Technical market report for December 12, 2020

The good news is that all of the major averages, except the Dow Jones Industrial Average, closed at all time highs for at least one day last week.

The Negatives

Most of the major averages were down last week, which is consistent with the Seasonal pattern.

The Positives

Last week saw the secondaries lead the blue chips. New highs held up well and new lows were nowhere to be found.

The first chart covers the past six months, showing the NASDAQ composite (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 continued moving upward.

The next chart is similar to the first one, except it shows the S&P 500 (SPX) in red and the NY NH in green. The information has been calculated with NYSE data. The NY NH also moved sharply upward last week.

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. At 99%, the NY HL Ratio actually rose 1% last week.

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 actually declined 2% last week, but at 95%, it is super strong.

Seasonality

Next week includes the five trading days prior to the third Friday of December, all during the fourth year of the Presidential Cycle. The information below shows the daily change on a percentage basis for that period.

The OTC data covers the period from 1963 to 2019, while the SPX data runs from 1953 to 2019. There are summaries for both the fourth year of the Presidential Cycle, and all years combined. Prior to 1953, the market traded six days a week, so that data has been ignored.

Average returns for the coming week have been modestly positive. The number following the year is the position in the Presidential Cycle.

OTC Presidential Year 4 (PY4)

•     Year    Mon    Tue     Wed    Thur    Fri    Totals
•  1964-4 0.41% -0.05% -0.21% 0.14% 0.11% 0.42%
•  1968-4 0.03% 0.42% 0.00% -0.29% -0.08% 0.09%
•  1972-4 -0.24% -0.42% -0.45% -0.25% 0.15% -1.20%
•  1976-4 0.00% 0.03% 0.29% 0.01% -0.31% 0.02%
•  1980-4 0.32% 0.03% 1.12% 1.54% 0.46% 3.46%
•  1984-4 -0.24% 2.09% 0.59% -0.16% -0.09% 2.19%
•  1988-4 -0.27% -0.33% -0.06% 0.06% 0.75% 0.16%
•  1992-4 -0.16% -0.61% -0.17% 1.36% 0.43% 0.85%
•  1996-4 -1.86% 0.42% 1.50% 0.82% -0.56% 0.32%
•  Avg  --  -0.44% 0.32% 0.60% 0.73% 0.20% 1.40%
•  2000-4 3.35% -2.76% -3.72% -3.34% -2.76% -9.23%
•  2004-4 0.96% 0.53% 0.13% -0.76% -0.51% 0.34%
•  2008-4 -2.10% 5.41% -0.67% -1.71% 0.77% 1.70%
•  2012-4 1.32% 1.46% -0.33% 0.20% -0.96% 1.68%
•  2016-4 -0.59% 0.95% -0.50% 0.37% -0.36% -0.13%
•  Avg --   0.59% 1.12% -1.02% -1.05% -0.76% -1.12%

OTC summary for PY4 1964 - 2016 

•  Avg --  0.07% 0.51% -0.19% -0.14% -0.21% 0.05%
•  Win% --  46%   64%   38%   57%   43%   79%

OTC summary for all years 1963 - 2019

•  Avg --   -0.04% 0.11% -0.04% -0.02% 0.13% 0.15%
•  Win%  --   51%   53%   50%   58%   60%   60%

SPX PY4

•     Year    Mon     Tue     Wed    Thur    Fri     Totals
•  1956-4 0.00% 0.00% -0.24% -0.78% 0.65% -0.36%
•  1960-4 0.35% 0.05% -0.07% -0.28% 0.92% 0.97%
•  1964-4 -0.25% -0.28% 0.40% 0.42% 0.46% 0.75%
•  1968-4 -0.45% -0.41% 0.00% 0.29% -0.59% -1.16%
•  1972-4 0.22% -0.39% -0.08% -0.27% 0.02% -0.50%
•  1976-4 -0.07% 0.42% 0.07% -0.32% -0.52% -0.42%
•  Avg --   -0.04% -0.12% 0.08% -0.03% 0.06% -0.07%
•  1980-4 0.17% 0.89% 1.75% 0.08% 0.53% 3.42%
•  1984-4 0.49% 2.83% -0.57% -0.47% -0.52% 1.76%
•  1988-4 -0.18% -0.08% -0.36% -0.37% 0.73% -0.26%
•  1992-4 -0.21% -0.06% -0.24% 0.91% 1.34% 1.74%
•  1996-4 -1.05% 0.70% 0.76% 1.94% 0.42% 2.77%
•  Avg --   -0.16% 0.86% 0.27% 0.42% 0.50% 1.89%
•  2000-4 0.75% -0.65% -0.82% -1.40% -2.15% -4.26%
•  2004-4 0.90% 0.39% 0.19% -0.21% -0.75% 0.53%
•  2008-4 -1.27% 5.14% -0.96% -2.12% 0.29% 1.09%
•  2012-4 1.19% 1.15% -0.76% 0.55% -0.94% 1.19%
•  2016-4 -0.11% 0.65% -0.81% 0.39% -0.18% -0.06%
•  Avg  --   0.29% 1.34% -0.63% -0.56% -0.74% -0.30%

SPX summary for PY4 1956 - 2016 

•  Avg --   0.03% 0.69% -0.12% -0.10% -0.02% 0.45%
•  Win% --   47%   60%   33%   44%   56%   56%

SPX summary for all years 1963 - 2019

•  Avg --   0.03% 0.18% 0.05% -0.03% 0.13% 0.35%
•  Win% --   56%   53%   50%   48%   60%   61%

Money supply (M2) and Interest Rates

The following charts were supplied by Gordon Harms. M2 growth leveled off a bit last month.

Interest rates at their close last Friday and their changes from last month:

• 2-year yield 0.125%, down from 0.181%.
• 5-year yield 0.366%, down from 0.406%.
• 10-year yield 0.897%, up from 0.895%.
• 30-year yield 1.626%, down from 1.649%.

They slipped up on the 10-year; otherwise a carefully managed yield curve is illustrated.

The next chart is a close up showing just the past year from the chart above.

Conclusion

The secondaries have been stronger than the blue chips; new highs have maintained very high levels and new lows have been minimal. It does not get much better than that. The strongest sectors last week were energy and banks, and the weakest were utilities and precious metals.

I expect the major averages to be higher on Friday, December 18 than they were on Friday, December 11. Last week, the Russell 2000 was up while the other major indices were down; so I am calling last week's positive forecast a tie.