Technical Market Report for December 31, 2016

By: Mike Burk | Sat, Dec 31, 2016
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The good news is:
• Seasonally in January during the 1st year of the Presidential Cycle, has, on average, been pretty strong.


The Negatives

It is a little troublesome that the last half of December, which is usually pretty strong, was a bust.

New highs collapsed, while, fortunately, new lows remained at non threatening levels.

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 has been falling since early mid December.

OTC and OTC NH

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 with NYSE data.

The pattern is similar to the NASDAQ chart.

SPX and NY NH


The Positives

While new highs have been collapsing, new lows have remained at benign levels.

The next chart 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 horizontal lines have been drawn at 10% levels for the indicator; the line is solid at the 50%, neutral, level.

OTC HL Ratio fell again last week, but the number of new highs was greater than the number of new lows every day last week.

OTC and OTC HL Ratio

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

NY HL Ratio declined a little, but finished the week at a strong 78%.

SPX and NY HL Ratio


Seasonality

Next week includes the first 4 trading days of the 1st 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 2015 while SPX data runs from 1928 to 2015. There are summaries for both the 4th 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 4 trading days of January.
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.

Day1
OTC Presidential Year 1
  Day1 Day2 Day3 Day4 Totals
1965-1 0.52% 1 -0.14% 2 0.25% 3 0.57% 4 1.20%
1969-1 0.09% 4 0.25% 5 0.21% 1 -1.10% 2 -0.55%
1973-1 0.00% 2 0.67% 3 0.56% 4 0.04% 5 1.27%
 
1977-1 -0.19% 1 -0.48% 2 -0.34% 3 0.41% 4 -0.60%
1981-1 0.77% 5 0.30% 1 -0.05% 2 -3.29% 3 -2.27%
1985-1 -0.58% 3 0.20% 4 -0.09% 5 -0.06% 1 -0.53%
1989-1 -0.48% 2 0.84% 3 0.27% 4 0.25% 5 0.88%
1993-1 -0.76% 1 0.38% 2 1.11% 3 -0.53% 4 0.20%
Avg -0.25% 0.25% 0.18% -0.65% -0.46%
 
1997-1 -0.80% 4 2.34% 5 0.43% 1 0.86% 2 2.84%
2001-1 -7.23% 2 14.17% 3 -1.91% 4 -6.20% 5 -1.16%
2005-1 -1.07% 1 -2.06% 2 -0.79% 3 -0.06% 4 -3.98%
2009-1 3.50% 5 -0.26% 1 1.50% 2 -3.23% 3 1.51%
2013-1 3.07% 3 -0.38% 4 0.04% 5 -0.09% 1 2.64%
Avg -0.51% 2.76% -0.15% -1.74% 0.37%
 
OTC summary for Presidential Year 1 1965 - 2013
Averages -0.24% 1.22% 0.09% -0.96% 0.11%
% Winners 38% 62% 62% 38% 54%
MDD 1/5/2001 7.99% -- 1/6/2005 3.93% -- 1/7/1981 3.34%
 
OTC summary for all years 1963 - 2016
Averages 0.21% 0.50% 0.21% -0.11% 0.80%
% Winners 58% 62% 60% 62% 64%
MDD 1/6/2000 9.78% -- 1/5/2001 7.99% -- 1/7/2016 6.35%
 
SPX Presidential Year 1
  Day2 Day3 Day4 Totals
1929-1 1.89% 3 0.20% 4 -0.04% 5 -1.13% 6 0.92%
1933-1 -0.87% 2 4.69% 3 -0.42% 4 1.54% 5 4.94%
 
1937-1 -0.93% 6 -0.53% 1 0.89% 2 0.06% 3 -0.52%
1941-1 -0.95% 4 2.29% 5 0.00% 6 0.19% 1 1.53%
1945-1 0.38% 2 1.05% 3 0.15% 4 -0.22% 5 1.35%
1949-1 -1.64% 1 0.54% 2 0.86% 3 2.24% 4 2.00%
1953-1 -0.11% 5 0.45% 1 -0.68% 2 -0.42% 3 -0.75%
Avg -0.65% 0.76% 0.24% 0.37% 0.72%
 
