90%   3.24%   1.22%   6.46%

 2006-2   0.28%  -0.80%  -0.33%   0.16%   0.06%  -0.63%

 2010-2   0.02%   0.65%   0.96%  -0.24%   1.37%   2.76%

 2014-2  -1.46%   0.32%  -0.28%   0.05%   0.97%  -0.40%

 2018-2  -0.88%   2.89%  -0.04%  -2.06%  -0.48%  -0.57%


 Avg     -0.24%   1.63%  -0.72%   0.23%   0.63%   1.52%


OTC summary for PY2 1966 - 2018 

 Avg      0.35%   0.10%   0.07%   0.48%   0.19%   1.20%

 Win%       57%     36%     50%     57%     57%     57%


OTC summary for all years 1963 - 2021

 Avg      0.33%   0.05%  -0.22%   0.41%  -0.11%   0.46%

 Win%       59%     53%     48%     63%     56%     56%


SPX PY2

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1954-2  -0.80%  -0.40%  -0.03%  -1.21%  -0.53%  -2.97%

 1958-2   0.45%  -0.70%  -1.33%   0.71%   1.02%   0.16%


 1962-2   0.56%  -0.33%  -0.33%  -0.97%  -1.33%  -2.40%

 1966-2   1.14%   1.56%  -0.80%  -0.27%   0.45%   2.08%

 1970-2  -1.07%  -0.13%   0.15%   0.55%  -0.44%  -0.94%

 1974-2   2.25%  -1.79%  -1.55%   1.19%   1.56%   1.66%

 1978-2  -1.96%  -1.32%  -0.76%  -1.15%  -1.39%  -6.58%


 Avg      0.18%  -0.40%  -0.66%  -0.13%  -0.23%  -1.24%


 1982-2   2.61%  -0.02%   1.69%  -1.57%  -0.74%   1.97%

 1986-2   0.18%  -0.23%   1.46%   0.31%  -0.29%   1.43%

 1990-2   1.07%  -1.42%  -0.05%   2.34%   2.20%   4.13%

 1994-2  -0.03%  -0.28%   0.56%  -0.73%  -0.42%  -0.90%

 1998-2   1.36%  -0.29%   1.08%   4.18%   0.85%   7.17%


 Avg      1.04%  -0.45%   0.95%   0.90%   0.32%   2.76%


 2002-2   0.73%   4.73%  -2.41%   2.23%   0.59%   5.88%

 2006-2   0.25%  -0.37%   0.14%   0.07%   0.12%   0.22%

 2010-2   0.01%   0.38%   0.71%  -0.36%   0.20%   0.95%

 2014-2  -1.65%   0.16%  -0.81%   0.01%   1.29%  -1.00%

 2018-2  -0.59%   2.15%  -0.03%  -1.44%  -0.04%   0.06%


 Avg     -0.25%   1.41%  -0.48%   0.10%   0.43%   1.22%


SPX summary for PY2 1954 - 2018 

 Avg      0.27%   0.10%  -0.14%   0.23%   0.18%   0.64%

 Win%       65%     29%     41%     53%     53%     65%


SPX summary for all years 1953 - 2021

 Avg      0.36%   0.03%  -0.25%   0.25%  -0.12%   0.27%

 Win%       62%     41%     47%     59%     50%     64%

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.

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

2yr yield 4.511% up from 3.867%

5yr yield 4.268% up from 3.638%

10yr yield 4.024% up from 3.453% 

30yr yield 3.997% up from 3.518%

Everything is inverted (shorter term maturities yield more than longer term maturities).

The next chart covers the past 3 years 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

Liquidity continues to be a problem worldwide. 

The Bank of England was trying to bail out some pension funds that had received margin calls.  The deadline was Friday and the pension funds had declined the help.

The strongest sectors last week were Banks (with the yield curve inverted) and Energy while the weakest were Precious metals (down from the top last week) and Electronics.

I expect the major averages to be lower on Friday October 21 than they were on Friday October 14.

Last week the Dow Jones Industrial average was up while everything else was down. So I am calling last week's negative forecast a tie. 

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