The good news is there was a significant expansion in the number of new highs last week.

The Negatives

The market is overbought.

The Positives

The secondaries outperformed the blue chips last week.

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. The OTC NH moved sharply upward last week.

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. Similar momentum is illustrated on the NYSE.

The next chart covers the past six 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 finished the week at a very strong 89%.

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 also recovered to finish the week at 89%.

Seasonality

Next week includes the five trading days prior to the third Friday 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 1953 to 2019. There are summaries for both the fourth year of the Presidential Cycle, and all years combined. Prior to 1953, the market traded six days a week, so that data has been ignored. Average returns for the coming week have been positive by all measures.

The number following the year is the position in the Presidential Cycle. Daily returns from Monday through third Friday:

OTC Presidential Year 4 (PY4)

•     Year    Mon     Tue     Wed      Thur     Fri    Totals
•  1964-4 0.00% 0.09% -0.07% -0.27% 0.11% -0.14%
•  1968-4 0.04% 0.35% 0.00% 0.27% -0.01% 0.65%
•  1972-4 -1.04% 0.44% 0.49% -0.11% 0.86% 0.65%
•  1976-4 -0.40% -0.29% 0.61% -0.64% 0.37% -0.35%
•  1980-4 0.55% 0.08% 0.21% -0.74% -0.36% -0.27%
•  1984-4 0.63% -0.16% -0.07% 1.08% 0.57% 2.05%
•  1988-4 0.11% 0.32% -0.13% 0.74% -0.01% 1.04%
•  1992-4 0.58% 0.45% -0.04% 0.42% 0.69% 2.10%
•  1996-4 0.65% 0.14% -0.56% -0.72% 0.04% -0.46%
•  Avg  --   0.50% 0.16% -0.12% 0.16% 0.19% 0.89%
•  2000-4 -0.80% -2.32% -1.32% 7.79% 1.89% 5.24%
•  2004-4 0.46% -0.19% -0.24% -0.91% 0.45% -0.44%
•  2008-4 11.81% -3.54% -8.47% 5.49% -0.37% 4.91%
•  2012-4 0.66% 1.21% 0.10% -1.01% -2.19% -1.23%
•  2016-4 -0.28% 0.85% 0.05% -0.09% 0.30% 0.83%
•  Avg    --   2.37% -0.80% -1.98% 2.25% 0.01% 1.86%

OTC summary for PY4 1964 - 2016 

•  Avg   --   1.00% -0.18% -0.73% 0.81% 0.17% 1.04%
•  Win%   --   69% 64% 38% 43% 64% 57%

OTC summary for all years 1963 - 2019

•  Avg   --   0.31% 0.06% -0.22% 0.41% -0.12% 0.43%
•  Win%   --    59% 54% 48% 63% 56% 54%

SPX PY4

•     Year     Mon    Tue       Wed     Thur      Fri      Totals
•  1956-4 -0.30% -0.51% -0.77% 0.17% -0.22% -1.63%
•  1960-4 -0.42% -0.51% -0.18% -0.72% -1.00% -2.84%
•  1964-4 0.02% -0.33% -0.20% -0.64% 0.69% -0.45%
•  1968-4 0.14% 0.20% 0.00% 0.46% 0.78% 1.58%
•  1972-4 -1.07% 0.68% 0.64% -0.13% 1.10% 1.23%
•  1976-4 -0.90% -0.82% 1.30% -1.21% -0.03% -1.66%
•  Avg   --  -0.44% -0.15% 0.39% -0.45% 0.31% -0.43%
•  1980-4 1.34% -0.01% 1.27% -1.11% -0.53% 0.96%
•  1984-4 0.97% -0.60% -0.39% 2.41% -0.08% 2.31%
•  1988-4 0.33% 1.07% -0.86% 2.13% 0.28% 2.95%
•  1992-4 1.19% 0.46% 0.02% 0.06% 0.52% 2.24%
•  1996-4 0.41% -0.14% 0.26% 0.37% 0.54% 1.44%
•  Avg   --  0.85% 0.16% 0.06% 0.77% 0.15% 1.98%
•  2000-4 0.03% -1.79% -0.58% 3.47% 0.59% 1.72%
•  2004-4 0.20% -0.23% -0.73% -0.93% 0.45% -1.24%
•  2008-4 11.58% -0.53% -9.03% 4.25% -0.62% 5.64%
•  2012-4 0.81% 1.03% 0.41% -0.24% -1.66% 0.34%
•  2016-4 -0.30% 0.62% 0.22% -0.14% -0.01% 0.39%
•  Avg   --   2.46% -0.18% -1.94% 1.28% -0.25% 1.37%

SPX summary for PY4 1956 - 2016 

•  Avg   --   0.88% -0.09% -0.58% 0.51% 0.05% 0.81%
•  Win%   --   69% 38% 47% 50% 50% 69%

SPX summary for all years 1953 - 2019

•  Avg    --  0.35% 0.05% -0.25% 0.24% -0.14% 0.25%
•  Win%   --   62% 42% 47% 60% 48% 63%

Conclusion

Last week the market shot upward like it was coming off a bottom. The strongest sectors last week were electronics and banks. The weakest sectors were precious metals and energy. I expect the major averages to be higher on Friday, October 16 than they were on Friday, October 9. Last week's negative forecast was a miss.