1957-1 -1.01% 3 0.87% 4 0.13% 5 -0.51% 1 -0.53%
1961-1 -0.93% 2 1.37% 3 0.36% 4 -0.15% 5 0.65%
1965-1 -0.61% 1 0.47% 2 0.31% 3 0.44% 4 0.60%
1969-1 0.07% 4 0.06% 5 -1.46% 1 -1.22% 2 -2.56%
1973-1 0.89% 2 0.39% 3 -0.14% 4 0.39% 5 1.54%
Avg -0.32% 0.63% -0.16% -0.21% -0.06%
 
1977-1 -0.43% 1 -1.21% 2 -0.89% 3 0.25% 4 -2.28%
1981-1 0.43% 5 1.20% 1 0.11% 2 -2.20% 3 -0.47%
1985-1 -1.12% 3 -0.48% 4 -0.54% 5 0.34% 1 -1.80%
1989-1 -0.87% 2 1.50% 3 0.21% 4 0.24% 5 1.07%
1993-1 -0.08% 1 -0.24% 2 0.04% 3 -0.87% 4 -1.15%
Avg -0.41% 0.15% -0.21% -0.45% -0.93%
 
1997-1 -0.50% 4 1.49% 5 -0.05% 1 0.75% 2 1.69%
2001-1 -2.80% 2 5.01% 3 -1.06% 4 -2.62% 5 -1.47%
2005-1 -0.81% 1 -1.17% 2 -0.36% 3 0.35% 4 -1.99%
2009-1 3.16% 5 -0.47% 1 0.78% 2 -3.00% 3 0.47%
2013-1 2.54% 3 -0.21% 4 0.49% 5 -0.31% 1 2.51%
Avg 0.32% 0.93% -0.04% -0.97% 0.24%
 
SPX summary for Presidential Year 1 1929 - 2013
Averages -0.20% 0.78% -0.06% -0.27% 0.26%
% Winners 32% 68% 50% 50% 55%
MDD 1/5/2001 3.65% -- 1/7/2009 3.00% -- 1/7/1969 2.66%
 
SPX summary for all years 1928 - 2016
Averages 0.09% 0.46% -0.01% 0.07% 0.60%
% Winners 47% 72% 49% 54% 61%
MDD 1/5/1932 7.02% -- 1/7/2016 4.93% -- 1/4/2000 4.76%MDD


January

Since 1963, over all years, the OTC in January has been up 62% of the time with an average gain of 2.5%, the highest average of any month of the year. During the 1st year of the Presidential Cycle January has been up 54% time with an average gain of 2.3% (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.

OTC January, All, Year 1 1963-2016

Since 1928 the SPX has been up 63% of the time in January with an average gain of 1.1%. During the 1st year of the Presidential Cycle the SPX has been up 59% of the time with an average gain of 0.8%. 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.

SPX January, All, Year 1 1928-2016

Since 1979 the Russell 2000 (R2K) has been up 53% of the time in January with an average gain of 1.3%. During the 1st year of the Presidential Cycle the R2K has been up 67% of the time with an average gain of 2.0%. 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 4th year of the Presidential Cycle in green.

Russell 2000 January, All, Year 1 1979-2016

Since 1885 the Dow Jones Industrial Average (DJIA) has been up 63% of the time in January with an average gain of 0.8%. During the 1st year of the Presidential Cycle the DJIA has been up 66% of the time in January with an average gain of 0.7%. 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 grey and the performance during the 4th year of the Presidential Cycle in green.

Dow Jones Indstrial Average January, All, Year 1 1885-2016


Conclusion

The market drifting downward for the last half of December is a little troublesome. Three weeks of deteriorating new highs and two weeks of deteriorating prices have the market a little oversold. Seasonality for the coming week is ok.

I expect the major averages to be higher on Friday January 6 than they were on Friday December 30.

Last weeks positive forecast was a miss.

These reports are archived at: http://www.safehaven.com/

Without looking it up, I think 2016 was the first year, since I began writing these reports in 2004 that losses out numbered wins in my weekly forecasts.

In scoring the forecasts I consider 4 averages the DJIA, SPX, OTC and R2K. If all 4 went in the direction of the forecast I consider it a win, if they all went in the other direction, a loss and if they did not all go in the same direction it is a tie. The score will start over at: YTD W 0 / L 0 / T 0.

Good Luck,

YTD W 19 / L 22 / T 11

 


 

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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