Technical Market Report For Saturday, Jan. 2

The good news is the NASDAQ composite (OTC), S&P 500 (SPX), and Dow Jones Industrial Average (DJIA) hit all time highs last week.

The Negatives

Negatives are minimal. Market behavior has been pretty close to the Seasonal averages. The Russell 2000 (R2K) broke the pattern and finished the year down a little from its all time high, while the SPX and DJIA closed out the year at all time highs.

The Positives

New lows remained minimal.

The first chart covers the past six months, showing the 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 first trading day of each month. The OTC NH confirmed the all time OTC high hit on Monday. This implies higher highs ahead.

The next chart is similar to the first one, except it shows the SPX in red and the NY NH in green. The information has been calculated with NYSE data. The NY NH failed to confirm the SPX all time high set last Friday, but only by a very small margin.

The next chart covers the past six months, showing the SPX in red and a 40% trend (four-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. The NY HL Ratio continued to hold above 90%, which is very strong.

The next chart is similar to the one above, except it shows the OTC in blue and the OTC HL Ratio in red. The information has been calculated with NASDAQ data. The OTC HL Ratio also held above 90%.

Seasonality

Next week includes the first five trading days of the first year of the next Presidential Cycle. The tables below show the daily change on a percentage basis for that period.

The OTC data covers the period from 1963 to 2020, while the SPX data runs from 1928 to 2020. There are summaries for both the first year of the Presidential Cycle and all years combined. Average returns for the coming week have been positive by all measures.

The report includes the first five 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 1 (PY1)

•    Year     Day1       Day2     Day3       Day4       Day5     Totals
•  1965-1 0.52% 1 -0.14% 2 0.25% 3 0.57% 4 0.81% 5 2.01%
•  1969-1 0.09% 4 0.25% 5 0.21% 1 -1.10% 2 -0.93% 3 -1.48%
•  1973-1 0.00% 2 0.67% 3 0.56% 4 0.04% 5 0.35% 1 1.62%
•  1977-1 -0.19% 1 -0.48% 2 -0.34% 3 0.41% 4 0.25% 5 -0.36%
•  1981-1 0.77% 5 0.30% 1 -0.05% 2 -3.29% 3 -0.74% 4 -3.01%
•  1985-1 -0.58% 3 0.20% 4 -0.09% 5 -0.06% 1 -0.02% 2 -0.55%
•  1989-1 -0.48% 2 0.84% 3 0.27% 4 0.25% 5 0.14% 1 1.02%
•  1993-1 -0.76% 1 0.38% 2 1.11% 3 -0.53% 4 -0.15% 5 0.05%
•  1997-1 -0.80% 4 2.34% 5 0.43% 1 0.86% 2 -0.55% 3 2.29%
•  Avg --    -0.37% 0.81% 0.34% -0.56% -0.26% -0.04%
•  2001-1 -7.23% 2 14.17% 3 -1.91% 4 -6.20% 5 -0.49% 1 -1.65%
•  2005-1 -1.07% 1 -2.06% 2 -0.79% 3 -0.06% 4 -0.07% 5 -4.04%
•  2009-1 3.50% 5 -0.26% 1 1.50% 2 -3.23% 3 1.12% 4 2.63%
•  2013-1 3.07% 3 -0.38% 4 0.04% 5 -0.09% 1 -0.23% 2 2.41%
•  2017-1 0.85% 2 0.88% 3 0.20% 4 0.60% 5 0.20% 1 2.73%
•  Avg --  -0.18% 2.47% -0.19% -1.79% 0.11% 0.42%

OTC summary for PY1 1965 - 2017

• Averages --   -0.16% 1.20% 0.10% -0.84% -0.02% 0.26%
• % Winners --    43% 64% 64% 43% 43% 57%
• MDD 1/8/2001: 8.44% -- 1/8/1981: 4.06% -- 1/7/2005: 3.99%

OTC summary for all years 1963 - 2019

• Averages --  0.27% 0.43% 0.29% -0.06% 0.16% 1.08%
• % Winners --    61% 61% 63% 63% 61% 70%
• MDD 1/6/2000: 9.78% -- 1/8/2001: 8.44% -- 1/8/2008: 7.98%

