Resistance Is Not Futile Now that the market has clawed its way back above the 2018 lows and encroaches on the 50-day moving averages, new overhead resistance that was once support is putting up a little fight. The market will need to hold and clear current levels to sustain momentum or regain it if we pull back from here. Caught the venerable Art Cashin on CNBC this afternoon and he pointed out a key level of DJIA 23900, which is just above the February 8, 2018 low and runs right through big gap from November 28-30, 2017 that preceded the near vertical rise to the January 2018 high. As you can see in the chart above that has been a line in the sand the past several days. Below are charts of the S&P 500 and NASDAQ Composite with similar resistance levels as well as the August 2017 lows that proved to be support on Christmas though S&P traded below that.
Marin Luther King Jr. Holiday Week Trading Bearish since 1998 Although Martin Luther King Jr. Day was a holiday in many states and cities throughout the U.S. beginning in 1971, it did not become a federal holiday until 1986. Even then it was not observed by the NYSE until 1998. In the 21 years since, the market’s performance during this four-trading-day week has been rather lackluster with average weekly performance negative for DJIA, S&P 500, NASDAQ, Russell 1000 and Russell 2000. Average losses range from 0.83% by DJIA to 0.15% by NASDAQ. All five indexes have declined more times than they have risen. Today’s declines are consistent with the recent history of the week.
Typical February Trading: Lukewarm Month, Greatest Strength Ahead Mid-Month After one of the best January market performances in decades, expectations could be running high for continued gains in February. However, February historically been a rather tepid month. Since 1950, S&P 500 has averaged a measly 0.04%. Over the last 21-year period S&P 500 average performance has declined to a loss of 0.2% in February. February’s first trading day has historically been good and trading days eight, nine, ten and eleven have been solid long opportunities. Outside of these five days, the balance of February has been lacking
Now What? What a year it has been. After the worst December for stocks in 87 years that contributed to the worst fourth quarter since the 2008–09 financial crisis, stocks have bounced back in spectacular fashion. In fact, with a day to go, stocks are looking at their best first month of the year in 30 years. What could happen next? “We like to say that the easy 10% has been made off the lows and the next 10% will be much tougher,” explained LPL Senior Market Strategist Ryan Detrick. “Things like Fed policy, China uncertainty, and overall global growth concerns all will play a part in where equity markets go from here.” With the S&P 500 Index about 10% away from new highs, we do think new highs are quite possible at some point this year. Positive news from the Federal Reserve (Fed) and China trade talks, as well as the realization by investors that the odds of a recession in 2019 are quite low could spark potential new highs. Remember, fiscal spending as a percentage of overall gross domestic product (GDP) is higher this year than it was last year. Many think the tax cut and fiscal policies in play last year were a one-time sugar high. We don’t see it that way and expect the benefits from fiscal policy to help extend this economic cycle at least another year—likely more. As we head into February, note that it hasn’t been one of the best months for stocks. In fact, as our LPL Chart of the Day shows, since 1950, February has been virtually flat, and over the past 20 years only June and September have shown worse returns. Overall, the market gains have been quite impressive since the December 24 lows, but we wouldn’t be surprised at all to see a near-term consolidation or pullback.
Small Business Confidence Takes Another Fall Feb 12, 2019 Small business confidence as measured by the NFIB saw it’s fifth straight monthly decline in January, falling from 104.4 down to 101.2 and below consensus expectations of 103.0. Uncertainty was definitely the main issue driving the drop in confidence, though, as the NFIB’s Uncertainty Index rose seven points to the fifth highest monthly reading (86) in the survey’s history. As shown in the chart below, the NFIB’s headline index of Small Business Optimism has now declined from a multi-decade high of 108.8 in August to 101.2 with declines in each month in between. What is notable about this decline is that the current reading of 101.2 is the lowest level since November 2016, indicating that the bulk of gains we saw in confidence since the 2016 election have been erased. With five straight months of declines, the NFIB Small Business Optimism Index in the midst of its longest monthly losing streak since 1998 and tied for its third-longest losing streak on record. While those stats may sound ominous, as the chart above and below indicate, both peaks in NFIB and long streaks of monthly declines in NFIB haven’t necessarily been the best predictors of a recession (gray shaded areas). While small businesses grew increasingly concerned over the uncertainty regarding the government shutdown and trade, when it comes to their biggest problems, Washington still isn’t at the top of the list. Quality of Labor continues to be the biggest problem for small business as it was cited by 23% of those surveyed. Taxes clocked in at 15%, while Government/Red Tape came in at 12%, which was actually down from 14%. Maybe with the government shutdown, there was less bureaucracy to deal with?? Not only are Taxes and Government/Red Tape not at the top of the list anymore but on a combined basis, they haven’t been this small of a problem since the last recession.
