Technical Market Report for January 9, 2016

By: Mike Burk | Sat, Jan 9, 2016
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The good news is:
• At the rate of decline for the year so far, the end must be near.


The negatives

The major indices were down 6% - 8% last week. There is not much more I can say.

The chart below covers the past 6 months showing the S&P 500 (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.

Heading for the bottom in a hurry.

SPX and NY HL Ratio

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

Similar pattern, but with a clear sequence of lower highs and lower lows.

OTC and OTC HL Ratio


The positives

By the time this is over all of the weak hands will have been shaken out.

Nothing suggests we have reached that point.


Seasonality

Next Friday is the 3rd Friday of the month, but since the 1st Friday was a holiday, I am showing the report which includes the 5 trading days prior to the 2nd Friday of January during the 4th 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 4th 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 positive by all measures.

Report for the week before the 2nd Friday of January.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday to 2nd Friday.

OTC Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1964-4 0.14% 0.41% 0.38% 0.19% 0.14% 1.26%
1968-4 0.80% -0.06% -0.20% 0.29% 0.38% 1.22%
1972-4 0.04% 0.47% 0.22% -0.41% 0.27% 0.60%
1976-4 0.90% 1.92% 0.90% 0.81% 0.81% 5.33%
 
1980-4 0.41% 1.39% 0.61% 1.00% 0.49% 3.89%
1984-4 -0.22% 0.13% 0.02% -0.02% -0.27% -0.36%
1988-4 -0.67% -1.26% 0.21% 0.47% 1.77% 0.52%
1992-4 0.89% 0.73% 1.33% 1.55% -0.66% 3.85%
1996-4 -0.11% -3.25% -0.86% 2.13% -0.31% -2.40%
Avg 0.06% -0.45% 0.26% 1.03% 0.20% 1.10%
 
2000-4 4.30% -3.17% -1.82% 2.78% 2.71% 4.81%
2004-4 2.03% 0.49% 0.99% 1.09% -0.63% 3.95%
2008-4 -0.21% -2.36% 1.39% 0.56% -1.95% -2.56%
2012-4 0.09% 0.97% 0.31% 0.51% -0.51% 1.36%
Avg 1.55% -1.02% 0.22% 1.24% -0.10% 1.89%
 
OTC summary for Presidential Year 4 1964 - 2012
Avg 0.64% -0.28% 0.27% 0.84% 0.17% 1.65%
Win% 69% 62% 77% 85% 54% 77%
 
OTC summary for all years 1963 - 2015
Avg 0.32% -0.10% -0.01% 0.50% 0.18% 0.89%
Win% 64% 53% 53% 74% 68% 64%
 
SPX Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1956-4 -1.40% -0.79% 0.50% 0.83% -0.18% -1.03%
 
1960-4 -1.23% -0.61% -0.56% 0.55% -0.03% -1.89%
1964-4 0.23% 0.03% 0.41% 0.37% -0.05% 0.98%
1968-4 0.71% -0.12% 0.02% 0.10% 0.10% 0.81%
1972-4 -0.14% 0.32% -0.06% -0.58% 0.39% -0.07%
1976-4 1.85% 1.03% 0.45% 0.67% 0.39% 4.39%
Avg 0.28% 0.13% 0.05% 0.22% 0.16% 0.84%
 
1980-4 0.27% 2.00% 0.09% 0.77% 0.03% 3.17%
1984-4 -0.22% -0.56% -0.10% -0.02% -0.44% -1.34%
1988-4 1.68% -0.84% 0.16% 0.03% 2.51% 3.54%
1992-4 -0.33% -0.13% 0.17% -0.12% -0.60% -1.01%
1996-4 0.28% -1.46% -1.80% 0.70% -0.15% -2.42%
Avg 0.34% -0.20% -0.30% 0.27% 0.27% 0.39%
 
