Technical Market Report for December 27, 2014

By: Mike Burk | Sat, Dec 27, 2014
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The good news is:
• All of the major indices closed at all time or multi year highs on Friday.


The negatives

The market is overbought, but the negatives do not matter, seasonality is dominant.


The positives

Since mid October the market has been following the average seasonal pattern very closely and that pattern calls for prices to drift upward on weak volume.

The chart below 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 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 continued to rise sharply finishing the week at a very strong 77%.

OTC HL Ratio Chart

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

NY HL Ratio also rose sharply, finishing the week at a very strong 87%.

NYSE HL Ratio Chart


Seasonality

Next week includes the last 3 trading days of the 2nd year of the Presidential Cycle and the 1st trading day of the 3rd year of the Presidential Cycle.

The tables below show the daily change, on a percentage basis, of the OTC and SPX for the last 3 trading days of the 2nd year of the Presidential Cycle and the 1st trading day of the 3rd 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 includes the last 3 days of previous December and first 1 day 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 3
  Day3 Day2 Day1 Day1 Totals
1967-3 -0.09% 3 0.07% 4 -0.14% 5 0.41% 2 0.25%
1971-3 0.35% 2 0.57% 3 0.12% 4 0.35% 1 1.39%
 
1975-3 -0.24% 5 0.07% 1 1.77% 2 1.47% 4 3.07%
1979-3 -0.30% 3 -0.03% 4 0.58% 5 -0.12% 2 0.14%
1983-3 0.03% 3 -0.43% 4 0.49% 5 -0.78% 1 -0.69%
1987-3 -0.57% 1 -0.20% 2 0.43% 3 1.27% 5 0.94%
1991-3 -0.36% 4 0.04% 5 0.71% 1 -0.44% 3 -0.05%
Avg -0.29% -0.11% 0.80% 0.28% 0.68%
 
1995-3 -0.50% 3 0.95% 4 0.32% 5 -1.11% 2 -0.34%
1999-3 0.04% 2 -0.65% 3 1.19% 4 0.70% 1 1.28%
2003-3 -1.43% 5 -0.65% 1 -0.30% 2 3.69% 4 1.31%
2007-3 0.73% 3 -0.23% 4 -0.42% 5 0.33% 3 0.40%
2011-3 0.15% 3 -0.15% 4 -0.38% 5 1.46% 1 1.08%
Avg -0.20% -0.15% 0.08% 1.01% 0.75%
 
OTC summary for Presidential Year 3 1967 - 2011
Averages -0.18% -0.05% 0.36% 0.60% 0.73%
% Winners 42% 42% 67% 67% 75%
MDD 1/2/2008 4.21% -- 1/2/1980 1.97% -- 12/28/2011 1.34%
 
OTC summary for all years 1963 - 2013
Averages 0.08% 0.26% 0.32% 0.26% 0.92%
% Winners 49% 63% 73% 60% 76%
MDD 1/2/2001 10.40% -- 1/2/2008 4.21% -- 12/31/2002 2.37%
 
SPX Presidential Year 3
  Day3 Day2 Day1 Day1 Totals
1931-3 -0.27% 1 2.31% 2 1.86% 3 3.32% 5 7.22%
 
1935-3 3.75% 5 0.32% 6 0.64% 1 0.11% 3 4.81%
1939-3 1.94% 4 0.08% 5 0.53% 6 -0.98% 2 1.57%
1943-3 0.00% 2 1.14% 3 0.10% 4 0.72% 6 1.96%
1947-3 0.20% 6 -0.33% 1 0.86% 2 -0.65% 4 0.07%
1951-3 0.39% 4 0.25% 5 -0.10% 6 1.76% 2 2.31%
Avg 1.26% 0.29% 0.41% 0.19% 2.14%
 
1955-3 0.87% 3 0.00% 4 0.67% 5 2.14% 1 3.69%
1959-3 1.16% 1 0.35% 2 0.51% 3 0.42% 5 2.44%
1963-3 -0.14% 4 0.05% 5 0.22% 1 -0.65% 3 -0.52%
1967-3 -0.48% 3 -0.30% 4 -0.05% 5 0.06% 2 -0.77%
1971-3 1.09% 2 0.21% 3 -0.13% 4 -1.09% 1 0.08%
Avg 0.50% 0.06% 0.24% 0.18% 0.98%
 
1975-3 -0.44% 5 0.03% 1 2.08% 2 2.44% 4 4.11%
1979-3 -0.88% 3 -0.39% 4 -0.18% 5 0.65% 2 -0.81%
1983-3 0.33% 3 -0.64% 4 0.22% 5 -1.64% 1 -1.72%
1987-3 -0.91% 1 -0.53% 2 -0.49% 3 1.77% 5 -0.17%
1991-3 -0.77% 4 0.13% 5 0.46% 1 -1.14% 3 -1.33%
Avg -0.54% -0.28% 0.42% 0.41% 0.02%
 
1995-3 -0.35% 3 0.07% 4 -0.41% 5 -0.03% 2 -0.73%
1999-3 1.33% 2 -0.80% 3 -0.22% 4 -0.09% 1 0.22%
2003-3 -1.60% 5 0.46% 1 0.05% 2 3.32% 4 2.22%
2007-3 0.70% 3 -0.15% 4 -0.45% 5 -0.12% 3 -0.02%
2011-3 0.10% 3 -0.15% 4 0.07% 5 1.04% 1 1.06%
Avg 0.04% -0.11% -0.19% 0.82% 0.55%
 
SPX summary for Presidential Year 3 1931 - 2011
Averages 0.29% 0.10% 0.30% 0.54% 1.22%
% Winners 52% 57% 62% 57% 62%
MDD 1/3/1983 2.05% -- 12/31/1986 1.92% -- 12/27/2002 1.60%
 
SPX summary for all years 1928 - 2013
Averages 0.27% 0.45% 0.20% 0.11% 1.01%
% Winners 58% 72% 64% 48% 66%
MDD 1/2/2001 3.82% -- 1/2/1932 3.69% -- 1/2/2008 3.37%


Money Supply (M2)

The money supply chart was provided by Gordon Harms. M2 growth has continued to slow.

S&P500 and M2 Money Supply Charts


January

Since 1963, over all years, the OTC in January has been up 65% of the time with an average gain of 2.8%. During the 3rd year of the Presidential Cycle January has been up 92% time (the only down year was 2003) with an average gain of 7.6% The best January ever for the OTC was 1975 (+16.6%), the worst 1990 (-8.6%).

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

OTC in January all years 1963-2014

Since 1928 the SPX has been up 64% of the time in January with an average gain of 1.2%. During the 3rd year of the Presidential Cycle the SPX has been up 86% of the time with an average gain of 3.5%. 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 green.

SPX in January all years 1928-2014

Since 1979 the Russell 2000 (R2K) has been up 56% of the time in January with an average gain of 1.8%. During the 3rd year of the Presidential Cycle the R2K has been up 67% of the time in January with an average gain of 3.6%. 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 magenta and the performance during the 3rd year of the Presidential Cycle in green.

Russell 2000 in January all years 1979-2014

Since 1885 the DJIA has been up 64% of the time in January with an average gain of 0.9%. During the 3rd year of the Presidential Cycle the DJIA has been up 72% of the time in January with an average gain of 2.3%. 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 3rd year of the Presidential Cycle in green.

DJIA in January 1ll years 1885-2014


Conclusion

The market has been following the average seasonal pattern very closely. That pattern calls for prices to drift upward on low volume.

I expect the major averages to be higher on Friday January 2 than they were on Friday December 26.

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Good Luck,

YTD W 19 / L 16 / T 17

 


 

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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