The good news is:​ Last week new highs began expanding for the first time in over 2 months.

The Negatives

The negatives pretty much disappeared last week.

Average seasonality for next week is negative; however, that is a holdover from earlier times. Next week's seasonality has been positive for the past 20 years.

The Positives

Last week breadth turned positive and the secondaries outperformed the blue chips.

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 1st trading day of each month.

OTC NH is showing some signs of life.

The next chart is similar to the 1st chart except it shows the S&P 500 (SPX) in red and NY NH has been calculated with NYSE data.

NY NH is also showing signs of life.

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 rose sharply finishing the week slightly short of positive territory.

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 rose to a comfortable 78%.

Seasonality

Next week includes the 5 trading days prior to the 4th Friday 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 2018 while SPX data runs from 1953 to 2018. There are summaries for both the 3rd 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 distorted by the crash of 1987; however, returns have been strong for the past 20 years.

Report for the week before the 4th Friday of October.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday through the 4th Friday.

OTC Presidential Year 3 (PY3)
 Year       Mon     Tue     Wed    Thur    Fri    Totals
 1963-3   0.49%  -0.06%  -0.14%   0.37%   0.60%   1.25%
 1967-3  -0.22%  -0.38%  -0.40%  -0.62%   0.62%  -0.99%
 1971-3  -0.49%  -0.98%  -1.31%   0.03%   0.18%  -2.57%
 1975-3   0.64%   0.38%   0.61%   0.19%  -0.56%   1.27%

 1979-3  -2.51%  -0.41%   0.31%  -0.22%   0.77%  -2.06%
 1983-3  -0.96%   0.65%  -0.27%  -0.13%  -0.49%  -1.20%
 1987-3 -11.35%  -9.00%   7.34%  -4.47%  -2.28% -19.76%
 1991-3  -0.36%   0.03%  -0.37%  -1.20%  -0.68%  -2.58%
 1995-3  -0.25%   0.22%  -1.22%  -0.87%   0.79%  -1.33%

 Avg     -3.09%  -1.70%   1.16%  -1.38%  -0.38%  -5.39%

 1999-3  -1.56%  -0.03%   3.72%   0.49%   0.52%   3.14%
 2003-3   0.67%   0.82%  -2.21%  -0.66%  -1.06%  -2.44%
 2007-3   1.06%   1.65%  -0.88%  -0.86%   1.94%   2.90%
 2011-3   2.35%  -2.26%   0.46%   3.32%  -0.05%   3.82%
 2015-3   0.38%  -0.50%  -0.84%   1.65%   2.27%   2.97%

 Avg      0.58%  -0.07%   0.05%   0.79%   0.72%   2.08%

OTC summary for PY3 1963 - 2015 
 Avg     -0.87%  -0.71%   0.34%  -0.21%   0.18%  -1.26%
 Win%       43%     43%     36%     43%     57%     43%

OTC summary for all years 1963 - 2018
 Avg      0.10%  -0.44%  -0.01%   0.04%  -0.06%  -0.37%
 Win%       54%     38%     51%     52%     54%     50%


SPX PY3
 Year       Mon     Tue     Wed    Thur    Fri    Totals
 1955-3   0.75%  -0.65%  -0.80%  -0.35%   0.55%  -0.51%

 1959-3  -0.56%  -0.61%  -0.19%  -0.97%   1.00%  -1.34%
 1963-3   0.08%  -0.57%   0.05%   0.38%   1.00%   0.94%
 1967-3  -0.44%  -0.57%   0.11%   0.44%   0.02%  -0.44%
 1971-3  -0.45%  -0.36%  -1.39%  -0.05%  -0.09%  -2.35%
 1975-3   1.08%   0.82%   0.17%   0.58%  -1.55%   1.11%

 Avg     -0.06%  -0.26%  -0.25%   0.08%   0.08%  -0.41%

 1979-3  -0.88%  -0.43%   0.16%  -0.44%   0.57%  -1.01%
 1983-3   0.02%   0.29%  -0.65%  -0.33%  -0.89%  -1.56%
 1987-3 -20.47%   5.33%   9.10%  -3.92%  -0.01%  -9.97%
 1991-3  -0.63%  -0.56%   0.03%  -0.74%  -0.23%  -2.13%
 1995-3  -0.41%   0.26%  -0.70%  -0.99%   0.52%  -1.32%

 Avg     -4.47%   0.98%   1.59%  -1.28%  -0.01%  -3.20%

 1999-3   0.55%   0.57%   2.24%  -0.46%   1.41%   4.30%
 2003-3   0.52%   0.13%  -1.50%   0.33%  -0.47%  -0.99%
 2007-3   0.38%   0.88%  -0.24%  -0.10%   1.38%   2.30%
 2011-3   1.29%  -2.00%   1.05%   3.43%   0.04%   3.80%
 2015-3   0.03%  -0.14%  -0.58%   1.66%   1.10%   2.07%

 Avg      0.55%  -0.11%   0.19%   0.97%   0.69%   2.30%

SPX summary for PY3 1955 - 2015 
 Avg     -1.20%   0.15%   0.43%  -0.09%   0.27%  -0.44%
 Win%       56%     44%     50%     38%     63%     38%

SPX summary for all years 1953 - 2018
 Avg     -0.12%  -0.11%   0.10%  -0.09%  -0.04%  -0.26%
 Win%       58%     43%     54%     42%     48%     47%

Money supply (M2) and Interest Rates

The following charts were supplied by Gordon Harms.M2 growth turned sharply upward over the past month.

Interest rates at their close last Friday and their changes from last month:
2yr yield 1.578% down from 1.798%
5yr yield 1.563% down from 1.751%
10yr yield 1.753% down from 1.899%
30yr yield 2.251% down from 2.373%
The 2yr and 5yr yields remain inverted.

The next chart is a close up showing just the past year from the chart above.

Conclusion

The market did pretty well last week for what had been a bad week seasonally.
Next week's seasonality has, on average over all the time data is available, been weak, however, the past 20 years have been strong.

I expect the major averages to be higher on Friday, October 25 than they were on Friday, October 18.

Last week the Dow Jones Industrial Average was down slightly while the other major indices were up slightly. So, I am calling last weeks negative forecast a tie.