2000-4 1.12% -1.30% -0.44% 1.21% 1.07% 1.66%
2004-4 1.24% 0.13% 0.24% 0.50% -0.89% 1.21%
2008-4 0.32% -1.84% 1.36% 0.79% -1.36% -0.72%
2012-4 0.23% 0.89% 0.03% 0.23% -0.49% 0.88%
Avg 0.73% -0.53% 0.30% 0.68% -0.42% 0.76%
 
SPX summary for Presidential Year 4 1956 - 2012
Avg 0.31% -0.22% 0.03% 0.40% 0.02% 0.54%
Win% 67% 40% 67% 80% 40% 53%
 
SPX summary for all years 1953 - 2015
Avg 0.08% -0.18% -0.21% 0.28% 0.03% 0.00%
Win% 56% 40% 44% 73% 52% 52%


Money supply (M2) & Yield curve

The charts were provided by Gordon Harms. Money supply growth stabilized to increase.

S&P500 and M2 Money Supply

The next chart shows the yields of 2yr – 30yr Treasuries over the past 25+ years. An inverted yield curve has always been a reliable indicator of an impending recession. There is no suggestion of that in the chart below, on the other hand, interest rates have never been this low or subjected to this much blatant manipulation.

Yield Curve


Presidential Year 4 (PY4)

Since 1963, over all years, the OTC has been up 73% of the time with an average annual gain of 13.3%. In the 4th year of the Presidential Cycle the OTC has been up 77% time with an average annual gain of 8.3% making it the 3rd best year of the 4 year cycle. The best ever 4th year for the OTC was 1980 (+33.7%), the worst 2008 (-40.5%).

The chart below has been calculated by averaging the daily percentage change of the OTC in a pattern similar to what I use to calculate the monthly charts. The monthly charts are then strung together to make an average year. Dashed vertical lines have been drawn on the 1st trading day of each month.

In the chart below the blue line shows the average of the OTC over all years since 1963 while the black line shows the average during the 4th year of the Presidential Cycle over the same period.

OTC Presidential Cycle Year 4 1963-2016

Since 1928, over all years, the SPX has been up 67% of the time with an average annual gain of 7.5%. In the 4th year of the Presidential Cycle the SPX has been up 73% time with an average gain of 7.0% making it the 2nd best year of the 4 year cycle. The best ever 4th year for the SPX was 1928 (+37.5%), the worst 2008 (-38.5%).

The chart below is similar to the one above except it shows the daily average performance over all years for the SPX in red and the performance for the 4th year of the Presidential Cycle in black.

S&P500 Presidential Cycle Year 4 1928-2016

Since 1979, over all years, the Russell 2000 (R2K) has been up 69% of the time with an average annual gain of 11.3%. In the 4th year of the Presidential Cycle the R2K has been up 67% time with an average gain of 7.8% making it the 3rd best year of the 4 year cycle. The best ever 4th year for the R2K was 1980 (+33.8%), the worst 2008 (-34.8%).

The chart below is similar to those above except it shows the daily performance over all years of the R2K in magenta and the performance during the 4th year of the Presidential Cycle in black.

Russell 2000 Presidential Cycle Year 4 1979-2016

Since 1885, over all years, the Dow Jones Industrial Average (DJIA) has been up 65% of the time with an average annual gain of 7.1%. In the 4th year of the Presidential Cycle the DJIA has been up 69% time with an average gain of 6.9% making it the 2nd best year of the 4 year cycle. The best ever 4th year for the DJIA was 1928 (+48.2%), the worst 2008 (-33.8%).

The chart below is similar to those above except it shows the daily performance over all years of the DJIA in January in Magenta and the performance during the 4th year of the Presidential Cycle in black.

DJIA Presidential Cycle Year 4 1885-2016


Conclusion

The market is in free fall. There could be a spectacular bounce at any time, but, there has been no sign of a bottom.

I expect the major averages to be lower on Friday January 15 than they were on Friday January 8.

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Good Luck,

YTD W 1 / L 0 / T 0

 


 

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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