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Technical Market Report for December 21, 2013

The good news is:
• The NASDAQ composite (OTC) closed at a multi year high on Friday while all of the other major indices closed at all time highs.


The negatives

None of the breadth indicators confirmed Friday's highs.

The chart below covers the past 6 months showing the 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 turned up last week, but is closer to its low of the past 6 months than its high.

OTC versus OTC NH Chart

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

NY NH is also closer to its low of the past 6 months than its high.

SPX versus NYSE NH Chart


The positives

Seasonality rules. The market rallied in spite of the Fed's tapering announcement last week. Seasonally the last half of December has a strong positive bias.

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 neutral 50% level.

OTC HL Ratio recovered to 83% on Friday.

There are trading systems that impose a No Sell Filter when variations of this indicator are above 80%.

OTC versus OTC HL Ratio Chart

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

NY HL Ratio rose sharply, from negative territory, finishing the week at 70%.

SPX versus NYSE HL Ratio Chart


Seasonality

Next week includes the 5 trading days prior to the 4th Friday of December during the 1st year of the Presidential Cycle.

The tables show the daily percentage return for the 5 trading days prior to the 4th Friday of December during the 1st year of the Presidential Cycle.

OTC data covers the period from 1963 - 2012 while SPX data runs from 1953 - 2012. There are summaries for both the 1st 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.

When Christmas falls on a Friday there is no 4th Friday trading day which explains the weeks full of 0's. Aside from that, the period from now until the end of the year is characterized by modest gains on very low volume.

Report for the week before the 4th Friday of December.
The number following the year is the position in the Presidential Cycle.
Daily returns from Monday through the 4th Friday.

OTC Presidential Year 1
Year Mon Tue Wed Thur Fri Totals
1965-1 -1.05% -0.75% -0.63% 0.35% 0.09% -1.98%
1969-1 0.33% 0.03% -0.42% 0.00% 0.51% 0.45%
 
1973-1 -0.95% 0.00% 1.71% 1.18% 0.47% 2.41%
1977-1 -0.72% -0.77% 0.52% 0.37% 0.51% -0.10%
1981-1 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
1985-1 -0.48% -0.38% 0.00% -0.02% 0.77% -0.11%
1989-1 -1.76% -0.39% 0.60% 0.95% 0.79% 0.19%
Avg -0.98% -0.51% 0.94% 0.62% 0.64% 0.60%
 
1993-1 0.31% 0.46% 0.36% 0.49% 0.74% 2.36%
1997-1 0.49% -1.45% -0.69% 0.00% 0.79% -0.86%
2001-1 -0.07% 0.00% 0.83% 0.80% 0.55% 2.12%
2005-1 -1.32% -0.01% 0.42% 0.66% 0.13% -0.12%
2009-1 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Avg -0.15% -0.33% 0.23% 0.65% 0.55% 0.87%
 
OTC summary for Presidential Year 1 1965 - 2009
Avg -0.52% -0.41% 0.30% 0.60% 0.54% 0.44%
Win% 30% 25% 67% 88% 100% 50%
 
OTC summary for all years 1963 - 2012
Avg -0.33% -0.03% -0.01% 0.24% 0.47% 0.30%
Win% 37% 42% 61% 64% 77% 58%
 
SPX Presidential Year 1
Year Mon Tue Wed Thur Fri Totals
1953-1 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
1957-1 0.00% 0.10% 0.00% 1.01% -0.35% 0.76%
1961-1 -0.35% -0.70% -0.20% -0.37% 0.07% -1.54%
1965-1 -0.73% 0.01% 0.31% 0.42% 0.25% 0.26%
1969-1 -0.88% -0.39% 1.05% 0.00% 0.78% 0.57%
Avg -0.65% -0.24% 0.39% 0.36% 0.19% 0.02%
 
1973-1 -0.68% 0.00% 3.06% 2.09% -0.20% 4.26%
1977-1 -0.76% -0.20% 0.59% 0.81% 0.95% 1.38%
1981-1 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
1985-1 -1.12% -0.69% 0.00% 0.25% 0.94% -0.62%
1989-1 -1.84% -0.36% 0.11% 0.57% 0.77% -0.76%
Avg -1.10% -0.42% 1.25% 0.93% 0.61% 1.07%
 
1993-1 0.68% 0.09% -0.08% -0.41% -0.47% -0.19%
1997-1 0.73% -1.53% -0.68% 0.00% 0.40% -1.08%
2001-1 -0.02% 0.00% 0.41% 0.68% 0.34% 1.40%
2005-1 0.00% -0.61% 0.25% 0.42% 0.04% 0.11%
2009-1 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Avg 0.46% -0.68% -0.02% 0.23% 0.08% 0.06%
 
SPX summary for Presidential Year 1 1953 - 2009
Avg -0.50% -0.43% 0.48% 0.55% 0.29% 0.38%
Win% 20% 30% 70% 80% 75% 58%
 
SPX summary for all years 1953 - 2012
Avg -0.21% 0.01% 0.21% 0.16% 0.23% 0.35%
Win% 32% 46% 69% 60% 74% 66%


Money Supply (M2)

The money supply chart was provided by Gordon Harms. Money supply followed the trend line last week.

M2 Money Supply versus SPX Chart


Conclusion

Seasonal factors are dominant. The rest of the year should see modest gains on low volume.

I expect the major averages to be higher on Friday December 27 than they were on Friday December 20.

This report is free to anyone who wants it, so please tell your friends. They can sign up at: http://www.alphaim.net/signup.html. If it is not for you, reply with REMOVE in the subject line.

Good Luck,

YTD W 24/L 14/T 13

 

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