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Market Sentiment At Its Lowest In 10 Months

Market Sentiment At Its Lowest In 10 Months

Stocks sold off last week…

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Technical market report for December 2, 2017

The good news is:

  • All of the major indices except the NASDAQ composite (OTC) hit all time highs last Thursday.

The Negatives

The market is overbought.

Seasonality for the next 2 weeks is negative.

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 unconfirmed by NY NH.

Notice how the SPX has gone ballistic in the past week or so.

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

The pattern is similar to the chart above.

The Positives

52 week new lows have all but disappeared.  NYSE new lows declined last Friday in spite of all of the indices going down.

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 at 81% is 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.

NY HL Ratio finished the week at a very strong 84%. 

Seasonality

Next week includes the 5 trading days prior to the 2nd Friday 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 1953 to 2016.  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.

Average returns for the coming week have been mixed and much weaker during the 1st year of the Presidential Cycle than other years.  The OTC has not been up the coming week during the 1st year of the Presidential Cycle since 1985.

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 1

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1965-1  -0.30%   0.14%   1.31%   1.02%   0.80%   2.97%

 1969-1  -0.66%  -1.02%  -0.32%   0.28%   0.60%  -1.13%

 1973-1   1.32%  -1.43%  -1.51%  -1.86%   0.57%  -2.91%

 1977-1   0.05%  -1.13%  -0.12%   0.20%   0.49%  -0.50%

 1981-1  -0.58%  -0.79%   0.08%   0.32%  -0.14%  -1.12%

 1985-1   0.09%   0.13%   0.49%   0.54%   1.06%   2.32%

 1989-1   0.26%   0.06%  -0.41%  -0.08%  -0.02%  -0.19%

 1993-1  -0.15%  -0.23%  -0.19%  -0.83%  -0.10%  -1.49%

 Avg     -0.07%  -0.39%  -0.03%   0.03%   0.26%  -0.20%

 1997-1   1.08%  -1.87%  -1.48%  -2.39%  -1.41%  -6.07%

 2001-1  -1.44%   0.49%   0.47%  -3.23%   0.34%  -3.36%

 2005-1  -0.69%   0.14%  -0.39%  -0.25%   0.46%  -0.73%

 2009-1  -0.22%  -0.76%   0.49%   0.33%  -0.03%  -0.18%

 2013-1   0.15%  -0.20%  -1.40%  -0.14%   0.06%  -1.52%

 Avg     -0.22%  -0.44%  -0.46%  -1.13%  -0.11%  -2.37%

OTC summary for Presidential Year 1 1965 - 2013

 Avg     -0.08%  -0.50%  -0.23%  -0.47%   0.21%  -1.07%

 Win%       46%     38%     38%     46%     62%     15%

OTC summary for all years 1963 - 2016

 Avg      0.15%   0.06%  -0.05%  -0.34%   0.19%   0.01%

 Win%       61%     50%     51%     48%     56%     50%

SPX Presidential Year 1

 Year       Mon     Tue     Wed    Thur    Fri    Totals

 1953-1  -0.12%  -0.32%  -0.12%  -0.24%  -0.08%  -0.88%

 1957-1  -0.94%  -0.88%  -0.12%   0.10%   0.44%  -1.40%

 1961-1   0.32%  -0.11%   0.08%  -0.40%   0.47%   0.36%

 1965-1  -0.75%   0.88%  -0.12%   0.31%   0.26%   0.59%

 1969-1  -1.20%  -0.09%  -0.08%   0.04%   0.32%  -1.00%

 1973-1   1.49%  -1.95%  -2.57%  -1.27%   0.99%  -3.32%

 Avg     -0.22%  -0.43%  -0.56%  -0.24%   0.50%  -0.95%

 1977-1  -0.42%  -1.53%  -0.05%   0.19%   0.74%  -1.07%

 1981-1  -0.85%  -0.30%   0.53%   0.18%  -0.62%  -1.05%

 1985-1   0.62%   0.07%   0.94%   0.20%   1.55%   3.38%

 1989-1   0.22%  -0.52%  -0.29%  -0.28%   0.32%  -0.55%

 1993-1   0.33%   0.07%  -0.10%  -0.45%  -0.05%  -0.21%

 Avg     -0.02%  -0.44%   0.20%  -0.03%   0.39%   0.10%

 1997-1  -0.14%  -0.67%  -0.61%  -1.53%  -0.16%  -3.12%

 2001-1  -1.59%  -0.28%   0.03%  -1.56%   0.33%  -3.06%

 2005-1  -0.24%   0.13%  -0.50%  -0.12%   0.28%  -0.45%

 2009-1  -0.25%  -1.03%   0.37%   0.58%   0.37%   0.05%

 2013-1   0.18%  -0.32%  -1.13%  -0.38%  -0.01%  -1.66%

 Avg     -0.41%  -0.43%  -0.37%  -0.60%   0.16%  -1.65%

SPX summary for Presidential Year 1 1953 - 2013

 Avg     -0.21%  -0.43%  -0.24%  -0.29%   0.32%  -0.84%

 Win%       38%     25%     31%     44%     69%     25%

SPX summary for all years 1953 - 2016

 Avg      0.17%   0.00%   0.00%  -0.28%   0.16%   0.05%

 Win%       58%     46%     52%     42%     64%     53%

Conclusion

The market is overbought and Seasonality for the coming week is about as bad as it gets.  Technology issues of all varieties have been weakening.

I expect the major averages to be lower on Friday December 8 than they were on Friday December 1.

Last week the OTC was down while all of the other major averages were up, so I am calling last weeks positive forecast a tie.

By Mike Burk

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