S Technical Market Report For November 27, 2021

The good news is:

  • Whoever is in charge of keeping the market orderly apparently skipped work last Friday.

The Negatives

The Fed wants to fight inflation.  If they go through with it there will be less liquidity for the market.

The first chart covers the past 6 months showing the NASDAQ composite (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).

The new low indicators are the best bottom indicators I am aware of.  When a bottom has been reached new lows disappear and the indicator moves sharply upward.

 

The next chart is similar to the one above except is shows the S&P 500 (SPX) in red and NY NL has been calculated with NYSE data.

Looking for a sharp reversal. 

 

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 is at its lowest level since the Covid crash.

 

The next chart is similar to the previous one except it shows the SPX in red and NY HL ratio, in blue, has been calculated with NYSE data.

NY HL Ratio also fell to its lowest level since the Covid crash. 

 

The Positives

The market is oversold.

A couple decades ago a client of mine observed that when the market performed badly during a seasonally strong period, there was trouble ahead.

The day after Thanksgiving usually has an upward bias on volume near the lowest level of the year.

Seasonality

Next week includes the last 2 trading days of November and the first 3 trading days of December during the first 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 2020 while SPX data runs from 1953 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, 

Report for the last 2 days of November and first 3 days of December.

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)

               Day2      Day1      Day1      Day2      Day3      Totals

 1965-1       0.47% 1   0.11% 2   0.52% 3   0.21% 4   0.43% 5     1.74%

 1969-1       0.05% 3  -0.11% 5   0.16% 1  -0.55% 2  -0.23% 3    -0.68%

 1973-1      -0.34% 4  -1.17% 5  -1.65% 1  -0.45% 2  -2.00% 3    -5.60%

 1977-1      -0.83% 2  -0.05% 3   0.51% 4   0.41% 5   0.05% 1     0.09%


 1981-1       0.50% 5   0.17% 1  -0.12% 2  -0.39% 3  -0.22% 4    -0.05%

 1985-1       0.81% 3   0.30% 5  -0.32% 1   0.06% 2   1.13% 3     1.98%

 1989-1      -0.19% 3   0.06% 4   0.22% 5   0.26% 1   0.06% 2     0.41%

 1993-1      -0.44% 1   0.38% 2   1.25% 3   0.38% 4   0.72% 5     2.29%

 1997-1       0.35% 3   0.38% 5   1.88% 1  -1.49% 2   0.54% 3     1.66%


 Avg          0.21%     0.26%     0.58%    -0.24%     0.44%       1.26%


 2001-1       2.40% 4  -0.14% 5  -1.33% 1   3.06% 2   4.27% 3     8.25%

 2005-1      -0.30% 2   0.00% 3   1.54% 4   0.27% 5  -0.69% 1     0.83%

 2009-1      -1.73% 5   0.29% 1   1.46% 2   0.42% 3  -0.54% 4    -0.11%

 2013-1       0.67% 3   0.37% 5  -0.36% 1  -0.20% 2   0.02% 3     0.51%

 2017-1      -1.27% 3   0.72% 4  -0.38% 5  -1.05% 1  -0.19% 2    -2.17%


 Avg         -0.04%     0.25%     0.18%     0.50%     0.57%       1.46%


OTC summary for PY1 1965 - 2017

Averages      0.01%     0.09%     0.24%     0.07%     0.24%       0.65%

% Winners       50%       71%       57%       57%       57%         64%

MDD  12/5/1973  5.49% --  12/5/2017  2.16% --  11/27/2009  1.73%


OTC summary for all years 1963 - 2017

Averages      0.35%    -0.01%     0.16%     0.08%     0.41%       0.98%

% Winners       69%       62%       60%       59%       69%         67%

MDD 12/1/2008  8.95% --  12/3/1987  5.99% --  12/5/1973  5.49%


SPX PY1

               Day2      Day1      Day1      Day2      Day3      Totals

 1929-1      -2.91% 2   1.26% 3   0.14% 1   3.34% 2   1.85% 3     3.68%

 1933-1       0.10% 2   1.86% 3   0.30% 5   0.10% 6  -0.20% 1     2.16%

 1937-1      -1.97% 1   1.37% 2  -1.26% 3   2.01% 4   1.34% 5     1.49%


 1941-1      -0.98% 5  -0.22% 6  -0.33% 1   2.09% 2   1.08% 3     1.65%

 1945-1      -0.18% 4   0.94% 5   0.58% 6   0.87% 1  -0.11% 2     2.10%

 1949-1      -0.19% 2   0.25% 3   0.56% 4   0.80% 5   0.80% 6     2.23%

 1953-1       0.57% 5   0.41% 1   0.08% 2   0.69% 3   0.08% 4     1.82%

 1957-1       2.89% 3   1.14% 5  -0.86% 1   0.02% 2   0.41% 3     3.61%


