Technical Market Report

The good news is:​ All of the major averages closed at all-time highs last Tuesday. The NASDAQ composite (OTC) continued moving upward for another day and the Blue chip averages continued upward to close at all-time highs on Friday. 

The Negatives

The market has been going up for 3 consecutive months and is overbought.

The Russell 2000 (R2K) has been underperforming the blue chips for the past 2 weeks and ended down for the week last week.

The first chart covers the past 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 unambiguously failed to confirm the new SPX high; however, it is moving sharply upward.  Failing to confirm the index high is not good. However, the value of the indicator at 163.5 is not too shabby.

The Positives

Aside from those mentioned above, it is difficult to find anything to complain about and the seasonal pattern shows continued strength for the next 2 months.

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

OTC NH confirmed the recent index highs.

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 to its highest level since June 2018.

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 its highest level in over 5 years.

Seasonality

Next week includes the last 2 trading days of December in the 3rd year of the Presidential Cycle and the first 2 trading days of January of the 4th 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 4th year of the Presidential Cycle and all years combined.

Average returns for the coming week have been positive by all measures. However, the averages for PY4 are lower than other years.

Report includes the last 2 days of December and 
the first 2 days of January.
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 4 (PY4)
               Day2      Day1      Day1      Day2      Totals
 1964-4       0.34% 1   0.96% 2   0.65% 4   1.06% 5     3.01%
 1968-4      -0.05% 4  -0.16% 5  -0.18% 2  -0.36% 3    -0.75%
 1972-4       0.36% 4   1.02% 5  -0.41% 1   0.25% 2     1.21%
 1976-4      -0.35% 2   1.24% 3   0.57% 5   0.90% 1     2.35%

 1980-4       0.40% 5   0.21% 1  -1.97% 3  -1.48% 4    -2.84%
 1984-4       0.18% 4   0.56% 5  -0.35% 2   1.20% 3     1.59%
 1988-4       1.28% 3   0.23% 4   2.42% 1   1.65% 2     5.59%
 1992-4       2.48% 1   1.14% 2   0.02% 4   1.06% 5     4.70%
 1996-4      -0.56% 4   0.95% 5   0.63% 2  -1.17% 3    -0.16%

 Avg          0.76%     0.62%     0.15%     0.25%       1.77%

 2000-4      -0.11% 4   0.80% 5   1.52% 1  -5.56% 2    -3.35%
 2004-4       0.17% 2  -0.32% 3   0.17% 5   2.03% 1     2.04%
 2008-4      -0.09% 5  -0.83% 1  -1.61% 3  -0.27% 4    -2.79%
 2012-4       0.92% 4  -0.33% 5   1.67% 2  -0.01% 3     2.25%
 2016-4      -0.82% 3  -1.15% 4  -2.08% 1  -0.24% 2    -4.30%

 Avg          0.01%    -0.37%    -0.07%    -0.81%      -1.23%

OTC summary for PY4 1964 - 2016
Averages      0.30%     0.31%     0.07%    -0.07%       0.61%
% Winners       57%       64%       57%       50%         57%
MDD  1/4/2000  5.56% --  1/5/2016  4.24% --  1/3/1980  3.42%

OTC summary for all years 1963 - 2019
Averages      0.22%     0.24%     0.25%     0.45%       1.15%
% Winners       61%       68%       60%       63%         73%
MDD 1/2/2001  10.40% --  1/4/2000  5.56% --  1/5/2016  4.24%


SPX PY4
               Day2      Day1      Day1      Day2      Totals
 1932-4       1.76% 3   0.25% 4  -3.69% 6  -3.32% 1    -5.01%
 1936-4       2.07% 1   0.98% 2  -0.22% 4   1.12% 5     3.95%

 1940-4       0.32% 5   0.24% 6   1.12% 2   1.11% 3     2.79%
 1944-4       1.83% 4  -0.17% 5  -0.09% 1   1.29% 2     2.86%
 1948-4       1.20% 2   0.53% 3   0.26% 5  -0.91% 1     1.07%
 1952-4       0.00% 6   0.34% 1   0.13% 3   0.34% 4     0.80%
 1956-4       0.22% 4   0.73% 5  -0.70% 2  -0.35% 3    -0.11%

 Avg          0.71%     0.33%     0.14%     0.29%       1.48%

 1960-4       0.79% 3   0.20% 4   0.03% 1   0.80% 2     1.83%
 1964-4       0.16% 1   0.62% 2   0.55% 4   0.09% 5     1.42%
 1968-4      -0.02% 4   0.60% 5  -0.37% 2  -0.46% 3    -0.25%
 1972-4      -0.42% 4   0.30% 5  -0.41% 1   0.41% 2    -0.11%
 1976-4      -0.40% 2   0.47% 3   0.79% 5   1.85% 1     2.70%