Day Before Presidents’ Day Trading: Long-Term Record Bearish, But Improving Page 88 of the Stock Trader’s Almanac 2019 points out Presidents’ Day as the poorest performing holiday of the eight holidays that are tracked. Unlike the others, the trading day before and the trading day after this three-day holiday weekend are both down on average over the past 39 years. Depending on how February lays out in a monthly calendar, the Tuesday after Presidents’ Day is either the first trading day of option expiration week or the week after options expiration week. In the tables below, the years when Presidents’ Day occurs in the week after option expiration are bolded. This year, Presidents’ Day falls in the week after options expiration. Since 2011, the market’s performance before the long holiday weekend has improved, most notably during the last eight years with DJIA positive in each year. Some of this recent improvement could have been the result of sizable losses in January and the ensuing rebound rally.
Day After Presidents’ Day: Improving, But Record Still Bearish Yesterday we pointed out the day before Presidents’ Day was amongst the poorest performing holiday over the long run. The day after is even weaker over the long run. However since 2012, the market’s performance after the long holiday weekend has improved, most notably during the last seven years with S&P 500 positive in six of these years.
Trimming Our 2019 GDP Forecast Economic data have consistently missed expectations recently as investors and Wall Street have struggled to quantify the impact of global trade and political risks. As shown in the LPL Chart of the Day, the Bloomberg U.S. Economic Surprise Index has dropped sharply over the past few months, showing the degree to which consensus estimates have been overestimating economic trends. December’s retail sales report was just the latest instance in a string of whiffs for consensus predictions. Retail sales unexpectedly fell 1.2% in the month, missing consensus estimates for a 0.1% gain by the widest margin since March 2009 and sparking questions about the report’s accuracy. In response, over the past few months economists have cut their fourth quarter 2018 gross domestic product (GDP) forecasts to a range of 1.5–2.5%. If fourth-quarter GDP growth ends up at the lower end of that range, it would be the slowest pace of GDP growth since the fourth quarter of 2015. We’ve also seen enough evidence to think 2019 GDP growth is likely to be closer to the lower end of our original 2019 forecast (2.5–2.75%), with risks balanced to the upside and downside. Even though we’ve slightly lowered our growth expectations, we still expect the core Consumer Price Index (CPI) to grow 2.25–2.5% in 2019. “Heightened trade and political uncertainty have clearly weighed on corporate and consumer sentiment, which we think may weigh on U.S. output growth this year,” said LPL Research Chief Investment Strategist John Lynch. “Still, we think a slight increase in inflation would make sense given the firm U.S. labor market and the possibility that economic activity could stabilize after trade headwinds subside.” As we mentioned in our Outlook 2019, we still believe stronger growth in business spending may drive this leg of the economic expansion, as higher investment leads to greater worker productivity and profit growth. However, investment may be muted until the trade dispute with China is resolved.
Us issues with China are still unresolved. The us stock market moves for a long time without correction. I'd start selling now.
any bears left out there with the "bear case" after one of the best starts to a year in history for the u.s. equity markets?
Weakest Housing Starts Relative to Expectations in 12 Years Feb 26, 2019 Now that was a bad Housing Starts report! Just like the recent delayed report on Retail Sales, it may have been better if the finally released report on Housing Starts for the month of December was just swept under the rug. While economists were expecting the headline print to come in at a SAAR level of 1.256 million, the actual reported number came in at 1.078 million, missing expectations by 178K. Using our Economic Indicator Database, we found that there have only been five other monthly Housing Starts reports that missed expectations by a wider amount than the December print with the most recent occurring 12 years ago in 2007! The table below lists the ten largest prior misses relative to expectations in the monthly Housing Starts report going back to 1998. For each instance, we also include the performance of the S&P 500 and the S&P 500 homebuilder group on the day of the report. While you would expect pretty substantial weakness following a miss of such magnitude, the results are pretty much mixed. Both the S&P 500 and the homebuilders were each up on the day in five instances and down on the day in the other five. In the case of the S&P 500, the bias was ever so slightly to the upside, while for the homebuilders the bias was slightly to the downside.
