The good news is:

• Next week is the beginning of the 3rd year of the 4-year Presidential Cycle (the 3rd year is, by far, the strongest of the 4).  

The Negatives

The first chart covers the past 6 months showing the Nasdaq composite (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 vertical lines have been drawn on the 1st trading day of each month.  Dashed horizontal lines have been drawn at 10% levels for the indicator; the line is solid at the 50%, neutral level (equal numbers of new highs and new lows).

OTC HL Ratio rose, but remains deep in negative territory. 

The next chart is similar to the first one except it shows the S&P 500 (SPX) in red and NY HL ratio, in blue, has been calculated with NYSE data.

NY HL ratio also rose, but, remained in negative territory.

The next chart covers the past 6 months showing the OTC in blue and a 10% trend (19 day EMA) of Nasdaq new lows (OTC NL), in brown.  OTC NL has been plotted on an inverted Y axis so decreasing numbers of New Lows move the indicator upward (up is good).  

OTC NL turned upward, but the numbers of new lows remained large.

The next chart is similar to the above except it shows the SPX in red and NY NL in blue has been calculated with NYSE data.

NY NL leveled off, but, with high numbers.

The next chart covers the last 6 months showing the OTC in blue and a 10% trend (19 day EMA) of Nasdaq new highs (OTC NH) in green. 

OTC NH leveled off with low numbers.

The next chart is similar to the one above except it shows the SPX in red and NY NH, in green, has been calculated with NYSE data.

NY NH ditto.

The Positives

January has been the strongest month of the strongest year of the Presidential Cycle.

Seasonality

Next week includes the first 4 trading days of the 3rd 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 2021 while SPX data runs from 1928 to 2021.  There are summaries for both the 2nd year of the Presidential Cycle and all years combined.  

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

Report includes the first 4 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 3 (PY3)

