The good news is:

• The S&P 500 (SPX) and NASDAQ composite (OTC) both closed at all time highs last Friday.

The Negatives

The all time highs for the SPX and OTC were not confirmed by the breadth indicators or the secondaries.

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 1^st trading day of each month. 

OTC NH turned up last week, but is a long way from confirming the OTC high.

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

NY NH also turned up, but, not enough that you can see it.

The Positives

New lows declined sharply last week.

The secondaries outperformed the blue chips.

If the pattern holds up, the lows of about a week ago will be a bottom.

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 recovered nicely from its low a week ago.

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 is also recovering from its recent low.

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 recovered nicely from its low of a week ago.

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 also recovered from its recent trip into negative territory. 

Seasonality

Next week includes the last 2 trading days of August and the first 3 trading days of September during the 1^st 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 1928 to 2020.  There are summaries for both the 1^st year of the Presidential Cycle and all years combined. 

Average returns for the coming week have been modest and mixed.

Report for the last 2 days of August and first 3 days of September.

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 1 (PY1)

               Day2      Day1      Day1      Day2      Day3      Totals

 1965-1       0.26% 1   0.20% 2   0.22% 3   0.27% 4   0.74% 5     1.69%

 1969-1       0.06% 4   0.97% 5   0.32% 2   0.09% 3  -0.16% 4     1.27%

 1973-1       0.19% 4   0.85% 5   0.60% 2   0.50% 3   0.31% 4     2.45%

 1977-1      -0.26% 2  -0.01% 3   0.30% 4   0.43% 5  -0.05% 2     0.41%

 

 1981-1       0.37% 5  -0.91% 1  -0.30% 2   0.11% 3  -1.74% 4    -2.46%

 1985-1       0.11% 4   0.13% 5  -0.39% 2  -0.33% 3  -0.10% 4    -0.58%

 1989-1       0.36% 3   0.23% 4   0.43% 5   0.02% 2  -0.46% 3     0.58%

 1993-1       0.45% 1   0.74% 2   0.45% 3   0.34% 4   0.14% 5     2.11%

 1997-1      -0.89% 4   0.38% 5   1.94% 2   0.01% 3   0.40% 4     1.83%

 

 Avg          0.08%     0.11%     0.43%     0.03%    -0.35%       0.30%

 

 2001-1      -2.79% 4   0.77% 5  -1.92% 2  -0.66% 3  -3.03% 4    -7.64%

 2005-1      -0.37% 2   1.05% 3  -0.19% 4  -0.32% 5   1.20% 2     1.37%

 2009-1       0.05% 5  -0.97% 1  -2.00% 2  -0.09% 3   0.82% 4    -2.19%

 2013-1       0.75% 4  -0.84% 5   0.63% 2   1.01% 3   0.27% 4     1.82%

 2017-1       1.05% 3   0.94% 4   0.10% 5  -0.92% 2   0.28% 3     1.45%

 

 Avg         -0.26%     0.19%    -0.68%    -0.20%    -0.09%      -1.04%

 

OTC summary for PY1 1965 - 2017

Averages     -0.05%     0.25%     0.01%     0.03%    -0.10%       0.15%

% Winners       71%       71%       64%       64%       57%         71%

MDD  9/6/2001  7.46% --  9/2/2009  3.04% --  9/3/1981  2.81%

 

OTC summary for all years 1963 - 2020

Averages     -0.08%     0.12%     0.03%     0.10%    -0.07%       0.10%

% Winners       62%       70%       60%       62%       59%         57%

MDD 8/31/1998  11.10% --  9/6/2001  7.46% --  9/5/2002  6.35%

 

SPX PY1

               Day2      Day1      Day1      Day2      Day3      Totals

 1929-1       0.97% 4   1.34% 5   0.35% 2  -0.31% 3  -2.21% 4     0.14%

 1933-1      -0.89% 3  -0.09% 4   1.26% 5  -3.47% 2   0.09% 3    -3.10%

 1937-1       1.32% 1  -0.50% 2  -2.68% 3  -1.60% 4   0.65% 5    -2.81%

 

 1941-1      -0.10% 5   0.19% 6   0.39% 2  -0.68% 3  -0.29% 4    -0.48%

 1945-1       0.33% 4   1.04% 5   0.00% 2   0.13% 3   1.35% 4     2.85%

 1949-1       0.60% 2   0.07% 3   0.59% 4  -0.13% 5  -0.07% 2     1.06%

 1953-1      -0.21% 5  -1.77% 1   0.43% 2   0.60% 3  -0.21% 4    -1.16%

 1957-1      -0.40% 4   1.71% 5   0.49% 2  -0.86% 3  -0.51% 4     0.42%

 

 Avg          0.04%     0.25%     0.38%    -0.19%     0.05%       0.54%

 

