The good news is:

We are entering the strongest period of the 4 year Presidential Cycle.

​The Negatives

New lows were at or near-crash levels every day last week.

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).

When a low has been reached, OTC NL will move sharply upward.
That is not happening here.

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, no sign of a bottom.

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.

Last week I said this indicator was about as low as it could go at 7.1%, it closed Friday at 3.2%, less than half its value on the previous Friday.

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.

The current level of 5.2% is the lowest since 2008.

The Positives

The market is oversold and we are entering the seasonally strongest period of the 4 year Presidential Cycle.

Seasonality
Next week includes the last 3 trading days of October and the first 2 trading days of November 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 1928 to 2018. There are summaries for both the 2nd year of the Presidential Cycle and all years combined.

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

Report for the last 3 days of October and first 2 days of November.
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 2
               Day3      Day2      Day1      Day1      Day2      Totals
 1966-2       0.82% 4   1.33% 5   0.40% 1  -0.30% 2   0.57% 3     2.81%
 1970-2      -1.04% 3  -0.55% 4   0.22% 5   0.15% 1  -0.17% 2    -1.39%
 1974-2       1.87% 2   1.90% 3   0.54% 4  -0.26% 5  -0.68% 1     3.37%

 1978-2      -2.33% 5  -2.47% 1  -1.14% 2   3.18% 3  -0.02% 4    -2.78%
 1982-2       1.09% 3  -0.16% 4   0.36% 5   0.89% 1   1.46% 2     3.64%
 1986-2       0.35% 3   0.73% 4  -0.08% 5   0.10% 1   0.21% 2     1.31%
 1990-2      -1.06% 1  -0.29% 2   0.00% 3   0.23% 4   1.77% 5     0.65%
 1994-2       0.55% 4   1.13% 5   0.17% 1  -0.68% 2  -0.05% 3     1.13%

 Avg         -0.28%    -0.21%    -0.14%     0.74%     0.67%       0.79%

 1998-2       1.09% 3   1.20% 4   0.81% 5   1.67% 1  -0.68% 2     4.08%
 2002-2      -1.16% 2   2.01% 3   0.23% 4   2.33% 5   2.63% 1     6.04%
 2006-2      -1.20% 5   0.56% 1   0.12% 2  -1.37% 3  -0.01% 4    -1.89%
 2010-2       0.24% 3   0.16% 4   0.00% 5  -0.10% 1   1.14% 2     1.45%
 2014-2      -0.33% 3   0.37% 4   1.41% 5   0.18% 1  -0.33% 2     1.30%

 Avg         -0.27%     0.86%     0.52%     0.54%     0.55%       2.20%

OTC summary for Presidential Year 2 1966 - 2014
Averages     -0.09%     0.46%     0.24%     0.46%     0.45%       1.52%
% Winners       54%       69%       85%       62%       46%         77%
MDD  10/31/1978  5.83% --  11/2/2006  1.89% --  10/29/1970  1.58%

OTC summary for all years 1963 - 2017
Averages     -0.03%     0.23%     0.42%     0.24%     0.21%       1.08%
% Winners       62%       53%       65%       64%       53%         65%
MDD 10/31/1978  5.83% --  10/30/2001  5.74% --  11/1/2011  4.81%

SPX Presidential Year 2
               Day3      Day2      Day1      Day1      Day2      Totals
 1930-2      -1.74% 3  -1.20% 4  -2.31% 5   0.89% 6   0.23% 1    -4.12%
 1934-2      -0.57% 1   0.34% 2   0.23% 3  -0.45% 4   1.14% 5     0.69%

 1938-2      -1.43% 5  -0.23% 6   0.46% 1  -0.53% 2   0.38% 3    -1.35%
 1942-2      -0.11% 4   0.65% 5   0.64% 6   0.64% 1  -0.42% 3     1.39%
 1946-2      -0.90% 2   0.42% 3   3.63% 4   1.55% 5   0.73% 6     5.43%
 1950-2       0.10% 6  -0.91% 1  -0.41% 2   0.15% 3   0.87% 4    -0.19%
 1954-2       0.25% 3  -0.44% 4  -0.63% 5   0.35% 1   2.04% 3     1.58%

