Technical Market Report for November 29, 2014

By: Mike Burk | Sat, Nov 29, 2014
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The good news is:
• The Dow Jones Industrial Average (DJIA) closed at an all time high and the NASDAQ composite (OTC) closed at a multi year high on Friday.


The negatives

There were a lot of new lows reported on Friday, enough to make me suspicious of their accuracy. I have a program that calculates new highs and new lows on a closing basis, over the past 6 weeks, of the components of most of the major indices and those numbers were also elevated, in fact the highest since the mid October low. Friday was the only day it occurred, typically one of the lowest volume days of the year. However, by any method of calculation, New Highs significantly outnumbered New Lows.


The positives

New index highs and positive seasonality are a good combination.

The chart below 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 vertical lines have been drawn on the 1st trading day of each month and dashed horizontal lines have been drawn at 10% levels of the indicator, the line is solid at the neutral 50% level.

OTC HL Ratio rose last week to a strong 70%.

OTC HL Ratio

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

NY HL Ratio finished the week at a comfortably positive 78%.

NY HL Ratio


Seasonality

Next week includes the 1st 5 trading days of December during the 2nd year of the Presidential Cycle.

The tables below show the daily change, on a percentage basis, of the OTC and SPX for the 1st 5 trading days of December during the 2nd year of the Presidential Cycle.

OTC data covers the period from 1963 to 2013 while SPX data runs from 1928 through 2013. 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 for the first 5 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 2
  Day1 Day2 Day3 Day4 Day5 Totals
1966-2 -0.07% 4 -0.15% 5 0.13% 1 -0.38% 2 0.13% 3 -0.34%
1970-2 1.54% 2 0.24% 3 1.21% 4 -0.10% 5 1.07% 1 3.96%
 
1974-2 -2.05% 1 -1.88% 2 -0.15% 3 -2.47% 4 -1.21% 5 -7.75%
1978-2 1.31% 5 0.33% 1 0.94% 2 0.66% 3 0.08% 4 3.33%
1982-2 1.41% 3 0.25% 4 0.41% 5 0.90% 1 0.57% 2 3.54%
1986-2 -0.47% 1 0.79% 2 0.65% 3 0.28% 4 -0.30% 5 0.95%
1990-2 0.63% 1 0.77% 2 1.86% 3 0.38% 4 -0.20% 5 3.44%
Avg 0.17% 0.05% 0.74% -0.05% -0.21% 0.70%
 
1994-2 -1.35% 4 0.65% 5 0.09% 1 -0.60% 2 -0.94% 3 -2.14%
1998-2 2.78% 2 -0.43% 3 -2.04% 4 2.50% 5 1.87% 1 4.67%
2002-2 0.41% 1 -2.41% 2 -1.28% 3 -1.37% 4 0.83% 5 -3.83%
2006-2 -0.76% 5 1.46% 1 0.16% 2 -0.27% 3 -0.74% 4 -0.15%
2010-2 2.05% 3 1.17% 4 0.47% 5 0.13% 1 0.14% 2 3.96%
Avg 0.62% 0.09% -0.52% 0.08% 0.23% 0.50%
 
OTC summary for Presidential Year 2 1966 - 2010
Averages 0.45% 0.07% 0.20% -0.03% 0.11% 0.80%
% Winners 58% 67% 75% 50% 58% 58%
MDD 12/6/1974 7.53% -- 12/5/2002 4.99% -- 12/3/1998 2.47%
 
OTC summary for all years 1963 - 2013
Averages 0.19% 0.20% 0.45% -0.03% 0.01% 0.81%
% Winners 63% 63% 69% 55% 47% 61%
MDD 12/1/2008 8.95% -- 12/6/1974 7.53% -- 12/5/1975 5.18%
 
SPX Presidential Year 2
  Day1 Day2 Day3 Day4 Day5 Totals
1930-2 1.39% 1 0.95% 2 -1.71% 3 -1.50% 4 0.06% 5 -0.81%
 
1934-2 -0.10% 6 -1.26% 1 0.74% 2 0.84% 3 -0.21% 4 0.01%
1938-2 -0.94% 4 -1.03% 5 -0.08% 6 -0.56% 1 0.81% 2 -1.81%
1942-2 -0.11% 2 0.32% 3 0.32% 4 0.00% 5 0.11% 6 0.64%
1946-2 -1.57% 1 0.35% 2 1.59% 3 -0.54% 4 0.41% 5 0.23%
1950-2 0.77% 5 -0.61% 6 -2.76% 1 1.63% 2 0.73% 3 -0.25%
Avg -0.39% -0.45% -0.04% 0.27% 0.37% -0.23%
 