SPX PY1

•   Year      Day1       Day2       Day3       Day4       Day5       Totals
•  1929-1 1.89% 3 0.20% 4 -0.04% 5 -1.13% 6 -1.30% 1 -0.38%
•  1933-1 -0.87% 2 4.69% 3 -0.42% 4 1.54% 5 -1.38% 1 3.56%
•  1937-1 -0.93% 6 -0.53% 1 0.89% 2 0.06% 3 2.28% 4 1.77%
•  1941-1 -0.95% 4 2.29% 5 0.00% 6 0.19% 1 0.09% 2 1.62%
•  1945-1 0.38% 2 1.05% 3 0.15% 4 -0.22% 5 -0.15% 6 1.20%
•  1949-1 -1.64% 1 0.54% 2 0.86% 3 2.24% 4 0.71% 5 2.71%
•  1953-1 -0.11% 5 0.45% 1 -0.68% 2 -0.42% 3 -0.15% 4 -0.90%
•  1957-1 -1.01% 3 0.87% 4 0.13% 5 -0.51% 1 -0.37% 2 -0.89%
•  Avg --    -0.67% 1.04% 0.09% 0.26% 0.03% 0.75%
•  1961-1 -0.93% 2 1.37% 3 0.36% 4 -0.15% 5 0.56% 1 1.21%
•  1965-1 -0.61% 1 0.47% 2 0.31% 3 0.44% 4 0.13% 5 0.73%
•  1969-1 0.07% 4 0.06% 5 -1.46% 1 -1.22% 2 -0.41% 3 -2.97%
•  1973-1 0.89% 2 0.39% 3 -0.14% 4 0.39% 5 -0.02% 1 1.52%
•  1977-1 -0.43% 1 -1.21% 2 -0.89% 3 0.25% 4 -0.01% 5 -2.29%
•  Avg --    -0.20% 0.22% -0.37% -0.06% 0.05% -0.36%
•  1981-1 0.43% 5 1.20% 1 0.11% 2 -2.20% 3 -1.50% 4 -1.96%
•  1985-1 -1.12% 3 -0.48% 4 -0.54% 5 0.34% 1 -0.15% 2 -1.95%
•  1989-1 -0.87% 2 1.50% 3 0.21% 4 0.24% 5 0.11% 1 1.18%
•  1993-1 -0.08% 1 -0.24% 2 0.04% 3 -0.87% 4 -0.39% 5 -1.54%
•  1997-1 -0.50% 4 1.49% 5 -0.05% 1 0.75% 2 -0.64% 3 1.05%
•  Avg --    -0.43% 0.69% -0.05% -0.35% -0.51% -0.64%
•  2001-1 -2.80% 2 5.01% 3 -1.06% 4 -2.62% 5 -0.19% 1 -1.66%
•  2005-1 -0.81% 1 -1.17% 2 -0.36% 3 0.35% 4 -0.14% 5 -2.13%
•  2009-1 3.16% 5 -0.47% 1 0.78% 2 -3.00% 3 0.34% 4 0.81%
•  2013-1 2.54% 3 -0.21% 4 0.49% 5 -0.31% 1 -0.32% 2 2.18%
•  2017-1 0.85% 2 0.57% 3 -0.08% 4 0.35% 5 -0.35% 1 1.34%
•  Avg --   0.59% 0.75% -0.05% -1.05% -0.13% 0.11%

SPX summary for PY1 1929 - 2017

• Averages --   -0.15% 0.78% -0.06% -0.24% -0.14% 0.18%
• % Winners --    35% 70% 48% 52% 30% 57%
• MDD 1/8/2001: 3.84% -- 1/8/1981: 3.66% -- 1/8/1969: 3.07%

SPX summary for all years 1928 - 2019

• Averages --  0.11% 0.42% 0.03% 0.08% -0.10% 0.54%
• % Winners --    49% 71% 51% 55% 46% 67%
• MDD 1/5/1932: 7.02% -- 1/8/1988: 6.77% -- 1/8/2016: 5.96%

January

Since 1963, over all years, the OTC in January has been up 65% of the time with an average gain of 2.8%, the highest average of any month of the year. During the first year of the Presidential Cycle, January has been up 57% time with an average gain of 2.4% (helped considerably by gains of 12.7% in 1985 and 12.2% in 2001). The best January ever for the OTC was 1975 (+16.6%), and the worst was 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 first 11 trading days and each of the last 10. In months where 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 first trading day and at five trading day intervals after that. The line is solid on the eleventh 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 green line shows the average during the first year of the Presidential Cycle over the same period.

Since 1928, the SPX has been up 63% of the time in January with an average gain of 1.2%. During the first year of the Presidential Cycle, the SPX has been up 61% of the time with an average gain of 0.9%. The best January ever for the SPX was 1987 (+13.2%), and the worst was 2009 (-8.6%).

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

Since 1979, the Russell 2000 (R2K) has been up 55% of the time in January with an average gain of 1.5%. During the first year of the Presidential Cycle, the R2K has been up 70% of the time with an average gain of 1.8%. The best January ever for the R2K was 1985 (+13.1%), and the worst was 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 first year of the Presidential Cycle in green.

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 first year of the Presidential Cycle, the DJIA has been up 67% of the time in January with an average gain of 0.7%. The best January ever for the DJIA was 1976 (+14.4%), and the worst was 2009 (-8.8%).

The chart below is similar to those above, except it shows the daily performance over all years of the DJIA in January in grey, and the performance during the first year of the Presidential Cycle in green.

Conclusion

The market has been following its seasonal pattern pretty closely, and the seasonality for next week is strong. The strongest sectors last week were finance and utilities (up from the bottom last week), while the weakest were biotech and energy. I expect the major averages to be higher on Friday, January 8 than they were on Thursday, December 31. 

Last week, the R2K was down slightly while everything else was up; so I am calling last week's positive forecast a tie. 2016 was the most recent fourth year of the Presidential Cycle before 2019. My forecasting record for 2016 was negative (more losses than wins).