Technical Market Report for Saturday, Jan. 1, 2022

The good news is that the S&P 500 (SPX) closed at an all-time high last Wednesday.

The Negatives

For the past two weeks the market has followed the typical seasonal pattern pretty closely; drifting upward on low volume. The second year of the Presidential Cycle, which begins now, usually starts strong before turning downward for the worst year of the four-year Presidential Cycle. Fortunately, the really bad stuff usually does not begin until around May 1. 

The first chart covers the past six months, showing the Nasdaq composite (OTC) in blue and a 40% trend (four-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 first trading day of each month, and dashed horizontal lines have been drawn at 10% levels for the indicator; the line is solid at the 50%, neutral level.

The OTC HL Ratio remained in negative territory. New lows exceeded new highs every day last week.

The next chart covers the past six months, showing the SPX in red and a 10% trend (19-day EMA) of NYSE new highs (NY NH) in green. The NY NH moved sharply upward last week, but it failed to confirm the SPX all-time high by a wide margin.

The next chart is similar to the one above, except it shows the OTC in blue and the OTC NH in green. The OTC NH information has been calculated with Nasdaq data. The OTC NH also recovered a bit, but it is still near its lowest levels of the past six months.

The Positives

Seasonally, the first week of the year is usually strong. The next chart is similar to the first one, except it shows the SPX in red and the NY HL ratio in blue. The NY HL information has been calculated with NYSE data. The NY HL Ratio rose to a comfortably positive level last week. 

The next chart covers the past six months, showing the OTC in blue and a 10% trend (19-day EMA) of Nasdaq new lows (OTC NL) in brown. The OTC NL has been plotted on an inverted Y axis, so decreasing numbers of new lows move the indicator upward (up is good). New lows, although at uncomfortably high levels, declined a bit at the end of last week.

The next chart is similar to the one above, except it shows the SPX in red and the NY NL in blue. The NY NL information has been calculated with NYSE data. The NY NL moved sharply upward last week.

Seasonality

Next week includes the first five trading days of the second 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 1929 to 2020. There are summaries for both the second year of the Presidential Cycle and all years combined. Average returns for the coming week have been strong 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 2 (PY2)

   Year           Day1        Day2        Day3        Day4        Day5        Totals

 1966-2       0.70% 1   0.73% 2   0.38% 3   0.12% 4   0.02% 5     1.95%

 1970-2       0.71% 5   1.01% 1   0.04% 2  -0.54% 3   0.24% 4     1.46%

 1974-2       0.37% 3   1.78% 4  -0.08% 5   0.39% 1  -0.44% 2     2.02%

 1978-2      -1.00% 2  -0.33% 3  -0.43% 4  -1.50% 5  -1.44% 1    -4.70%

 1982-2      -0.16% 1  -1.64% 2  -0.61% 3  -0.07% 4   0.54% 5    -1.94%

 1986-2       0.18% 4   0.22% 5   0.08% 1   1.15% 2  -0.25% 3     1.39%

 1990-2       0.99% 2   0.34% 3  -0.33% 4  -0.25% 5   0.11% 1     0.86%

 1994-2      -0.78% 1   0.46% 2   0.49% 3   0.30% 4   0.32% 5     0.79%

 1998-2       0.71% 5   0.80% 1  -0.88% 2  -1.16% 3  -0.40% 4    -0.94%

   Avg:          0.19%     0.04%    -0.25%    -0.01%     0.06%       0.03%

 2002-2       1.48% 3   3.29% 4   0.74% 5  -1.08% 1   0.92% 2     5.34%

 2006-2       1.74% 2   0.88% 3   0.59% 4   1.26% 5   0.57% 1     5.04%

 2010-2       1.73% 1   0.01% 2  -0.33% 3  -0.05% 4   0.74% 5     2.11%

 2014-2      -0.80% 4  -0.27% 5  -0.44% 1   0.96% 2   0.30% 3    -0.25%

 2018-2       1.49% 2   0.83% 3   0.17% 4   0.83% 5   0.29% 1     3.62%

   Avg:          1.13%     0.95%     0.15%     0.38%     0.56%       3.17%

OTC Summary for PY2 1966 - 2018

• Averages:      0.53%     0.58%    -0.04%     0.03%     0.11%       1.20%
• % Winners:       71%       79%       50%       50%       71%         71%
• MDD - 1/9/1978:  4.62% --  1/7/1982:  2.46% --  1/8/1998:  2.42%

OTC Summary for All Years 1963 - 2021

• Averages:      0.24%     0.44%     0.27%    -0.01%     0.18%       1.11%
• % Winners:       60%       62%       62%       64%       62%         71%
• MDD - 1/6/2000:  9.78% --  1/8/2001:  8.44% --  1/8/2008:  7.98%

SPX PY2

   Year           Day1        Day2        Day3        Day4        Day5        Totals

