The good news is:

• New lows declined by more than half from Thursday to Friday.

The Negatives

The first chart covers the last 6 months showing the S&P 500 (SPX) in red and a 10% trend (19 day EMA) of NYSE new highs (NY NH) in green.  Dashed vertical lines have been drawn on the 1st trading day of each month.

NY NH is continuing to decline.

The next chart is similar to the one above except it shows the Nasdaq composite (OTC) in blue and OTC NH, in green, has been calculated with Nasdaq data.

OTC NH fell to another new low for the past 6 months.

Summation indices are running totals of oscillator values.

Short term momentum indicators applied to summation indices make them nearly binary so direction is less important than position.

The next chart covers the past 6 months showing the SPX in red and momentum of summation indices of oscillators of advancing and declining issues, new highs and new lows and upside and downside volume on the NYSE.  

NYSE SI’s are all at their lows.

The next chart is similar to the one above, except it shows the OTC, in blue, as the index and the SI’s have been generated from Nasdaq breadth data.  

The AD SI turned upward Friday while the other Nasdaq SI’s are at the bottom of the chart.

The next chart covers the last 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 turned upward Friday.

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

Ditto NY NL.

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 to an extreme negative value, but turned upward at the end of the week. 

The next chart is similar to the one above except it shows the SPX in red and NY HL ratio, in blue, has been calculated with NYSE data.

NY HL ratio also turned upward from an extremely negative level. 

The Positives

The market is oversold and Seasonality improves after this week.

Seasonality

Next week includes the first 5 trading days of October during the 3rd 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 2022 while SPX data runs from 1928 to 2022.  There are summaries for both the 3rd year of the Presidential Cycle and all years combined.  

Average returns for the coming week have been positive by all measures. 

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 3 (PY3)