 Avg          0.02%     0.44%     0.12%     0.54%       1.12%

 1980-4      -0.11% 5   0.09% 1  -2.02% 3  -0.51% 4    -2.55%
 1984-4      -0.29% 4   0.04% 5  -0.54% 2   1.67% 3     0.88%
 1988-4       1.34% 3  -0.31% 4   3.59% 1   1.05% 2     5.66%
 1992-4       2.14% 1   0.47% 2   0.04% 4   0.50% 5     3.14%
 1996-4      -0.07% 4   0.29% 5   0.78% 2   0.10% 3     1.10%

 Avg          0.60%     0.12%     0.37%     0.56%       1.65%

 2000-4       0.07% 4   0.33% 5  -0.96% 1  -3.83% 2    -4.40%
 2004-4       0.01% 2   0.21% 3  -0.31% 5   1.24% 1     1.15%
 2008-4       0.14% 5  -0.69% 1  -1.44% 3   0.00% 4    -1.99%
 2012-4       1.07% 4  -0.43% 5   1.55% 2   0.02% 3     2.21%
 2016-4      -0.72% 3  -0.94% 4  -1.53% 1   0.20% 2    -2.99%

 Avg          0.12%    -0.30%    -0.54%    -0.47%      -1.20%

SPX summary for PY4 1932 - 2016
Averages      0.50%     0.19%    -0.16%     0.11%       0.64%
% Winners       64%       77%       45%       68%         64%
MDD  1/4/2000  4.76% --  1/4/2016  3.16% --  1/3/1980  2.54%

SPX summary for all years 1928 - 2019
Averages      0.41%     0.17%     0.10%     0.44%       1.10%
% Winners       69%       62%       48%       72%         67%
MDD 1/4/1932  6.90% --  1/4/2000  4.76% --  1/2/2001  3.82%

January

Since 1963, over all years, the OTC has been up 64% of the time in January with an average gain of 2.8%. During the 4th year of the Presidential Cycle January has been up 64% time with an average gain of 1.5%. The best ever January for the OTC was 1975 (+16.6%), the worst 2008 (-9.9%).

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 January over all years since 1963 while the black line shows the average during the 4th year of the Presidential Cycle over the same period.

Since 1928 the SPX has been up 64% of the time in January with an average gain of 1.2%. During the 4th year of the Presidential Cycle, the SPX has been up 52% of the time with an average of no gain 0.0%. The best ever January for the SPX was 1987 (+13.2%) the worst 2009 (-8.6%).

The chart below is similar to the one above except it shows the daily average performance over all years for the SPX in January in red and the performance during the 4th year of the Presidential Cycle in black.

Since 1979 the Russell 2000 (R2K) has been up 56% of the time in January with an average gain of 1.6%. During the 4th year of the Presidential Cycle, the R2K has been up 50% of the time in January with an average gain of 1.2%. The best ever January for the R2K 1985 (+13.1%) the worst 2009 (-11.2%).

The chart below is similar to those above except it shows the daily performance over all years of the R2K in January in magenta and the performance during the 4th year of the Presidential Cycle in black.

Since 1885 the Dow Jones Industrial Average (DJIA) has been up 63% of the time in January with an average gain of 0.9%. During the 4th year of the Presidential Cycle, the DJIA has been up 52% of the time in January with an average loss of -0.2%. The best ever January for the DJIA 1976 (+14.4%) the worst 2009 (-8.8%)

The chart below is similar to those above except it shows the daily performance overall years of the DJIA in January in grey and the performance during the 4th year of the Presidential Cycle in black.

Conclusion

The market has had a great 3-month run. It will be interesting to see how long it can last.

I expect the major averages to be higher on Friday, January 3 than they were on Friday, December 27.

Last week the R2K was down slightly while everything else was up so I am calling last weeks positive forecast a tie. The last line in these reports is a Year To Date summary of my weekly forecasts for the current year. I consider the DJIA, SPX, OTC, and R2K to be the major averages. When all of them go in the direction of my forecast I call the forecast to be a Winner.  When all of them go in the opposite direction of my forecast I call the forecast to be a looser.  If all of the 4 indices do not move in the same direction for the week I call the forecast a tie.

The year-end score for my forecasts for the most recent Presidential cycle have been:
2019 W 25 / L 14 / T 12 
2018 W 20 / L 19 / T 13
2017 W 20 / L 13 / T 19
2016 W 19 / L 22 / T 11 The worst and a PY4 like the coming year