The good news is:

• The market is oversold and ready for a bounce.

The Negatives

Except for Friday, new highs decreased from low levels and new lows increased from high levels every day last week.

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 in green. Dashed vertical lines have been drawn on the 1st trading day of each month.

OTC NH declined from an already low level.

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 resumed its decline 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 has fallen into very 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 is also very negative,

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 accelerated its downward move. 

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

The market is oversold and new lows declined by about half on Friday; a down day for prices.

Seasonality

Next week includes the 4 trading days prior to the 2nd Friday of September during the 2nd year of the Presidential Cycle.  The tables below show the daily change, on a percentage basis for that period   The table shows 5 days, but most of the Mondays are 0’s.

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 modestly negative by all measures.

Report for the week before the 2nd Friday of September.

The number following the year is the position in the Presidential Cycle.

Daily returns from Monday to 2nd Friday.


Presidental Year 2 (PY2)

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1966-2   0.00%  -0.12%  -0.40%  -0.99%  -0.27%  -1.78%

 1970-2   0.00%   1.45%   1.99%  -0.24%  -0.26%   2.93%

 1974-2  -2.19%  -0.67%  -0.02%  -2.12%  -1.82%  -6.82%

 1978-2   0.00%   0.82%   0.23%   0.23%   0.93%   2.21%


 1982-2   0.00%  -0.64%   0.50%   0.54%  -0.16%   0.24%

 1986-2  -1.47%  -0.87%  -0.74%  -3.67%  -1.86%  -8.61%

 1990-2   0.35%  -0.59%   0.22%  -1.09%  -0.47%  -1.57%

 1994-2   0.00%   0.03%   0.63%   0.66%  -0.72%   0.60%

 1998-2   0.00%   6.03%  -2.19%  -2.42%   3.55%   4.97%


 Avg     -0.56%   0.79%  -0.32%  -1.20%   0.07%  -0.88%


 2002-2   0.72%   1.19%  -0.35%  -2.72%   0.92%  -0.25%

 2006-2   0.00%   0.57%  -1.72%  -0.58%   0.49%  -1.24%

 2010-2   0.00%  -1.11%   0.90%   0.33%   0.28%   0.40%

 2014-2   0.20%  -0.87%   0.75%   0.12%  -0.53%  -0.33%

 2018-2   0.27%   0.61%  -0.23%   0.75%  -0.05%   1.36%


 Avg      0.40%   0.08%  -0.13%  -0.42%   0.22%  -0.01%


OTC Summary for PY2 1966 - 2018 

 Avg     -0.35%   0.42%  -0.03%  -0.80%   0.00%  -0.56%

 Win%       67%     50%     50%     43%     36%     50%


OTC summary for all years 1963 - 2021

 Avg     -0.29%  -0.05%  -0.05%   0.06%   0.00%  -0.16%

 Win%       48%     51%     55%     63%     54%     58%


SPX PY2

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1954-2   0.00%   0.52%   0.07%   0.16%   0.36%   1.11%

 1958-2   0.33%   0.69%  -0.31%   0.68%  -0.23%   1.17%


 1962-2   0.12%   0.24%   0.43%  -0.24%   0.32%   0.87%

 1966-2   0.00%  -0.59%  -0.81%  -0.38%   0.32%  -1.46%

 1970-2   0.00%   0.25%  -0.30%  -0.59%   0.27%  -0.37%

 1974-2  -2.38%  -0.69%  -1.00%  -2.68%  -2.26%  -9.01%

 1978-2   0.00%   0.78%   0.85%   0.04%   1.30%   2.97%


 Avg     -1.13%   0.00%  -0.16%  -0.77%  -0.01%  -1.40%


 1982-2   0.00%  -1.07%   0.68%  -0.19%  -0.82%  -1.39%

 1986-2  -0.93%  -0.19%  -0.25%  -4.81%  -1.92%  -8.09%

 1990-2  -0.55%  -0.18%   0.47%  -1.21%  -0.57%  -2.04%

 1994-2   0.00%   0.18%  -0.18%   0.46%  -1.05%  -0.59%

 1998-2   0.00%   5.10%  -1.69%  -2.59%   2.95%   3.77%


 Avg     -0.74%   0.77%  -0.19%  -1.67%  -0.28%  -1.67%


 2002-2   1.01%   0.73%  -0.01%  -2.48%   0.33%  -0.42%

 2006-2   0.00%   0.17%  -0.99%  -0.48%   0.38%  -0.92%

 2010-2   0.00%  -1.15%   0.64%   0.48%   0.49%   0.47%

 2014-2  -0.31%  -0.65%   0.36%   0.09%  -0.60%  -1.11%

 2018-2   0.19%   0.37%   0.04%   0.53%   0.03%   1.16%


 Avg      0.30%  -0.10%   0.01%  -0.37%   0.12%  -0.16%


SPX summary for PY2 1954 - 2018 

 Avg     -0.31%   0.27%  -0.12%  -0.78%  -0.04%  -0.82%

 Win%       50%     59%     47%     41%     59%     41%


SPX summary for all years 1953 - 2021

 Avg     -0.24%  -0.04%  -0.01%  -0.16%   0.02%  -0.30%

 Win%       45%     52%     57%     48%     61%     51%

Conclusion

The market is oversold and the substantial decline in the number of new lows on Friday suggests a rally.

The strongest sectors last week were Energy and Retail while the weakest were Financials and Telecomm.

I expect the major averages to be higher on Friday, September 9 than they were on Friday, September 2.

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