               Day1      Day2      Day3      Day4      Day5      Totals

 1963-3      -0.32% 2  -0.14% 3  -0.12% 4   0.29% 5  -0.26% 1    -0.55%

 1967-3       0.26% 1  -0.08% 2   0.21% 3   0.46% 4   0.32% 5     1.17%

 1971-3       0.50% 5   0.35% 1   0.03% 2   0.63% 3   0.27% 4     1.78%

 1975-3      -0.71% 3   0.49% 4   1.81% 5   0.70% 1  -0.20% 2     2.09%

 1979-3      -0.26% 1   0.28% 2   0.33% 3   0.60% 4   0.57% 5     1.53%


 Avg         -0.10%     0.18%     0.45%     0.54%     0.14%       1.20%


 1983-3      -0.68% 1   0.06% 2  -0.08% 3   0.41% 4   0.53% 5     0.24%

 1987-3       0.94% 4   0.70% 5   0.45% 1  -1.35% 2  -0.64% 3     0.10%

 1991-3       0.31% 2  -0.41% 3  -1.11% 4  -0.02% 5  -0.81% 1    -2.04%

 1995-3      -1.52% 1  -0.69% 2  -1.78% 3   1.19% 4  -0.22% 5    -3.03%

 1999-3      -0.34% 5   2.00% 1   0.13% 2   2.00% 3   0.12% 4     3.92%


 Avg         -0.26%     0.33%    -0.48%     0.45%    -0.20%      -0.16%


 2003-3       2.00% 3   0.22% 4   2.00% 5   0.69% 1   0.76% 2     5.66%

 2007-3       1.46% 1   0.22% 2  -0.64% 3   0.15% 4   1.71% 5     2.90%

 2011-3      -2.00% 1   2.00% 2   2.00% 3   1.88% 4  -1.10% 5     2.79%

 2015-3       0.15% 4   1.74% 5   1.56% 1  -0.69% 2   0.90% 3     3.67%

 2019-3      -1.13% 2  -1.56% 3   1.12% 4   1.40% 5  -0.33% 1    -0.50%


 Avg          0.10%     0.52%     1.21%     0.69%     0.39%       2.90%


OTC summary for PY3 1963 - 2019

Averages     -0.09%     0.34%     0.39%     0.56%     0.11%       1.32%

% Winners       47%       67%       67%       80%       53%         73%

MDD  10/4/1995  3.95% --  10/2/2019  2.68% --  10/7/1991  2.33%


OTC summary for all years 1963 - 2022

Averages      0.01%    -0.05%     0.21%     0.09%    -0.03%       0.23%

% Winners       53%       53%       63%       60%       57%         62%

MDD 10/7/2008  7.85% --  10/7/2002  7.41% --  10/7/1998  7.31%


SPX PY3

               Day1      Day2      Day3      Day4      Day5      Totals

 1931-3      -1.85% 4   1.78% 5  -2.00% 6  -2.00% 1   2.00% 2    -2.07%

 1935-3      -0.95% 2  -2.00% 3   1.44% 4   0.89% 5   0.70% 6     0.08%

 1939-3      -1.08% 1  -0.85% 2   0.16% 3   0.23% 4  -0.16% 5    -1.69%


 1943-3       0.08% 5  -0.08% 6  -0.50% 1  -0.42% 2  -1.17% 3    -2.08%

 1947-3       0.33% 3   0.07% 4   0.46% 5   0.13% 6   0.13% 1     1.12%

 1951-3       0.90% 1   0.72% 2   0.63% 3  -0.29% 4   0.25% 5     2.22%

 1955-3      -2.00% 1   0.78% 2   0.40% 3  -0.67% 4  -0.75% 5    -2.25%

 1959-3       0.11% 4   0.46% 5  -0.10% 1  -0.09% 2  -0.26% 3     0.11%


 Avg         -0.12%     0.39%     0.18%    -0.27%    -0.36%      -0.18%


 1963-3       0.73% 2   0.11% 3   0.73% 4   0.03% 5  -0.21% 1     1.39%

 1967-3      -0.40% 1   0.34% 2  -0.23% 3   0.25% 4   0.61% 5     0.57%

 1971-3       0.60% 5   0.28% 1  -0.10% 2   0.72% 3   0.20% 4     1.70%

 1975-3      -1.12% 3   1.07% 4   2.00% 5   1.08% 1  -0.13% 2     2.91%

 1979-3      -0.70% 1   0.95% 2   0.00% 3   0.53% 4   1.00% 5     1.78%


 Avg         -0.18%     0.55%     0.48%     0.52%     0.30%       1.67%


 1983-3      -0.16% 1   0.28% 2   0.88% 3   1.51% 4   0.31% 5     2.82%

 1987-3       1.71% 4   0.23% 5   0.00% 1  -2.00% 2  -0.21% 3    -0.27%

 1991-3       0.35% 2  -0.24% 3  -0.98% 4  -0.84% 5  -0.46% 1    -2.17%

 1995-3      -0.46% 1   0.11% 2  -0.15% 3   0.20% 4  -0.02% 5    -0.33%

 1999-3       0.01% 5   1.70% 1  -0.25% 2   1.84% 3  -0.58% 4     2.73%


 Avg          0.29%     0.41%    -0.10%     0.14%    -0.19%       0.56%


 2003-3       2.00% 3   0.20% 4   0.94% 5   0.44% 1   0.47% 2     4.05%

 2007-3       1.33% 1  -0.03% 2  -0.46% 3   0.21% 4   0.96% 5     2.01%

 2011-3      -2.00% 1   2.00% 2   1.79% 3   1.83% 4  -0.82% 5     2.80%

 2015-3       0.20% 4   1.43% 5   1.83% 1  -0.36% 2   0.80% 3     3.90%

 2019-3      -1.23% 2  -1.79% 3   0.80% 4   1.42% 5  -0.45% 1    -1.25%


 Avg          0.06%     0.36%     0.98%     0.71%     0.19%       2.30%


SPX summary for PY3 1931 - 2019

Averages     -0.16%     0.33%     0.32%     0.20%     0.10%       0.79%

% Winners       52%       74%       57%       65%       48%         65%

MDD  10/5/1931  4.06% --  10/2/2019  2.99% --  10/2/1935  2.93%


SPX summary for all years 1928 - 2022

Averages      0.07%     0.17%     0.21%     0.02%     0.07%       0.53%

% Winners       52%       63%       56%       55%       51%         61%

MDD 10/7/2008  7.45% --  10/7/2002  6.81% --  10/7/1966  4.22%

October

Since 1963, over all years, the OTC in October has been up 57% of the time with an average gain of 0.9%.  During the 3rd year of the Presidential Cycle October has been up 60% time and, on average gained 0.3%.  The best October ever for the OTC was 1974 (+17.2%), the worst 1987 (-27.2%).

Because the crash of 1987 skews the data I have set the program up to limit daily moves to 2%.  In the 1987 crash the major indices were down over 20% on Monday then up about 10% on Tuesday.  In calculating the charts below those moves are only counted as 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 1st 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 black line shows the average during the 3rd year of the Presidential Cycle over the same period.

Since 1928 the SPX has been up 59% of the time in October with an average gain of 0.6%.  During the 3rd year of the Presidential Cycle the SPX has been up 57% of the time with an average gain of 0.8%.  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 daily average performance over all years for the SPX in October in red and the performance during the 3rd year of the Presidential Cycle in black.

Since 1979 the Russell 2000 (R2K) has been up 59% of the time in October with an average of no gain or loss.  During the 3rd year of the Presidential Cycle the R2K has been up 64% of the time with an average loss of -1.5% (helped considerably by a 30.7% loss in 1987.  The best October ever for the R2K, 1982 (+14.2%), 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 3rd year of the Presidential Cycle in black.

Since 1885 the Dow Jones Industrial Average (DJIA) has been up 56% of the time in October with an average gain of 0.4%.  During the 3rd year of the Presidential Cycle the DJIA has been up 50% of the time with an average loss of -0.3%.  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 for the DJIA in October in grey and the performance during the 3rd year of the Presidential Cycle in black.

Conclusion

New lows declined substantially on Friday.

The market has been following the average seasonal pattern quite closely and that pattern has been very strong in the 1st week of October.

The strongest sectors last week were Energy and Electronics while the weakest were Utilities and Precious metals (down from the top for the past 2 weeks).

I expect the major averages to be higher on Friday, October 6 than they were on Friday, September 29. 

Last week the DJIA and SPX were down while the OTC and R2K were up, so I am calling last week's negative forecast a tie.

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