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Technical Market Report for December 3, 2016

The good news is:
• The Dow Jones Industrial Average (DJIA) hit an all time high last week.


The Negatives

The DJIA hit an all time high Thursday that was unconfirmed by all of the more broadly based indices and the AD lines. Also another Hindenburg Omen was triggered Thursday. These are all precursors to cyclic market tops, however they are not predictive.

Advance Decline lines (ADL) are running totals of declining issues subtracted from advancing issues. There properties vary and change. About 50% of the issues traded on the NYSE are fixed income related. If interest rates are stable, fixed income issues gain in value daily until the dividend is paid and on that day they drop in value by the amount of the dividend. AD lines of fixed income issues have a wildly positive bias.

The first chart covers the past 6 months showing the S&P 500 (SPX) in red and the NYSE ADL in blue. Dashed vertical lines have been drawn on the 1st trading day of each month.

The NYSE ADL hit an all time high in September then failed to confirm the all time high for the SPX a week ago.

SPX and NY ADL

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

The pattern is similar to the chart above. The high in September was confirmed while the recent index high, a week ago, was not confirmed.

OTC and OTC ADL

The next chart covers the past 6 months showing the SPX in red and a 10% trend (19 day EMA) of NYSE new highs (NY NH).

The peak in NY NH occurred in July and it failed to confirm the recent SPX high. The turmoil in fixed income issues is probably responsible.

SPX and NY NH

The next chart is similar to the one above except is shows the OTC in blue and OTC NH has been calculated with NASDAQ data.

OTC NH hit a multi year high a few days ago. This is a positive.

OTC and OTC NH


The Positives

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 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.

OTC HL Ratio declined to 75%.

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 fell to 68%.

SPX and NY HL Ratio

Both OTC HL Ratio and NYSE HL Ratio declined last week, however new highs outnumbered new lows every day.


Seasonality

Next week includes the 5 trading days prior to the 2nd Friday of December 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 2015 while SPX data runs from 1953 to 2015. 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 modest, but a little stronger during the 4th year of the Presidential Cycle than other years.

Report for the week before the 2nd Friday of December.
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 0.09% -0.23% -0.23% -0.34% 0.16% -0.55%
1968-4 -0.24% 0.11% 0.00% -0.04% -0.13% -0.30%
1972-4 0.15% 0.10% 0.30% 0.28% 0.07% 0.90%
 
1976-4 0.35% 0.41% 0.39% 0.78% 0.55% 2.48%
1980-4 -3.52% -0.41% -0.76% -2.50% 1.31% -5.88%
1984-4 -0.18% 0.12% -0.05% -0.25% 0.40% 0.04%
1988-4 0.40% 0.42% -0.17% -0.30% -0.01% 0.35%
1992-4 0.75% 0.09% -0.48% -0.75% -0.48% -0.87%
Avg -0.44% 0.13% -0.22% -0.60% 0.36% -0.78%
 
1996-4 2.22% -0.28% -0.27% -0.82% -1.03% -0.18%
2000-4 -1.12% 10.47% -3.23% -1.57% 5.98% 10.55%
2004-4 0.15% -1.70% 0.54% 0.14% -0.04% -0.91%
2008-4 4.14% -1.55% 1.17% -3.68% 2.18% 2.25%
2012-4 0.30% 1.18% -0.28% -0.72% -0.70% -0.21%
Avg 1.14% 1.62% -0.41% -1.33% 1.28% 2.30%
 
OTC summary for Presidential Year 4 1964 - 2012
Avg 0.27% 0.67% -0.26% -0.75% 0.64% 0.59%
Win% 69% 62% 33% 23% 54% 46%
 
OTC summary for all years 1963 - 2015
Avg 0.13% 0.05% -0.07% -0.35% 0.18% -0.06%
Win% 60% 49% 50% 47% 55% 49%
 
SPX Presidential Year 4
Year Mon Tue Wed Thur Fri Totals
1956-4 -0.51% -0.68% -0.75% 0.80% 0.09% -1.06%
1960-4 -0.14% 0.29% 0.99% 0.23% 0.89% 2.26%
1964-4 -0.02% -0.39% -0.64% -0.01% 0.25% -0.82%
1968-4 -0.25% -0.25% 0.00% -0.07% 0.24% -0.32%
1972-4 0.33% -0.16% 0.37% 0.50% 0.22% 1.26%
Avg -0.12% -0.24% -0.01% 0.29% 0.34% 0.26%
 
1976-4 0.78% -0.07% 0.57% 0.41% 0.18% 1.88%
1980-4 -2.55% -0.10% -1.70% -0.70% 1.47% -3.59%
1984-4 0.07% 0.42% -0.27% -0.50% 0.54% 0.27%
1988-4 1.15% 0.97% 0.19% -0.56% 0.17% 1.92%
1992-4 0.75% 0.39% -0.31% -0.23% -0.21% 0.39%
Avg 0.04% 0.32% -0.30% -0.32% 0.43% 0.17%
 
1996-4 1.37% -0.30% -0.91% -1.54% -0.09% -1.47%
2000-4 0.74% 3.89% -1.82% -0.59% 1.96% 4.19%
2004-4 -0.08% -1.11% 0.49% 0.54% -0.10% -0.26%
2008-4 3.84% -2.31% 1.19% -2.85% 0.70% 0.57%
2012-4 0.03% 0.65% 0.04% -0.63% -0.41% -0.31%
Avg 1.18% 0.17% -0.20% -1.01% 0.41% 0.54%
 
SPX summary for Presidential Year 4 1956 - 2012
Avg 0.37% 0.08% -0.18% -0.35% 0.39% 0.33%
Win% 60% 40% 50% 33% 73% 53%
 
SPX summary for all years 1953 - 2015
Avg 0.16% -0.01% -0.02% -0.29% 0.16% 0.00%
Win% 57% 45% 52% 41% 63% 52%


Conclusion

A rapid rise of the major indices to new highs unconfirmed by the breadth indicators has been a frequent occurrence at a cyclic market tops. The problem with that scenario is, until a week ago, the secondaries led the charge upward. Seasonal weakness for the next 2 weeks should give the market a chance to consolidate.

I expect the major averages to be lower on Friday December 9 than they were on Friday December 2.

Last week the DJIA was up while the rest of the major indices were down so I am calling last weeks positive forecast a tie.

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

Good Luck,

YTD W 18 / L 20 / T 10

 

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