The good news is:

The bottom, when it is reached, will be easy to identify.

​The Negatives

Last week began with a sharp rally.

Sudden sharp rallies in bear markets are the complement to the sudden sharp declines seen in bull markets

There was a little warning from new lows which had declined a little from their extremes.

The first chart covers the past 6 months showing the Nasdaq composite (OTC) in blue and a 10% trend of Nasdaq new lows (OTC NL) in brown.  OTC NL has been plotted on an inverted Y axis so diminishing numbers of new lows move the indicator upward (up is good).

There was a brief period of diminishing new lows last week, but it did not last.

The next chart is similar to the one above except it shows the S&P 500 (SPX) in red and NY NL, in blue, has been calculated with NYSE data.
The pattern is similar to the chart above.

The next chart covers the past 6 months showing the SPX in red and a 40% trend (4 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.

At 7.1% NY HL Ratio is about as low as it can go.

The next chart is similar to the one above except it shows the OTC in blue and OTC HL Ratio, in red, has been calculated with NASDAQ data.

Ditto OTC HL Ratio.

The secondaries are still leading the way downward so there appears to be room left on the downside.

The Positives

We are approaching one of the seasonally strongest times of the year.

Seasonality

Next week includes the 5 trading days prior to the 4th Friday of October during the 2nd 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 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 much stronger during the 2nd year of the Presidential Cycle than other 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 2
 Year       Mon     Tue     Wed    Thur    Fri    Totals
 1966-2  -0.33%   0.27%   0.45%   0.82%   1.33%   2.53%
 1970-2  -0.20%  -1.41%   0.41%  -0.42%  -0.48%  -2.10%
 1974-2   1.71%   0.50%  -1.15%  -1.26%   0.45%   0.24%

 1978-2  -1.52%  -0.66%   0.02%  -2.61%  -2.33%  -7.10%
 1982-2   1.05%   0.42%   1.55%   1.70%  -0.13%   4.59%
 1986-2  -0.62%  -0.12%   0.23%   0.64%   0.13%   0.27%
 1990-2   1.11%  -0.01%  -0.03%  -0.36%  -1.58%  -0.87%
 1994-2  -0.54%  -0.39%   0.66%   0.55%   1.13%   1.41%

 Avg     -0.10%  -0.15%   0.49%  -0.01%  -0.56%  -0.34%

 1998-2   1.71%  -0.58%   2.17%   1.66%  -0.51%   4.45%
 2002-2   1.69%  -1.29%   2.12%  -1.63%   2.50%   3.39%
 2006-2   0.57%  -0.46%   0.50%   0.96%  -1.20%   0.37%
 2010-2   0.48%  -1.76%   0.84%   0.09%   0.80%   0.45%
 2014-2   1.35%   2.40%  -0.83%   1.60%   0.69%   5.21%

 Avg      1.16%  -0.34%   0.96%   0.53%   0.46%   2.78%

OTC summary for Presidential Year 2 1966 - 2014 
 Avg      0.50%  -0.24%   0.53%   0.13%   0.06%   0.99%
 Win%       62%     31%     77%     62%     54%     77%

OTC summary for all years 1963 - 2017
 Avg      0.09%  -0.44%   0.07%  -0.02%  -0.02%  -0.31%
 Win%       53%     38%     52%     51%     55%     51%


SPX Presidential Year 2
 Year       Mon     Tue     Wed    Thur    Fri    Totals
 1954-2   0.38%   0.25%   0.81%  -0.12%   0.00%   1.32%

 1958-2  -0.37%   0.00%  -0.39%  -0.20%  -0.31%  -1.27%
 1962-2  -1.13%  -2.67%   3.22%  -0.94%  -0.27%  -1.81%
 1966-2   0.29%   0.61%   0.86%   0.82%   0.01%   2.60%
 1970-2  -1.34%   0.59%   0.02%  -0.33%   0.47%  -0.59%
 1974-2   1.69%  -0.50%  -2.87%  -1.14%  -0.14%  -2.97%

 Avg     -0.17%  -0.49%   0.17%  -0.36%  -0.05%  -0.81%

 1978-2   0.23%  -0.70%  -0.18%  -1.32%  -1.50%  -3.47%
 1982-2   2.37%  -0.11%   1.94%  -0.12%  -0.14%   3.94%
 1986-2  -1.20%  -0.04%   0.16%   1.28%  -0.43%  -0.23%
 1990-2   0.73%  -0.76%   0.08%  -0.78%  -1.76%  -2.49%
 1994-2  -0.87%   0.15%   0.24%   0.70%   1.70%   1.91%

 Avg      0.25%  -0.29%   0.45%  -0.05%  -0.42%  -0.07%

 1998-2   0.57%   0.14%   0.56%   0.80%  -0.72%   1.35%
 2002-2   1.73%  -1.06%   0.67%  -1.52%   1.72%   1.54%
 2006-2   0.62%   0.03%   0.35%   0.50%  -0.85%   0.64%
 2010-2   0.72%  -1.59%   1.05%   0.18%   0.24%   0.61%
 2014-2   0.91%   1.96%  -0.73%   1.23%   0.71%   4.08%

 Avg      0.91%  -0.11%   0.38%   0.24%   0.22%   1.64%

SPX summary for Presidential Year 2 1954 - 2014 
 Avg      0.33%  -0.25%   0.36%  -0.06%  -0.09%   0.32%
 Win%       69%     47%     75%     44%     40%     56%

SPX summary for all years 1953 - 2017
 Avg     -0.12%  -0.10%   0.15%  -0.12%  -0.02%  -0.20%
 Win%       58%     44%     55%     42%     48%     48%

Conclusion

We are looking at a couple weeks of very positive seasonality, however, the breadth indicators could hardly be more negative.

I expect the major averages to be lower on Friday, October 26 than they were on Friday, October 19.

Last week the blue chips were up a little while the secondaries were down a little so I am calling last weeks negative forecast a tie.