The good news is:
• All of the major indices hit all time highs last week.
The Negatives
The market is overbought.
The new index highs were unconfirmed by most of the breadth indicators.
The first chart covers the past 6 months showing the S&P 500 (SPX) in red and a 10% trend (19 day EMA) of NYSE new highs (NY NH) in green. Dashed vertical lines have been drawn on the 1st trading day of each month.
The new high for the SPX was clearly unconfirmed by NY NH.
However, NY NH is moving upward so future index highs may be confirmed.
The next chart is similar to the one above except it shows the NASDAQ composite (OTC) in blue and OTC NH, in green, has been calculated using NASDAQ data.
The pattern is similar to the chart above.
The Positives
New 52 week new highs have been a little disappointing while new lows have all but disappeared.
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 shot up to 84%, very strong.
The next chart is similar to the one above one except it shows the SPX in red and NY HL Ratio, in blue, has been calculated with NYSE data.
The pattern of NY HL Ratio also finished the week at 84%.
When both OTC HL Ratio and NY HL Ratio are above 80% it is imprudent to sell.
Seasonality
Next week includes the last 4 trading days of November and the 1st trading day of December during 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 2016 while SPX data runs from 1928 to 2016. There are summaries for both the 1st year of the Presidential Cycle and all years combined.
Average returns for the coming week have been modestly positive by most measures and a little weaker during the 1st year of the Presidential Cycle than other years.
Report for the last 4 days of November and first day of December.
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 1
Day4 Day3 Day2 Day1 Day1 Totals
1965-1 -0.02% 3 0.47% 5 0.47% 1 0.11% 2 0.52% 3 1.55%
1969-1 -0.55% 1 -1.24% 2 0.05% 3 -0.11% 5 0.16% 1 -1.70%
1973-1 -3.26% 2 0.86% 3 -0.34% 4 -1.17% 5 -1.65% 1 -5.55%
1977-1 0.57% 5 -0.26% 1 -0.83% 2 -0.05% 3 0.51% 4 -0.05%
1981-1 0.52% 2 0.49% 3 0.50% 5 0.17% 1 -0.12% 2 1.57%
1985-1 -0.33% 1 0.24% 2 0.81% 3 0.30% 5 -0.32% 1 0.69%
1989-1 -0.10% 1 0.11% 2 -0.19% 3 0.06% 4 0.22% 5 0.10%
1993-1 0.85% 3 0.22% 5 -0.44% 1 0.38% 2 1.25% 3 2.26%
Avg 0.30% 0.16% -0.03% 0.17% 0.31% 0.92%
1997-1 -2.09% 1 0.13% 2 0.35% 3 0.38% 5 1.88% 1 0.65%
2001-1 -0.27% 2 -2.48% 3 2.40% 4 -0.14% 5 -1.33% 1 -1.82%
2005-1 0.13% 5 -1.04% 1 -0.30% 2 0.00% 3 1.54% 4 0.34%
2009-1 -0.31% 2 0.32% 3 -1.73% 5 0.29% 1 1.46% 2 0.02%
2013-1 0.07% 1 0.58% 2 0.67% 3 0.37% 5 -0.36% 1 1.34%
Avg -0.49% -0.50% 0.28% 0.18% 0.64% 0.10%
OTC summary for Presidential Year 1 1965 - 2013
Averages -0.37% -0.12% 0.11% 0.05% 0.29% -0.05%
% Winners 38% 69% 54% 69% 62% 69%
MDD 12/3/1973 5.48% -- 11/28/2001 2.74% -- 11/24/1997 2.09%
OTC summary for all years 1963 - 2016
Averages 0.24% 0.14% 0.37% -0.03% 0.15% 0.86%
% Winners 58% 67% 70% 63% 61% 76%
MDD 11/30/2000 10.55% -- 12/1/2008 8.95% -- 12/3/1973 5.48%
SPX Presidential Year 1
Day4 Day3 Day2 Day1 Day1 Totals
1929-1 -0.37% 5 -1.16% 1 -2.91% 2 1.26% 3 0.14% 1 -3.04%
1933-1 0.30% 6 -3.49% 1 0.10% 2 1.86% 3 0.30% 5 -0.92%
1937-1 4.92% 5 4.78% 6 -1.97% 1 1.37% 2 -1.26% 3 7.84%
1941-1 -0.86% 3 -0.65% 4 -0.98% 5 -0.22% 6 -0.33% 1 -3.03%
1945-1 1.24% 2 -0.52% 3 -0.18% 4 0.94% 5 0.58% 6 2.06%
1949-1 0.25% 6 -0.56% 1 -0.19% 2 0.25% 3 0.56% 4 0.31%
1953-1 0.57% 2 0.08% 3 0.57% 5 0.41% 1 0.08% 2 1.71%
Avg 1.22% 0.63% -0.55% 0.55% -0.07% 1.78%
1957-1 0.76% 1 -2.65% 2 2.89% 3 1.14% 5 -0.86% 1 1.28%