               Day1      Day2      Day3      Day4      Totals

 1967-3       0.41% 2  -0.04% 3   0.92% 4   1.02% 5     2.31%

 1971-3       0.35% 1  -0.87% 2   0.66% 3   0.78% 4     0.92%

 1975-3       1.47% 4   0.87% 5   0.83% 1   0.24% 2     3.42%

 1979-3      -0.12% 2   1.08% 3   1.30% 4   1.15% 5     3.41%


 1983-3      -0.78% 1   0.46% 2   0.51% 3   1.62% 4     1.81%

 1987-3       1.27% 5   2.24% 1   1.34% 2   1.77% 3     6.62%

 1991-3      -0.44% 3  -1.26% 4  -0.07% 5  -1.91% 1    -3.68%

 1995-3      -1.11% 2   0.30% 3  -0.02% 4   0.54% 5    -0.29%

 1999-3       0.70% 1   1.96% 2   3.08% 3   0.24% 4     5.97%


 Avg         -0.07%     0.74%     0.97%     0.45%       2.09%


 2003-3       3.69% 4   0.16% 5   2.47% 1   0.72% 2     7.05%

 2007-3       0.33% 3   1.25% 4  -0.78% 5   0.16% 1     0.96%

 2011-3       1.46% 1  -0.38% 2   0.78% 3   0.28% 4     2.14%

 2015-3      -0.20% 5  -1.57% 1  -1.29% 2   1.26% 3    -1.79%

 2019-3       0.46% 3  -3.04% 4   4.26% 5   1.26% 1     2.94%


 Avg          1.15%    -0.72%     1.09%     0.74%       2.26%


OTC summary for PY3 1967 - 2019

Averages      0.53%     0.08%     1.00%     0.65%       2.27%

% Winners       64%       57%       71%       93%         79%

MDD  1/7/1991  3.64% --  1/3/2019  3.04% --  1/6/2015  3.03%


OTC summary for all years 1963 - 2022

Averages      0.25%     0.41%     0.21%    -0.01%       0.85%

% Winners       60%       61%       61%       63%         66%

MDD 1/6/2000  9.78% --  1/5/2001  7.99% --  1/7/2016  6.35%

SPX PY3

               Day1      Day2      Day3      Day4      Totals

 1931-3       3.32% 5   1.45% 6  -0.93% 1   1.26% 2     5.10%

 1935-3       0.11% 3   0.21% 4  -0.21% 5   0.63% 6     0.74%

 1939-3      -0.98% 2   1.15% 3  -1.28% 4   0.08% 5    -1.05%


 1943-3       0.72% 6   0.81% 1  -0.20% 2  -0.10% 3     1.23%

 1947-3      -0.65% 4   0.39% 5   0.26% 6   0.92% 1     0.92%

 1951-3       1.76% 2  -0.39% 3   0.87% 4   0.00% 5     2.25%

 1955-3       2.14% 1  -0.90% 2  -2.47% 3  -1.35% 4    -2.58%

 1959-3       0.42% 5   0.40% 1  -0.13% 2  -1.26% 3    -0.57%


 Avg          0.88%     0.06%    -0.33%    -0.36%       0.25%


 1963-3      -0.65% 3   1.64% 4   0.64% 5  -0.02% 1     1.62%

 1967-3       0.06% 2   0.21% 3   1.30% 4   0.71% 5     2.29%

 1971-3      -1.09% 1   0.71% 2   0.60% 3   0.03% 4     0.26%

 1975-3       2.44% 4   0.68% 5   0.51% 1  -0.07% 2     3.56%

 1979-3       0.65% 2   1.11% 3   0.80% 4   0.56% 5     3.11%


 Avg          0.28%     0.87%     0.77%     0.24%       2.17%


 1983-3      -1.64% 1   2.18% 2   0.43% 3   2.33% 4     3.30%

 1987-3       1.77% 5   2.33% 1   0.23% 2   1.01% 3     5.34%

 1991-3      -1.14% 3  -1.39% 4  -0.28% 5  -1.73% 1    -4.55%

 1995-3      -0.03% 2   0.35% 3  -0.08% 4   0.07% 5     0.31%

 1999-3      -0.09% 1   1.36% 2   2.21% 3  -0.20% 4     3.28%


 Avg         -0.23%     0.96%     0.50%     0.30%       1.54%


 2003-3       3.32% 4  -0.05% 5   2.25% 1  -0.65% 2     4.86%

 2007-3      -0.12% 3   0.12% 4  -0.61% 5   0.22% 1    -0.38%

 2011-3       1.04% 1  -0.13% 2   0.50% 3  -0.21% 4     1.20%

 2015-3      -0.03% 5  -1.83% 1  -0.89% 2   1.16% 3    -1.59%

 2019-3       0.13% 3  -2.48% 4   3.43% 5   0.70% 1     1.79%


 Avg          0.87%    -0.87%     0.94%     0.24%       1.18%


SPX summary for PY3 1931 - 2019

Averages      0.50%     0.35%     0.30%     0.18%       1.32%

% Winners       57%       70%       57%       57%         74%


SPX summary for all years 1928 - 2022

Averages      0.10%     0.42%     0.02%     0.10%       0.63%

% Winners       49%       71%       51%       55%         63%

MDD 1/5/1932  7.02% --  1/7/2016  4.93% --  1/4/2000  4.76%

January

Since 1963, over all years, the OTC in January has been up 64% of the time with an average gain of 2.5%.  During the 3rd year of the Presidential Cycle January has been up 86% time with an average gain of 7.1% The best January ever for the OTC was 1975 (+16.6%), the worst 1990 (-8.6%).  On average, January has been the best month of the best year of the 4 year Presidential Cycle.

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 3rd year of the Presidential Cycle over the same period.

Since 1928 the SPX has been up 62% of the time in January with an average gain of 1.1%.  During the 3rd year of the Presidential Cycle the SPX has been up 83% of the time with an average gain of 3.4%.  The best January ever 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 average daily performance over all years for the SPX in January in red and the performance during the 3rd year of the Presidential Cycle in black.

Since 1979 the Russell 2000 (R2K) has been up 55% of the time in January with an average gain of 1.3%.  During the 3rd year of the Presidential Cycle the R2K has been up 64% of the time in January with an average gain of 3.7%.  The best January ever for the R2K was 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 3rd year of the Presidential Cycle in black.

Since 1885 the DJIA has been up 62% of the time in January with an average gain of 0.8%.  During the 3rd year of the Presidential Cycle the DJIA has been up 71% of the time in January with an average gain of 2.3%.  The best January ever for the DJIA was 1976 (+14.4%), the worst 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 3rd year of the Presidential Cycle in black.

Conclusion

Next week will be interesting.  Last week was a little weaker than the seasonal averages and the breadth numbers were a little weak, however, Seasonality for the next week and month have been very strong.  January has been the strongest month in the strongest year of the 4 year Presidential Cycle.

The strongest sectors last week were Energy (for the 2nd week) and Banks while the weakest were Transportation (for the 2nd week and Electronics.

I expect the major averages to be higher on Friday, January 6, than they were on Friday, December 30.

Last week the Russell 2000 was up a little while all of the other major averages were down a little; so I am calling last week's positive forecast a tie.

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