 1930-2      -1.26% 4   0.24% 5   1.18% 6   0.09% 1  -0.88% 2    -0.64%

 1934-2       0.10% 2  -1.38% 3  -0.30% 4  -1.31% 5  -0.41% 6    -3.30%

 1938-2      -0.28% 1   4.47% 2  -0.64% 3   4.58% 4  -0.88% 5     7.25%

 1942-2       2.30% 5   0.90% 6   1.34% 1  -0.44% 2  -0.55% 3     3.55%

 1946-2      -0.63% 3   0.12% 4  -0.23% 5   0.41% 6   0.06% 1    -0.29%

 1950-2      -0.60% 2   1.14% 3   0.47% 4   0.30% 5   0.65% 6     1.96%

 1954-2       0.56% 1   0.60% 2   0.16% 3  -0.32% 4  -0.52% 5     0.49%

 1958-2       0.85% 4   1.34% 5  -0.46% 1   0.79% 2  -0.02% 3     2.49%

   Avg:          0.50%     0.82%     0.26%     0.15%    -0.08%       1.64%

 1962-2      -0.82% 2   0.24% 3  -0.69% 4  -1.39% 5  -0.78% 1    -3.44%

 1966-2      -0.27% 1   0.09% 2   0.64% 3   0.23% 4   0.09% 5     0.77%

 1970-2       1.02% 5   0.49% 1  -0.68% 2  -0.20% 3   0.05% 4     0.68%

 1974-2       0.13% 3   2.17% 4  -0.90% 5  -0.84% 1  -1.99% 2    -1.43%

 1978-2      -1.35% 2  -0.32% 3  -0.83% 4  -1.21% 5  -1.07% 1    -4.78%

   Avg:         -0.26%     0.53%    -0.49%    -0.68%    -0.74%      -1.64%

 1982-2       0.16% 1  -2.19% 2  -0.72% 3  -0.21% 4   0.52% 5    -2.45%

 1986-2      -0.80% 4   0.62% 5  -0.11% 1   1.50% 2  -2.73% 3    -1.52%

 1990-2       1.78% 2  -0.26% 3  -0.86% 4  -0.98% 5   0.45% 1     0.14%

 1994-2      -0.22% 1   0.31% 2   0.14% 3  -0.09% 4   0.60% 5     0.74%

 1998-2       0.47% 5   0.21% 1  -1.07% 2  -0.27% 3  -0.83% 4    -1.48%

   Avg:          0.28%    -0.26%    -0.53%    -0.01%    -0.40%      -0.92%

 2002-2       0.57% 3   0.92% 4   0.62% 5  -0.65% 1  -0.36% 2     1.10%

 2006-2       1.64% 2   0.37% 3   0.00% 4   0.94% 5   0.37% 1     3.32%

 2010-2       1.60% 1   0.31% 2   0.05% 3   0.40% 4   0.29% 5     2.66%

 2014-2      -0.89% 4  -0.03% 5  -0.25% 1   0.61% 2  -0.02% 3    -0.58%

 2018-2       0.83% 2   0.64% 3   0.40% 4   0.70% 5   0.17% 1     2.74%

   Avg:          0.75%     0.44%     0.17%     0.40%     0.09%       1.85%

SPX Summary for PY2 1930 - 2018

• Averages:      0.21%     0.48%    -0.12%     0.11%    -0.34%       0.35%
• % Winners:       57%       78%       43%       48%       43%         57%
• MDD - 1/9/1978:  4.69% --  1/8/1974:  3.69% --  1/8/1962:  3.40%

SPX Summary for All Years 1929 - 2021

• Averages:      0.09%     0.43%     0.04%     0.10%    -0.09%       0.56%
• % Winners:       48%       72%       51%       55%       47%         68%
• 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 66% of the time with an average gain of 2.7%. During the second year of the Presidential Cycle, January has been up 50% time with an average gain of 0.1%. The best January ever for the OTC was 1975 (+16.6%), while 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 where 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 grey line shows the average during the second 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 second year of the Presidential Cycle, the SPX has been up 61% of the time with an average gain of 0.6%. The best January ever for the SPX was 1987 (+13.2%), while the 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 second year of the Presidential Cycle in grey.

Since 1979, the Russell 2000 (R2K) has been up 56% of the time in January with an average gain of 1.6%. During the second year of the Presidential Cycle, the R2K has been up 40% of the time in January with an average loss of -0.6%. The best January ever for the R2K was 1985 (+13.1%), while 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 second year of the Presidential Cycle in grey.

Since 1885, the DJIA has been up 63% of the time in January with an average gain of 0.9%. During the second year of the Presidential Cycle, the DJIA has been up 65% of the time in January with an average gain of 0.7%. The best January ever for the DJIA was 1976 (+14.4%), while 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 light grey, and the performance during the second year of the Presidential Cycle in dark grey.

Conclusion

The seasonal rally has another week to go. The strongest sectors last week were utilities and basic materials, while the weakest were internet and energy (for the third consecutive week). I expect the major averages to be higher on Friday, Jan. 7 than they were on Friday, Dec. 31.

Last week the OTC was down while the other averages I consider were up, so I am calling last week's positive forecast a tie. The last line in this report reads “YTD - W: 22/ L: 11/ T: 19,” which is a summary of the accuracy of my forecasts for the year-to-date.

For the forecast I consider these four averages: the Dow Jones Industrial Average, the S&P 500, the Nasdaq composite, and the Russell 2000. If they all go in the direction of my forecast, I consider the forecast to be a win. If they all go in the direction opposite of my forecast, I consider it a loss. If they do not all go in the same direction, I score it as a tie.

If the forecast is a win, I add it to the win total without comment. If it is a loss or tie, I comment on how it came about. All of the scores will be reset to 0 after this report, starting over for 2022. YTD - W: 22/ L: 11/ T: 19.