Technical Market Report for December 19, 2015

By: Mike Burk | Sat, Dec 19, 2015
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The good news is:
• It looks like traders closed out their positions Friday ahead of a 2 week vacation. Nearly 10 billion shares were traded on Friday. Seasonally the 4 trading days before Christmas during the 3rd year of the Presidential Cycle, the NASDAQ composite (OTC) has not had a down year since 1967 and the S&P 500 (SPX) has not had a down year since 1979.


The negatives

On average the market sells off into middle-late December then rallies for the rest of the month on low volume. So far the sell off has lasted 1 day longer than average, but that coincided with the end of the week before Christmas. Nothing surprising. The huge volume on Friday suggests positions were cleared prior to a vacation. All of this suggests the extremely negative breadth of the recent past was just part of the seasonal pattern.

The chart below covers the past 6 months showing the SPX in red and a 40% trend (4 day EMA) of NYSE new highs divided by new highs + new lows (NY HL Ratio), in blue. Dashed vertical lines have been drawn on the 1st trading day of each month. Dashed horizontal lines have been drawn at 10% levels for the indicator, the line is solid at the 50%, neutral level.

NY HL Ratio at 13% is at an extreme, but, if you are a determined optimist, you can see a non confirmation in the past week.

NY HL Ratio Chart

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

The non confirmation is also visible in this chart.

OTC HL Ratio Chart


The positives

The overriding positive is Seasonality, but, for the past week there have been breadth non confirmations. Typically I would be cautious as the improvement might be called going from worse to bad, but this is happening at a seasonal shift point.

Advance - decline lines (ADL) are running totals of declining issues subtracted from advancing issues. Their characteristics vary and change and it is changes we look for to give us hints as to what is going to happen.

The chart below covers the past 6 months showing the OTC in blue and an AD line calculated from NASDAQ data, OTC ADL in green.

The OTC ADL has been weak for the duration of this chart, but, for the past week it has hinted at strength.

OTC ADL Chart

The next chart is similar to the one above except it shows the SPX in red and NYSE ADL has been calculated from NYSE data.

The NYSE ADL has been stronger than the OTC ADL and the non confirmation of the past week is easier to spot.

NYSE ADL Chart


Seasonality

Next week includes the 4 trading days prior to Christmas during the 3rd 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 2014 while SPX data runs from 1953 to 2014 There are summaries for both the 3rd year of the Presidential Cycle and all years combined. Prior to 1953 the market traded 6 days a week so that data has been ignored.

Average returns for the coming week have been strong by all measures and stronger during the 3rd year of the Presidential Cycle than other periods.

The OTC has not had a down year during this period since 1967 and the SPX has not had a down year since 1979.

Report for the 4 days before Christmas.
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
  Day4 Day3 Day2 Day1 Totals
1963-3 0.09% 4 -0.37% 5 -0.14% 1 -0.46% 2 -0.88%
1967-3 -0.49% 2 -0.35% 3 -0.65% 4 -0.25% 5 -1.74%
1971-3 0.89% 1 0.21% 2 0.21% 3 -0.03% 4 1.28%
 
1975-3 -0.20% 5 -0.43% 1 0.38% 2 0.65% 3 0.40%
1979-3 -0.05% 3 0.41% 4 -0.07% 5 -0.13% 1 0.17%
1983-3 -0.39% 2 0.41% 3 0.21% 4 0.12% 5 0.35%
1987-3 0.54% 1 -0.42% 2 1.28% 3 0.52% 4 1.91%
1991-3 -0.98% 4 0.23% 5 1.52% 1 1.04% 2 1.81%
Avg -0.22% 0.04% 0.66% 0.44% 0.93%
 
1995-3 2.37% 2 -0.11% 3 1.49% 4 0.61% 5 4.36%
1999-3 0.82% 1 3.36% 2 0.67% 3 0.82% 4 5.67%
2003-3 -0.26% 5 0.25% 1 0.97% 2 -0.28% 3 0.67%
2007-3 0.19% 3 1.53% 4 1.94% 5 0.80% 1 4.46%
2011-3 3.19% 2 -0.99% 3 0.83% 4 0.74% 5 3.78%
Avg 1.26% 0.81% 1.18% 0.54% 3.79%
 
OTC summary for Presidential Year 3 1963 - 2011
Averages 0.44% 0.29% 0.66% 0.32% 1.71%
%Winners 54% 54% 77% 62% 85%
MDD 12/22/1967 1.73% -- 12/21/2011 .99% -- 12/19/1991 .98%
 
OTC summary for all years 1963 - 2014
Averages 0.09% -0.05% 0.26% 0.30% 0.60%
%Winners 49% 58% 65% 65% 65%
 
SPX Presidential Year 3
  Day4 Day3 Day2 Day1 Totals
1955-3 -0.16% 2 0.87% 3 0.15% 4 0.20% 5 1.06%
1959-3 0.17% 1 -0.17% 2 -0.30% 3 0.07% 4 -0.24%
1963-3 -0.31% 4 -0.16% 5 -0.63% 1 0.22% 2 -0.89%
1967-3 -0.15% 2 0.55% 3 0.24% 4 -0.19% 5 0.45%
1971-3 1.29% 1 0.25% 2 -0.61% 3 -0.43% 4 0.49%
Avg 0.17% 0.27% -0.23% -0.03% 0.18%
 
1975-3 -0.70% 5 -0.74% 1 0.67% 2 0.82% 3 0.04%
1979-3 -0.09% 3 0.06% 4 -0.62% 5 0.07% 1 -0.59%
1983-3 -0.20% 2 0.96% 3 -0.18% 4 -0.03% 5 0.56%
1987-3 0.15% 1 0.16% 2 1.28% 3 -0.45% 4 1.15%
1991-3 -0.25% 4 1.18% 5 2.53% 1 0.63% 2 4.09%
Avg -0.22% 0.32% 0.74% 0.21% 1.05%
 
1995-3 0.84% 2 -0.98% 3 0.75% 4 0.24% 5 0.85%
1999-3 -0.21% 1 1.09% 2 0.17% 3 1.56% 4 2.61%
2003-3 -0.05% 5 0.39% 1 0.28% 2 -0.18% 3 0.45%
2007-3 -0.14% 3 0.49% 4 1.67% 5 0.81% 1 2.83%
2011-3 2.98% 2 0.19% 3 0.83% 4 0.90% 5 4.91%
Avg 0.69% 0.24% 0.74% 0.67% 2.33%
 
SPX summary for Presidential Year 3 1955 - 2011
Averages 0.21% 0.28% 0.42% 0.28% 1.19%
%Winners 33% 73% 67% 67% 80%
MDD 12/22/1975 1.44% -- 12/23/1963 1.10% -- 12/23/1971 1.04%
 
SPX summary for all years 1952 - 2014
Averages 0.08% 0.09% -0.01% 0.27% 0.43%
%Winners 44% 59% 50% 68% 63%


Money supply (M2)

The money supply chart was provided by Gordon Harms. Money supply continued its collapse along with the equity market.

M2 Money Supply and SPX Charts


Conclusion

The market is oversold giving us a perfect setup for the seasonally strong period that runs to the end of the year.

I expect the major averages to be higher on Thursday December 24 than they were on Friday December 18.

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Good Luck,

YTD W 20 / L 16 / T 14

 


 

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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