Last Trading Day of February: NASDAQ Down Seven Straight Over the past 21 years the last trading day in February has been difficult for bulls. DJIA, S&P 500, NASDAQ, Russell 1000 and Russell 2000 have all declined more frequently than advanced. Average and median performance on the day has been negative across the board. Excluding NASDAQ and Russell 2000, the worst loss exceeds the best gain. Last minute profit taking before the end of the month is one possible explanation for this weakness.
Small Business Rebounds Less Than Expected Mar 12, 2019 After the steepest five month decline since the Financial Crisis and the longest monthly losing streak since 1998, NFIB Small Business Confidence rebounded in February, although by a less than anticipated degree. While economists were expecting the headline index to bounce from 101.2 up to 102.5, the actual increase was much smaller at just 101.7. As shown in the chart below, while the index was higher this month, it hasn’t put anything more than a small dent into the decline we saw from the high back in August of last year. From a longer term perspective, the recent decline from the August 2018 high is definitely severe relative to prior declines. What we noted following last month’s report and is worth reiterating again is that prior periods where we have seen a quick and fast drop in small business sentiment haven’t been particularly good at timing downturns in the business cycle. While recessions typically are accompanied by a sharp downturn in business sentiment, there have also been plenty of other periods (1984, 1993, and 2005) where we saw sharp declines in small business sentiment but were nowhere near the onset of a recession. Finally, when it comes to issues facing small businesses, finding qualified employees continues to be the biggest problem they face, and there are some signs that they are starting to pay up in order to find those with the right qualifications. In this month’s survey, the percentage of businesses citing Labor Costs as the biggest problem increased from 8% to 10%.
Irish Eyes Shine on Market Last 25 Years, but Monday After Sunday St. Patrick’s Day Weaker Saint Patrick’s Day is the only cultural event that perennially lands in March. Over the years gains the day before Saint Patrick’s Day have proved to be slightly better than the day itself and the day after. Perhaps it’s the anticipation of the patron saint’s holiday that boosts the market and the distraction from the parade down Fifth Avenue that causes equity markets to languish. Perhaps it’s the all the green folks don that stirs up thoughts of money and market gains. More likely, it’s the fact that Saint Pat’s typically falls in historically bullish Triple-Witching Week. Whatever the case, since 1950, the S&P 500 posts an average gain of 0.19% on Saint Patrick’s Day (or the next trading day when it falls on a weekend), a gain of 0.13% the day after and the day before averages a 0.24% advance. S&P 500 median values are 0.17% on the day before, 0.20% on Saint Patrick’s Day and 0.07% on the day after. In the nine years when St. Patrick’s Day falls on a Sunday like this year, since 1950, Friday advanced an average 0.15% and the following Monday suffered an average loss of -0.08%. However, over the last 25 years market performance on Saint Patrick’s Day and the day after has improved, up 72% of the time on the Holiday with an average gain of 0.57%.
Watch Out For End of March/Q1 Weakness March markets have been rather turbulent in recent years with weakness historically later in the month, taking some mean end-of-quarter hits as fund managers often partake in quarterly window dressing and portfolio restructuring. After the big gains we logged in January and February choppy market action is not surprising, especially with the backdrop of the ongoing China trade and Brexit deal delays and what appears to be the end of the Fed tightening cycle for now. Boeing’s woes and U.S. political infighting have not helped either. But as you can see in the chart of the recent history of typical March trading patterns with 2019 performance overlaid in dotted lines, action so far this month has not been all that unusual. With that in mind we are ever leery of another end-of-March hit.
Liberate Your Portfolio Sell Passover Much like the ancient Hebrews’ exodus out of Egypt, springtime and the Passover holiday are often an excellent time of year to consider major portfolio moves. Some may remember the old saying on the Street, “Buy Rosh Hashanah, Sell Yom Kippur.” Though it had a good record at one time, it stopped working in the middle of the last century. It still gets tossed around every autumn when the “high holidays” are on the minds of traders as many take off to observe the Jewish New Year and Day of Atonement. The basis for the new pattern, “Sell Rosh Hashanah-Buy Yom Kippur-Sell Passover,” is that with many traders and investors busy with religious observance and family, positions are closed out and volume fades creating a buying vacuum. