Technical market report for December 5, 2020

The good news is that all of the major averages closed at all time highs last Friday.

The Negatives

There is not much to complain about.

The Positives

Positive events include: all time highs everywhere, the secondaries led the blue chips, new highs expanded, and new lows contracted.

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 98%, the NY HL Ratio cannot get much higher.

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.

At 97% OTC HL Ratio is also near its upper limit.

Seasonality

Next week includes the five trading days prior to the second Friday of December, all during the fourth 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 2019, while 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 0.09% -0.23% -0.23% -0.34% 0.16% -0.55%
•  1968-4 -0.24% 0.11% 0.00% -0.04% -0.13% -0.30%
•  1972-4 0.15% 0.10% 0.30% 0.28% 0.07% 0.90%
•  1976-4 0.35% 0.41% 0.39% 0.78% 0.55% 2.48%
•  1980-4 -3.52% -0.41% -0.76% -2.50% 1.31% -5.88%
•  1984-4 -0.18% 0.12% -0.05% -0.25% 0.40% 0.04%
•  1988-4 0.40% 0.42% -0.17% -0.30% -0.01% 0.35%
•  1992-4 0.75% 0.09% -0.48% -0.75% -0.48% -0.87%
•  1996-4 2.22% -0.28% -0.27% -0.82% -1.03% -0.18%
•  Avg --  -0.07% -0.01% -0.35% -0.92% 0.04% -1.31%
•  2000-4 -1.12% 10.47% -3.23% -1.57% 5.98% 10.55%
•  2004-4 0.15% -1.70% 0.54% 0.14% -0.04% -0.91%
•  2008-4 4.14% -1.55% 1.17% -3.68% 2.18% 2.25%
•  2012-4 0.30% 1.18% -0.28% -0.72% -0.70% -0.21%
•  2016-4 1.01% 0.45% 1.14% 0.44% 0.50% 3.54%
•  Avg  --  0.90% 1.77% -0.13% -1.08% 1.58% 3.04%

OTC summary for PY4 1964 - 2016 

•  Avg  --  0.32% 0.66% -0.15% -0.67% 0.63% 0.80%
•  Win%  --  71%  64%  38%  29%  57%  50%

OTC summary for all years 1963 - 2019

•  Avg  --  0.13% 0.05% -0.02% -0.30% 0.15% 0.01%
•  Win%  --   60%   49%   54%   49%   56%   49%

SPX PY4

•     Year      Mon    Tue      Wed      Thur      Fri     Totals
•  1956-4 -0.51% -0.68% -0.75% 0.80% 0.09% -1.06%
•  1960-4 -0.14% 0.29% 0.99% 0.23% 0.89% 2.26%
•  1964-4 -0.02% -0.39% -0.64% -0.01% 0.25% -0.82%
•  1968-4 -0.25% -0.25% 0.00% -0.07% 0.24% -0.32%
•  1972-4 0.33% -0.16% 0.37% 0.50% 0.22% 1.26%
•  1976-4 0.78% -0.07% 0.57% 0.41% 0.18% 1.88%
•  Avg --   0.14% -0.12% 0.32% 0.21% 0.36% 0.85%
•  1980-4 -2.55% -0.10% -1.70% -0.70% 1.47% -3.59%
•  1984-4 0.07% 0.42% -0.27% -0.50% 0.54% 0.27%
•  1988-4 1.15% 0.97% 0.19% -0.56% 0.17% 1.92%
•  1992-4 0.75% 0.39% -0.31% -0.23% -0.21% 0.39%
•  1996-4 1.37% -0.30% -0.91% -1.54% -0.09% -1.47%
•  Avg  --  0.16% 0.28% -0.60% -0.71% 0.38% -0.50%
•  2000-4 0.74% 3.89% -1.82% -0.59% 1.96% 4.19%
•  2004-4 -0.08% -1.11% 0.49% 0.54% -0.10% -0.26%
•  2008-4 3.84% -2.31% 1.19% -2.85% 0.70% 0.57%
•  2012-4 0.03% 0.65% 0.04% -0.63% -0.41% -0.31%
•  2016-4 0.58% 0.34% 1.32% 0.22% 0.59% 3.05%
•  Avg --   1.02% 0.29% 0.24% -0.66% 0.55% 1.45%

SPX summary for PY4 1956 - 2016 

•  Avg  --  0.38% 0.10% -0.08% -0.31% 0.41% 0.50%
•  Win%  --   63%   44%   53%   38%   75%   56%

SPX summary for all years 1953 - 2019

•  Avg --  0.16% -0.01% 0.01% -0.25% 0.14% 0.04%
•  Win%  --   57%   44%   53%   43%   64%   54%

Conclusion

Confirmed new highs imply higher prices ahead. On a seasonal basis, the next two weeks have, on average, been a little weak. The strongest sectors last week were technology and banks, and the weakest were utilities and biotech. I expect the major averages to be higher on Friday, December 11 than they were on Friday, December 4.