Technical Market Report for December 29, 2012

By: Mike Burk | Sat, Dec 29, 2012
Print Email

The good news is:
• There is only 1 day of selling for tax reasons remaining.

With the largest tax increase ever, scheduled to take effect on January 1, there are solid reasons to sell and realize capital gains before the end of this year.

The week between Christmas and New Years day has been up about 80% of the time and, with a few exceptions, the losses in the down weeks have been minimal. The last time there was a loss of the magnitude we saw last week was in 2002, before that 1987, then you have to go all the way back to 1937.

There was a nice pop in early January 1938 and 2003, but they were both followed by declines.


The negatives

The market was down every day last week so it is not surprising that new highs declined. The problem is there were not many new highs to begin with.

The chart below covers the past 6 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 1st trading day of each month.

OTC_NH is lower now than it was when the average was at similar levels.

OTC New Highs

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

For most of this year NY NH was stronger than OTC NH because of the strength in fixed income issues which populate the NYSE. That strength has not been visible recently.

OTC New Highs


The positives

There was a modest increase in the number of new lows last week, but, not enough to be threatening.

The chart below covers the past 6 months showing the OTC in blue and a 10% trend of NASDAQ new lows (OTC NL) in red. OTC NL has been plotted on an inverted Y axis so decreasing new lows move the indicator upward (up is good).

OTC NL continued to move upward last week in spite of the decline in the average.

OTC New Lows

The chart below is similar to the one above except it shows the SPX in red and NY NL, in blue, has been calculated from NYSE data.

NY NL turned slightly downward late last week, but the numbers did not reach threatening levels.

NY New Highs


Seasonality

Next week includes the last trading day of the 4th year of the Presidential Cycle and the first 3 trading days of the 1st year of the Presidential Cycle.

The tables below show the daily return on a percentage basis for the last trading day of the 4th year of the Presidential Cycle and the first 3 trading days of the 1st year of the Presidential Cycle.

OTC data covers the period from 1963 - 2011 and SPX data covers the period from 1928 - 2011. There are summaries for both the 1st year of the Presidential Cycle and all years combined.

Average returns have been positive by all measures.

Report includes the last day of the previous December and the first 3 days of January.
The year is the year of January, December is from the previous year.
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
  Day1 Day1 Day2 Day3 Totals
1965-1 0.27% 4 0.52% 1 -0.14% 2 0.25% 3 0.91%
1969-1 -1.01% 2 0.09% 4 0.25% 5 0.21% 1 -0.47%
 
1973-1 1.36% 5 0.00% 2 0.67% 3 0.56% 4 2.59%
1977-1 0.86% 5 -0.19% 1 -0.48% 2 -0.34% 3 -0.16%
1981-1 0.77% 3 0.77% 5 0.30% 1 -0.05% 2 1.79%
1985-1 0.52% 1 -0.58% 3 0.20% 4 -0.09% 5 0.05%
1989-1 0.61% 5 -0.48% 2 0.84% 3 0.27% 4 1.25%
Avg 0.82% -0.10% 0.31% 0.07% 1.10%
 
1993-1 0.76% 4 -0.76% 1 0.38% 2 1.11% 3 1.49%
1997-1 0.25% 2 -0.80% 4 2.34% 5 0.43% 1 2.23%
2001-1 -3.41% 5 -7.23% 2 14.17% 3 -1.91% 4 1.62%
2005-1 -0.13% 5 -1.07% 1 -2.06% 2 -0.79% 3 -4.05%
2009-1 1.70% 3 3.50% 5 -0.26% 1 1.50% 2 6.44%
Avg -0.17% -1.27% 2.92% 0.07% 1.55%
 
OTC summary for Presidential Year 1 1965 - 2009
Averages 0.21% -0.52% 1.35% 0.10% 1.14%
% Winners 75% 33% 67% 58% 75%
MDD 1/2/2001 10.40% -- 1/5/2005 4.00% -- 12/31/1968 1.01%
 
OTC summary for all years 1963 - 2012
Averages 0.28% 0.22% 0.59% 0.28% 1.37%
% Winners 71% 60% 67% 63% 76%
MDD 1/2/2001 10.40% -- 1/4/2008 6.35% -- 1/5/2000 6.14%
 
SPX Presidential Year 1
  Day1 Day1 Day2 Day3 Totals
1929-1 1.25% 1 1.89% 3 0.20% 4 -0.04% 5 3.30%
 
1933-1 -0.43% 6 -0.87% 2 4.69% 3 -0.42% 4 2.96%
1937-1 -0.52% 4 -0.93% 6 -0.53% 1 0.89% 2 -1.10%
1941-1 0.09% 2 -0.95% 4 2.29% 5 0.00% 6 1.44%
1945-1 0.00% 6 0.38% 2 1.05% 3 0.15% 4 1.58%
1949-1 -0.52% 5 -1.64% 1 0.54% 2 0.86% 3 -0.77%
Avg -0.28% -0.80% 1.61% 0.30% 0.82%
 
