Technical Stock Market Report

September 27, 2014

The good news is:  New lows have risen to the level that will make it easy to determine when a bottom has been reached.

The negatives:  There is no sign of a bottom.

New lows remained at threatening levels every day last week on both the NYSE and NASDAQ.

The chart below covers the past 6 months showing the S&P 500 (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 new lows move the indicator upward (up is good).  Dashed vertical lines have been drawn on the 1st trading day of the month.

No sign of a bottom here.

The next chart is similar to the one above except it covers the past year.

NL is very near its lowest level of the past year and falling.

The next chart is similar to the first one except it shows the NASDAQ composite (OTC) in blue and OTC NL, in red, has been calculated from NASDAQ data.

OTC NL is also falling sharply.

The next chart is similar to the one above except is covers the past year.

OTC NL is at its lowest level of the past year and falling sharply.

Right now, new lows are all that matters.  You can see in the charts above that the new low indicators move sharply upward when a bottom has been reached.  There is no sign of that now.

The positivesThere are none.

Money Supply (M2)

The money supply chart was provided by Gordon Harms.

M2 growth leveled off last week.

October

Since 1963, over all years, the OTC in October has been up 55% of the time with an average gain of 0.8%.  During the 2nd year of the Presidential Cycle October has been up 75% time with an average gain of 3.6%.  The best October ever for the OTC was 1974 (+17.2%), the worst 1987 (-27.2%).

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 2nd 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 2nd 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 green line shows the average during the 2nd year of the Presidential Cycle over the same period.

Since 1928 the SPX has been up 58% of the time in October with an average gain of 0.4%.  During the 2nd year of the Presidential Cycle the SPX has been up 67% of the time with an average gain of 2.6%.  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 average daily performance over all years for the SPX in October in red and the performance during the 2nd. year of the Presidential Cycle in green.

Since 1979 the Russell 2000 (R2K) has been up 54% of the time in October with an average loss of -0.5%.  During the 2nd year of the Presidential Cycle the R2K has been up 75% of the time with an average gain of 3.5%.  The best October ever for the R2K, 2011 +15.0%, 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 2nd. year of the Presidential Cycle in green.

Since 1885 the DJIA has been up 55% of the time in October with an average gain of 0.3%.  During the 2nd year of the Presidential Cycle the DJIA has been up 58% of the time in October with an average gain of 1.5%.  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 of the DJIA in October in black and the performance during the 2nd. year of the Presidential Cycle in green.

Conclusion

New lows are all that matters.

When a bottom has been reached, new lows will diminish quickly.

There is no sign of that now.

Seasonally there is often a bottom after the 1st week of October.

I expect the major averages to be lower on Friday October 3 than they were on Friday September 26.

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Disclaimer: : Charts and figures presented herein are believed to be reliable but I cannot attest to their accuracy.  Recent (last 10-15 yrs.) data has been supplied by CSI (csidata.com), FastTrack (fasttrack.net), Quotes Plus and the Wall Street Journal (wsj.com).  Historical data is from Barron’s and ISI price books.  The views expressed dare provided for information purposes only and should not be construed in any way as investment advice.  Furthermore, the opinions expressed may change without notice.

Mike Burk began developing equity trading systems in the early 1980's.  Through the 1990's he marketed an equity trading system called MIRAT based on breadth indicators, but, primarily new lows.  In the early days of this century he developed the seasonal trading strategies currently used by Alpha Investment Management of Cincinnati.  Mr. Burk has been writing equity market newsletters since the early 1990's.  During the past 10 years the letter observes both breadth and seasonal strategies.
 
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