 Avg          0.42%     0.50%     0.01%     0.90%     0.45%       2.28%


 1961-1      -0.07% 3  -0.53% 4   0.64% 5   0.32% 1  -0.11% 2     0.25%

 1965-1      -0.25% 1  -0.21% 2  -0.12% 3  -0.32% 4   0.07% 5    -0.83%

 1969-1       0.36% 3   0.58% 5  -0.63% 1  -0.61% 2  -1.08% 3    -1.39%

 1973-1      -0.35% 4  -1.39% 5  -2.15% 1  -0.33% 2  -1.53% 3    -5.74%

 1977-1      -1.55% 2   0.30% 3  -0.15% 4  -0.02% 5  -0.42% 1    -1.85%


 Avg         -0.37%    -0.25%    -0.48%    -0.19%    -0.62%      -1.91%


 1981-1       0.84% 5   1.01% 1  -0.20% 2  -1.12% 3   0.34% 4     0.87%

 1985-1       0.93% 3  -0.18% 5  -0.85% 1   0.20% 2   1.68% 3     1.78%

 1989-1      -0.63% 3   0.70% 4   1.34% 5   0.22% 1  -0.52% 2     1.11%

 1993-1      -0.25% 1  -0.02% 2   0.02% 3   0.26% 4   0.38% 5     0.40%

 1997-1       0.09% 3   0.40% 5   2.03% 1  -0.32% 2   0.52% 3     2.71%


 Avg          0.20%     0.38%     0.47%    -0.15%     0.48%       1.38%


 2001-1       1.03% 4  -0.07% 5  -0.84% 1   1.32% 2   2.23% 3     3.68%

 2005-1       0.00% 2  -0.64% 3   1.22% 4   0.03% 5  -0.24% 1     0.38%

 2009-1      -1.72% 5   0.38% 1   1.21% 2   0.03% 3  -0.84% 4    -0.94%

 2013-1       0.25% 3  -0.08% 5  -0.27% 1  -0.32% 2  -0.13% 3    -0.55%

 2017-1      -0.04% 3   0.82% 4  -0.20% 5  -0.11% 1  -0.37% 2     0.10%


 Avg         -0.10%     0.08%     0.22%     0.19%     0.13%       0.53%


SPX summary for PY1 1929 - 2017

Averages     -0.17%     0.35%     0.01%     0.40%     0.23%       0.81%

% Winners       43%       61%       48%       65%       52%         74%

MDD  12/5/1973  5.62% --  11/26/1929  2.91% --  12/3/1969  2.30%


SPX summary for all years 1928 - 2020

Averages      0.05%     0.18%     0.00%     0.09%     0.23%       0.53%

% Winners       56%       54%       49%       55%       62%         68%

MDD 12/1/2008  8.93% --  12/3/1987  7.74% --  12/5/1973  5.62%


December

Since 1963, over all years, the OTC in December has been up 62% of the time with an average gain of 1.7%.  During the first year of the Presidential Cycle December has been up 57% time with an average gain of 0.8% The best December ever for the OTC was 1999 (+22.0%), the worst 2002 (-9.7%).

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 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 first 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 December over all years since 1963 in blue 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 73% of the time in December with an average gain of 1.3%.  During the first year of the Presidential Cycle the SPX has been up 74% of the time with an average gain of 0.4%.  The best December ever for the SPX was 1991 (+11.2%) the worst 1931 (-14.5%).

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

 

Since 1979 the Russell 2000 (R2K) has been up 76% of the time in December with an average gain of 2.3%.  During the first year of the Presidential Cycle the R2K has been up 70% of the time in December with an average gain of 2.2%.  The best December ever for the R2K was 1999 (+11.2%), the worst 2002 (-5.7%).

The chart below is similar to those above except it shows the daily performance over all years of the R2K in December 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 70% of the time in December with an average gain of 1.2%.  During the first year of the Presidential Cycle the DJIA has been up 71% of the time in December with an average gain of 1.3%.  The best December ever for the DJIA was 1903 (+10.8%), the worst 1931 (-17.0%).

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


Conclusion

We are looking for a bottom. 

Market valuations are at record highs by a wide margin.  I expect the Fed to blink long before valuations reach reasonable levels.  

It is going to be fun to watch.

The strongest sectors last week were Utilities and Retail while the weakest were Energy (same as the last 2 weeks) and Precious metals.

I expect the major averages to be lower on Friday December 3 than they were on Friday November 26.

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