 Avg         -0.42%    -0.10%     0.74%     0.43%     0.72%       1.37%

 1958-2       1.15% 3   0.16% 4   0.12% 5   0.45% 1   0.91% 3     2.78%
 1962-2       2.16% 1   1.47% 2  -0.04% 3   1.06% 4   1.10% 5     5.76%
 1966-2       0.82% 4   0.01% 5  -0.05% 1   0.76% 2   0.09% 3     1.63%
 1970-2       0.37% 3  -0.08% 4  -0.13% 5   0.31% 1   0.85% 2     1.32%
 1974-2       3.91% 2   2.03% 3  -0.55% 4  -0.03% 5  -1.08% 1     4.28%

 Avg          1.68%     0.72%    -0.13%     0.51%     0.37%       3.15%

 1978-2      -1.50% 5   0.50% 1  -2.01% 2   3.97% 3  -1.28% 4    -0.32%
 1982-2       0.59% 3  -1.25% 4   0.09% 5   1.32% 1   1.49% 2     2.24%
 1986-2       0.70% 3   1.15% 4   0.11% 5   0.75% 1   0.16% 2     2.87%
 1990-2      -0.93% 1   0.72% 2  -0.02% 3   0.99% 4   1.57% 5     2.34%
 1994-2       0.70% 4   1.70% 5  -0.30% 1  -0.83% 2  -0.41% 3     0.86%

 Avg         -0.09%     0.56%    -0.43%     1.24%     0.31%       1.60%

 1998-2       0.26% 3   1.67% 4   1.18% 5   1.17% 1  -0.07% 2     4.21%
 2002-2      -0.91% 2   0.97% 3  -0.55% 4   1.71% 5   0.82% 1     2.04%
 2006-2      -0.85% 5   0.04% 1   0.00% 2  -0.74% 3  -0.03% 4    -1.57%
 2010-2      -0.27% 3   0.11% 4  -0.04% 5   0.09% 1   0.78% 2     0.67%
 2014-2      -0.14% 3   0.62% 4   1.17% 5  -0.01% 1  -0.28% 2     1.36%

 Avg         -0.38%     0.68%     0.35%     0.45%     0.24%       1.34%

SPX summary for Presidential Year 2 1930 - 2014
Averages      0.08%     0.38%     0.03%     0.62%     0.44%       1.54%
% Winners       50%       73%       45%       73%       68%         77%
MDD  10/31/1930  5.15% --  10/31/1978  3.00% --  11/1/1938  1.73%

SPX summary for all years 1928 - 2017
Averages     -0.02%     0.37%     0.21%     0.22%    -0.02%       0.75%
% Winners       53%       56%       57%       63%       57%         66%
MDD 11/6/1929  14.66% --  11/2/1932  8.04% --  11/3/1937  6.80%

November

Since 1963, over all years, the OTC in November has been up 71% of the time with an average gain of 1.6%. During the 2nd year of the Presidential Cycle November has been up 69% time with an average gain of 3.7% The best November ever for the OTC was 2001 (+14.2%), the worst 2000 (-22.9%).

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 November over all years since 1963 while the grey line shows the average during the 2nd year of the Presidential Cycle over the same period.

Since 1928 the SPX has been up 60% of the time in November with an average gain of 0.7%. During the 2nd year of the Presidential Cycle the SPX has been up 64% of the time with an average gain of 2.1%. The best November ever for the SPX was 1928 (+12.0%), the worst 1929 (-13.4%).

The chart below is similar to the one above except it shows the average daily performance over all years for the SPX in November in red and the performance during the 2nd year of the Presidential Cycle in grey.

Since 1979 the Russell 2000 (R2K) has been up 67% of the time in November with an average gain of 2.1%.  During the 2nd year of the Presidential Cycle the R2K has been up 67% of the time in November with an average gain of 3.5%.  The best November ever for the R2K was 2016 (+11.0%), the worst 2008 (-12.0%).

The chart below is similar to those above except it shows the daily performance over all years of the R2K in November in magenta and the performance during the 2nd year of the Presidential Cycle in grey.

Since 1885 the DJIA has been up 60% of the time in November with an average gain of 0.9%.  During the 2nd year of the Presidential Cycle the DJIA has been up 66% of the time in November with an average gain of 1.3%.  The best November ever for the DJIA was 1928 (+16.3%), the worst 1973 (-14.0%).

The chart below is similar to those above except it shows the daily performance over all years of the DJIA in November in light grey and the performance during the 2nd year of the Presidential Cycle in dark grey.

Conclusion

Next week should be interesting. We have an oversold market with the worst breadth numbers in a decade as we enter the seasonally strongest period of the 4 year cycle.

I expect the major averages to be higher on Friday, November 2 than they were on Friday, October 26.