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Technical Market Report for December 17, 2016

The good news is:
• We are entering one of the seasonally strongest periods of the year.


The Negatives

New lows picked up last week approaching threatening levels most of the week.


The Positives

Seasonality takes over next week. For the last 2 weeks of the year the market usually drifts upward on low volume.

The first chart covers the past 6 months showing the NASDAQ composite (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 fell last week, but finished the week at a very strong 78%.

OTC and OTC HL Ratio

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

NY HL Ratio fell sharply finishing the week at 69%. Pretty strong.

SPX and NY HL Ratio


Seasonality

Next week includes the 5 trading days before Christmas 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 late1953 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. A particularly bad year in 2008 lowered the 4th year averages.

Report for the 5 trading 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 4
  Day5 Day4 Day3 Day2 Day1 Totals
1964-4 0.11% 5 0.32% 1 0.09% 2 0.39% 3 0.59% 4 1.51%
1968-4 0.42% 2 -0.29% 4 -0.08% 5 0.09% 1 -0.31% 2 -0.16%
1972-4 -0.74% 1 -0.11% 2 -0.35% 3 -0.64% 4 0.15% 5 -1.69%
 
1976-4 -0.31% 5 -0.18% 1 0.22% 2 0.53% 3 0.04% 4 0.31%
1980-4 1.54% 4 0.46% 5 0.95% 1 0.04% 2 0.14% 3 3.12%
1984-4 2.09% 2 0.59% 3 -0.16% 4 -0.09% 5 0.63% 1 3.07%
1988-4 0.16% 1 -0.09% 2 -0.12% 3 0.24% 4 0.22% 5 0.41%
1992-4 0.43% 5 0.18% 1 -0.24% 2 0.32% 3 0.44% 4 1.12%
Avg 0.78% 0.19% 0.13% 0.21% 0.30% 1.61%
 
1996-4 1.50% 3 0.82% 4 -0.56% 5 -0.71% 1 0.63% 2 1.69%
2000-4 -1.09% 1 -4.30% 2 -7.12% 3 0.31% 4 7.56% 5 -4.63%
2004-4 -0.51% 5 -0.34% 1 1.08% 2 0.28% 3 0.17% 4 0.68%
2008-4 -1.71% 4 0.77% 5 -2.04% 1 -0.71% 2 0.22% 3 -3.46%
2012-4 1.46% 2 -0.33% 3 0.20% 4 -0.96% 5 -0.28% 1 0.08%
Avg -0.07% -0.68% -1.69% -0.36% 1.66% -1.13%
 
OTC summary for Presidential Year 4 1964 - 2012
Averages 0.26% -0.19% -0.63% -0.07% 0.79% 0.16%
% Winners 62% 46% 38% 62% 85% 69%
MDD 12/20/2000 12.08% -- 12/23/2008 3.66% -- 12/21/1972 1.83%
 
OTC summary for all years 1963 - 2015
Averages 0.11% 0.10% -0.04% 0.27% 0.30% 0.75%
% Winners 57% 50% 58% 66% 66% 62%
 
SPX Presidential Year 4
  Day5 Day4 Day3 Day2 Day1 Totals
1952-4 -0.04% 4 0.46% 5 0.57% 1 -0.42% 2 0.08% 3 0.65%
 
1956-4 0.00% 1 0.00% 2 -0.24% 3 -0.78% 4 0.65% 5 -0.36%
1960-4 -0.12% 1 -0.07% 2 0.81% 3 -0.28% 4 0.09% 5 0.42%
1964-4 0.46% 5 0.11% 1 -0.06% 2 -0.21% 3 0.00% 4 0.30%
1968-4 -0.41% 2 0.29% 4 -0.59% 5 -1.06% 1 -0.16% 2 -1.93%
1972-4 -1.15% 1 -0.48% 2 -0.34% 3 -0.72% 4 0.63% 5 -2.06%
Avg -0.24% -0.03% -0.08% -0.61% 0.24% -0.73%
 
1976-4 -0.52% 5 -0.59% 1 0.55% 2 0.47% 3 0.12% 4 0.04%
1980-4 0.08% 4 0.53% 5 1.56% 1 -0.35% 2 0.43% 3 2.24%
1984-4 2.83% 2 -0.57% 3 -0.47% 4 -0.52% 5 0.76% 1 2.03%
1988-4 0.95% 1 -0.52% 2 -0.03% 3 -0.18% 4 0.36% 5 0.58%
1992-4 1.34% 5 -0.13% 1 -0.09% 2 -0.29% 3 0.17% 4 1.00%
Avg 0.94% -0.25% 0.30% -0.18% 0.37% 1.18%
 
1996-4 0.76% 3 1.94% 4 0.42% 5 -0.26% 1 0.55% 2 3.41%
2000-4 0.81% 1 -1.30% 2 -3.13% 3 0.80% 4 2.44% 5 -0.38%
2004-4 -0.75% 5 0.04% 1 0.90% 2 0.34% 3 0.05% 4 0.58%
2008-4 -2.12% 4 0.29% 5 -1.83% 1 -0.97% 2 0.58% 3 -4.05%
2012-4 1.15% 2 -0.76% 3 0.55% 4 -0.94% 5 -0.24% 1 -0.24%
Avg -0.03% 0.04% -0.62% -0.21% 0.67% -0.14%
 
SPX summary for Presidential Year 4 1952 - 2012
Averages 0.21% -0.05% -0.09% -0.34% 0.41% 0.14%
% Winners 50% 44% 44% 19% 81% 63%
MDD 12/23/2008 4.56% -- 12/20/2000 4.38% -- 12/21/1972 2.66%
 
SPX summary for all years 1952 - 2015
Averages 0.15% 0.09% 0.10% 0.01% 0.26% 0.61%
% Winners 53% 44% 59% 51% 67% 69%


Money supply (M2) and Interest Rates

The following charts were supplied by Gordon Harms. M2 growth has leveled off in the past month.

S&P500 and M2

Interest rates are on a moon shot while the yield curve fell a little.

Yield Curve


Conclusion

Seasonality is really the only story. For the next 2 weeks the market should drift upward on low volume.

I expect the major averages to be higher on Friday December 23 than they were on Friday December 16.

Last week the DJIA was up a little while the other 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 21 / T 11

 

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