1954-2 -0.73% 3 0.56% 4 0.91% 5 0.78% 1 0.46% 2 1.98%
1958-2 0.40% 1 -0.44% 2 0.13% 3 0.04% 4 -0.17% 5 -0.04%
1962-2 -0.51% 1 1.13% 2 0.40% 3 0.06% 4 0.21% 5 1.29%
1966-2 -0.46% 4 0.06% 5 0.14% 1 0.75% 2 1.09% 3 1.58%
1970-2 0.31% 2 1.15% 3 0.47% 4 0.63% 5 0.54% 1 3.11%
Avg -0.20% 0.49% 0.41% 0.45% 0.42% 1.58%
 
1974-2 -2.66% 1 -1.38% 2 0.36% 3 -1.90% 4 -1.69% 5 -7.27%
1978-2 1.67% 5 -0.14% 1 1.34% 2 0.05% 3 -0.42% 4 2.51%
1982-2 0.13% 3 0.07% 4 -0.09% 5 2.22% 1 0.67% 2 3.00%
1986-2 -0.07% 1 1.99% 2 -0.06% 3 -0.32% 4 -0.74% 5 0.80%
1990-2 0.58% 1 0.69% 2 1.09% 3 -0.26% 4 -0.40% 5 1.71%
Avg -0.07% 0.25% 0.53% -0.04% -0.52% 0.15%
 
1994-2 -1.05% 4 0.98% 5 0.01% 1 -0.05% 2 -0.41% 3 -0.53%
1998-2 1.01% 2 -0.35% 3 -1.80% 4 2.31% 5 0.93% 1 2.10%
2002-2 -0.19% 1 -1.47% 2 -0.35% 3 -1.20% 4 0.63% 5 -2.58%
2006-2 -0.28% 5 0.89% 1 0.40% 2 -0.13% 3 -0.40% 4 0.48%
2010-2 2.16% 3 1.28% 4 0.26% 5 -0.13% 1 0.05% 2 3.63%
Avg 0.33% 0.26% -0.30% 0.16% 0.16% 0.62%
 
SPX summary for Presidential Year 2 1930 - 2010
Averages -0.01% 0.18% 0.06% 0.13% 0.11% 0.47%
% Winners 43% 62% 67% 48% 62% 67%
MDD 12/6/1974 7.09% -- 12/4/1950 3.36% -- 12/4/1930 3.18%
 
SPX summary for all years 1928 - 2013
Averages -0.02% 0.14% 0.25% 0.07% 0.12% 0.55%
% Winners 50% 56% 64% 53% 48% 67%
MDD 12/1/2008 8.93% -- 12/6/1974 7.09% -- 12/6/1928 5.64%


Money Supply (M2)

The money supply chart was provided by Gordon Harms. M2 growth remained below its long term trend.

SPX and M2 Money Supply Charts


December

Since 1963, over all years, the OTC in December has been up 63% of the time with an average gain of 2.0%. During the 2nd year of the Presidential Cycle December has been up 67% time with an average gain of 1.3% 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 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 2nd 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 while the green line shows the average during the 2nd year of the Presidential Cycle over the same period.

OTC in December 1963-2014

Since 1928 the SPX has been up 74% of the time in December with an average gain of 1.5%. During the 2nd year of the Presidential Cycle the SPX has been up 71% of the time with an average gain of 1.7%. 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 2nd year of the Presidential Cycle in green.

SPX in December 1928-2014

Since 1979 the Russell 2000 (R2K) has been up 80% of the time in December with an average gain of 2.8%. During the 2nd year of the Presidential Cycle the R2K has been up 75% of the time in December with an average gain of 1.6%. The best December ever for the R2K, 1999 (+11.2%), the worst 2002 (-11.2%).

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 2nd year of the Presidential Cycle in green.

R2K In December 1979-2014

Since 1885 the DJIA has been up 70% of the time in December with an average gain of 1.3%. During the 2nd year of the Presidential Cycle the DJIA has been up 72% of the time in December with an average gain of 1.3%. The best December ever for the DJIA, 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 Black and the performance during the 2nd year of the Presidential Cycle in green.

DJIA in December1885-2014


Conclusion

The market has been following the average seasonal pattern pretty closely and that pattern calls for another week of gains.

I expect the major averages to be higher on Friday December 5 than they were on Friday November 28.

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Good Luck,

YTD W 16 / L 16 / 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.

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