1961-1 0.01% 1 -0.14% 2 -0.07% 3 -0.53% 4 0.64% 5 -0.08%
1965-1 0.17% 3 0.10% 5 -0.25% 1 -0.21% 2 -0.12% 3 -0.30%
1969-1 -1.15% 1 -0.32% 2 0.36% 3 0.58% 5 -0.63% 1 -1.16%
1973-1 -0.91% 2 2.04% 3 -0.35% 4 -1.39% 5 -2.15% 1 -2.76%
Avg -0.22% -0.19% 0.52% -0.08% -0.62% -0.60%
1977-1 0.21% 5 -0.67% 1 -1.55% 2 0.30% 3 -0.15% 4 -1.87%
1981-1 1.57% 2 0.44% 3 0.84% 5 1.01% 1 -0.20% 2 3.66%
1985-1 -0.58% 1 0.16% 2 0.93% 3 -0.18% 5 -0.85% 1 -0.52%
1989-1 0.48% 1 0.05% 2 -0.63% 3 0.70% 4 1.34% 5 1.93%
1993-1 0.29% 3 0.15% 5 -0.25% 1 -0.02% 2 0.02% 3 0.19%
Avg 0.39% 0.02% -0.13% 0.36% 0.03% 0.68%
1997-1 -1.70% 1 0.44% 2 0.09% 3 0.40% 5 2.03% 1 1.24%
2001-1 -0.68% 2 -1.83% 3 1.03% 4 -0.07% 5 -0.84% 1 -2.38%
2005-1 0.21% 5 -0.85% 1 0.00% 2 -0.64% 3 1.22% 4 -0.06%
2009-1 -0.05% 2 0.45% 3 -1.72% 5 0.38% 1 1.21% 2 0.26%
2013-1 -0.13% 1 0.01% 2 0.25% 3 -0.08% 5 -0.27% 1 -0.21%
Avg -0.47% -0.35% -0.07% 0.00% 0.67% -0.23%
SPX summary for Presidential Year 1 1929 - 2013
Averages 0.21% -0.19% -0.18% 0.33% 0.02% 0.19%
% Winners 59% 50% 45% 59% 50% 45%
MDD 11/26/1929 4.40% -- 12/3/1973 3.84% -- 11/27/1933 3.49%
SPX summary for all years 1928 - 2016
Averages 0.14% 0.02% 0.04% 0.18% -0.02% 0.36%
% Winners 63% 51% 56% 55% 49% 53%
MDD 12/1/2008 8.93% -- 11/28/1931 7.09% -- 11/30/1987 6.53%
December
Since 1963, over all years, the OTC in December has been up 61% of the time with an average gain of 1.8%. During the 1st year of the Presidential Cycle December has been up 54% time with an average gain of 0.9% The best December ever for the OTC was 1999 (+22.0%), the worst 2002 (-9.7%).
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 December over all years since 1963 in blue while the green line shows the average during the 1st year of the Presidential Cycle over the same period.
Since 1928 the SPX has been up 73% of the time in December with an average gain of 1.4%. During the 1st year of the Presidential Cycle the SPX has been up 73% of the time with an average gain of 0.4%. The best December ever for the SPX was 1991 (+11.2%) the worst 1931 (-14.5%).
The chart below is similar to the one above except it shows the average daily performance over all years for the SPX in December in red and the performance during the 1st year of the Presidential Cycle in green.
Since 1979 the Russell 2000 (R2K) has been up 79% of the time in December with an average gain of 2.6%. During the 1st year of the Presidential Cycle the R2K has been up 78% of the time in December with an average gain of 2.5%. The best December ever for the R2K was 1999 (+11.2%), the worst 2002 (-5.7%).
The chart below is similar to those above except it shows the daily performance over all years of the R2K in December in magenta and the performance during the 1st year of the Presidential Cycle in green.
Since 1885 the Dow Jones Industrial Average (DJIA) has been up 69% of the time in December with an average gain of 1.3%. During the 1st year of the Presidential Cycle the DJIA has been up 70% of the time in December with an average gain of 1.3%. The best December ever for the DJIA was 1903 (+10.8%), the worst 1931 (-17.0%).
The chart below is similar to those above except it shows the daily performance over all years of the DJIA in December in grey and the performance during the 1st year of the Presidential Cycle in green.
Conclusion
We are a little over a week past a well defined bottom and the market is overbought. Seasonality for the coming week is, at best, modestly positive.
I expect the major averages to be higher on Friday December 1 than they were on Friday November 24.
By Mike Burk