 1961-1       0.38% 3   0.38% 4   0.18% 5  -0.34% 2   0.74% 3     1.34%

 1965-1       0.01% 1  -0.05% 2   0.00% 3   0.55% 4   0.47% 5     0.98%

 1969-1       0.42% 4   0.65% 5   0.03% 2  -0.59% 3  -0.82% 4    -0.30%

 1973-1      -0.14% 4   0.36% 5   0.25% 2   0.12% 3   0.49% 4     1.07%

 1977-1      -0.56% 2   0.40% 3   0.06% 4   0.64% 5   0.27% 2     0.82%

 

 Avg          0.02%     0.35%     0.10%     0.08%     0.23%       0.78%

 

 1981-1       0.46% 5  -1.04% 1   0.19% 2   0.38% 3  -1.82% 4    -1.83%

 1985-1       0.05% 4  -0.16% 5  -0.38% 2  -0.29% 3  -0.05% 4    -0.83%

 1989-1       0.23% 3   0.23% 4   0.65% 5  -0.33% 2  -0.94% 3    -0.16%

 1993-1       0.30% 1   0.36% 2  -0.09% 3  -0.40% 4   0.01% 5     0.18%

 1997-1      -1.10% 4  -0.46% 5   3.13% 2   0.03% 3   0.33% 4     1.92%

 

 Avg         -0.01%    -0.22%     0.70%    -0.12%    -0.50%      -0.15%

 

 2001-1      -1.70% 4   0.40% 5  -0.06% 2  -0.11% 3  -2.24% 4    -3.70%

 2005-1      -0.32% 2   0.99% 3   0.10% 4  -0.29% 5   1.26% 2     1.74%

 2009-1      -0.20% 5  -0.81% 1  -2.21% 2  -0.33% 3   0.85% 4    -2.70%

 2013-1       0.20% 4  -0.32% 5   0.42% 2   0.81% 3   0.12% 4     1.23%

 2017-1       0.46% 3   0.57% 4   0.20% 5  -0.75% 2   0.31% 3     0.79%

 

 Avg         -0.31%     0.17%    -0.31%    -0.13%     0.06%      -0.53%

 

SPX summary for PY1 1929 - 2017

Averages      0.00%     0.15%     0.14%    -0.31%    -0.10%      -0.11%

% Winners       57%       61%       70%       35%       57%         57%

MDD  9/2/1937  4.71% --  9/6/2001  3.67% --  9/2/2009  3.51%

 

SPX summary for all years 1928 - 2020

Averages     -0.06%     0.11%    -0.07%     0.15%     0.20%       0.33%

% Winners       50%       62%       62%       54%       58%         60%

MDD 8/31/1998  8.16% --  9/4/1946  7.76% --  9/3/1931  5.32%

September

Since 1963, over all years, the OTC in September has been up 59% of the time and has, on average, had a loss of 0.1% for the month.  During the 1^st year of the Presidential Cycle September has been up 71% time with an average gain of (+0.4%).  The best September ever for the OTC was 1998 (+13.0%), the worst 2001 (-17.0%).

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 1^st 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 1^st trading day and at 5 trading day intervals after that.  The line is solid on the 11^th trading day, the dividing point.

In the chart below the blue line shows the average of the OTC in September over all years since 1963 while the green line shows the average during the 1^st year of the Presidential Cycle over the same period.

Since 1928 the SPX has been up 46% of the time in September with an average loss of (-1.0%).  During the 1^st year of the Presidential Cycle the SPX has been up 43% of the time with an average loss of (-1.4%).  The best September ever for the SPX was 1939 (+16.5%) the worst 1931 (-29.9%).

The chart below is similar to the one above except it shows the average daily performance over all years for the SPX in September in red and the performance during the 1^st year of the Presidential Cycle in green.

Since 1979 the Russell 2000 (R2K) has been up 55% of the time in September with an average loss of (-0.4%).  During the 1^st year of the Presidential Cycle the R2K has been up 70% of the time and, on average, been flat for the month.  The best September ever for the R2K, 2010 (+12.3%), the worst 2001 (-13.6%)

The chart below is similar to those above except it shows the daily performance over all years of the R2K in September in magenta and the performance during the 1^st year of the Presidential Cycle in green.

Since 1885 the DJIA has been up 44% of the time in September with an average loss of (-0.9%).  During the 1^st year of the Presidential Cycle the DJIA has been up 53% of the time in September with an average loss of (-1.0%).  The best September ever for the DJIA, 1939 (+13.5%), the worst 1930 -30.7%.

The chart below is similar to those above except it shows the daily performance over all years of the DJIA in September in cyan and the performance during the 1^st year of the Presidential Cycle in grey.

Conclusion

New low numbers declined sharply last week and the secondaries outperformed the blue chips.

It looks like a bottom has been put in, lets hope it holds.

The strongest sectors last week were Banks and Electronics while the weakest were Utilities (back down from the top last week) and Biotech.

I expect the major averages to be higher on Friday September 3 than they were on Friday August 27.