1953-1 -0.08% 3 -0.11% 5 0.45% 1 -0.68% 2 -0.41%
1957-1 0.24% 1 -1.01% 3 0.87% 4 0.13% 5 0.22%
1961-1 0.10% 5 -0.93% 2 1.37% 3 0.36% 4 0.91%
1965-1 0.53% 4 -0.61% 1 0.47% 2 0.31% 3 0.70%
1969-1 0.06% 2 0.07% 4 0.06% 5 -1.46% 1 -1.28%
Avg 0.17% -0.52% 0.64% -0.27% 0.03%
 
1973-1 0.96% 5 0.89% 2 0.39% 3 -0.14% 4 2.10%
1977-1 0.54% 5 -0.43% 1 -1.21% 2 -0.89% 3 -1.99%
1981-1 0.32% 3 0.43% 5 1.20% 1 0.11% 2 2.05%
1985-1 0.59% 1 -1.12% 3 -0.48% 4 -0.54% 5 -1.55%
1989-1 -0.60% 5 -0.87% 2 1.50% 3 0.21% 4 0.23%
Avg 0.36% -0.22% 0.28% -0.25% 0.17%
 
1993-1 -0.71% 4 -0.08% 1 -0.24% 2 0.04% 3 -0.98%
1997-1 -1.74% 2 -0.50% 4 1.49% 5 -0.05% 1 -0.80%
2001-1 -1.04% 5 -2.80% 2 5.01% 3 -1.06% 4 0.11%
2005-1 -0.13% 5 -0.81% 1 -1.17% 2 -0.36% 3 -2.48%
2009-1 1.42% 3 3.16% 5 -0.47% 1 0.78% 2 4.89%
Avg -0.44% -0.21% 0.93% -0.13% 0.15%
 
SPX summary for Presidential Year 1 1929 - 2009
Averages 0.01% -0.33% 0.83% -0.09% 0.43%
% Winners 52% 29% 71% 48% 57%
MDD 1/2/2001 3.82% -- 1/5/1977 2.51% -- 1/5/2005 2.46%
 
SPX summary for all years 1928 - 2012
Averages 0.18% 0.09% 0.51% 0.01% 0.78%
% Winners 63% 48% 75% 51% 65%
MDD 1/5/1932 7.02% -- 1/4/2000 4.76% -- 1/4/2008 4.52%


Money Supply (M2)

The money supply chart was provided by Gordon Harms. Money supply growth popped up last week.

M2


January

Since 1963, over all years, the OTC in January has been up 65% of the time with an average gain of 2.9%, the highest average of any month. During the 1st year of the Presidential Cycle January has been up 50% time with an average gain of 2.1% (helped considerably by gains of 12.7% in 1985 and 12.2% in 2001). The best January ever for the OTC was 1975 (+16.6%), the worst 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 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 green line shows the average during the 1st year of the Presidential Cycle over the same period.

Since 1928 the SPX has been up 65% of the time in January with an average gain of 1.2%. During the 1st year of the Presidential Cycle the SPX has been up 57% of the time with an average gain of 0.6%. 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 1st year of the Presidential Cycle in green.

Since 1979 the Russell 2000 (R2K) has been up 56% of the time in January with an average gain of 1.8%. During the 1st year of the Presidential Cycle the R2K has been up 63% of the time with an average gain of 1.5%. The best January ever for the R2K, 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 black and the performance during the 4th year of the Presidential Cycle in green.

Since 1885 the Dow Jones Industrial Average (DJIA) has been up 64% of the time in January with an average gain of 0.9%. During the 1st year of the Presidential Cycle the DJIA has been up 65% of the time in January with an average gain of 0.6%. The best January ever for the DJIA, 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 black and the performance during the 4th year of the Presidential Cycle in green.


Conclusion

The market is oversold and selling for tax reasons ends Monday. A bounce is likely next week.

I expect the major averages to be higher on Friday January 4 than they were on Friday December 28.

Last week's positive forecast was a miss.

This report is free to anyone who wants it, so please tell your friends. They can sign up at: http://alphaim.net/signup.html. If it is not for you, reply with REMOVE in the subject line.

You continued to get your money's worth from my weekly forecasts which are summarized at the end of this report. In the past year, I got it right 19 times, wrong 17 times, there were an unusually high 16 ties and I saved you the trouble of flipping a coin. After today the score will be reset to W0/L0/T0.

Good Luck,

YTD W 19 /L 17/T 16

 


 

Author: Mike Burk

Mike Burk

Mike Burk independently publishes a weekly newsletter on the stock market from a technical perspective.

Charts and figures presented herein are believed to be reliable but we cannot attest to their accuracy. Recent (last 10-15 yrs.) data has been supplied by CSI (csidata.com), FastTrack (fasttrack.net), Quotes Plus (qp2.com) and the Wall Street Journal (wsj.com). Historical data is from Barron's and ISI price books. The views expressed are provided for information purposes only and should not be construed in any way as investment advice. Furthermore, the opinions expressed may change without notice.

Copyright © 2003-2017 Mike Burk

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com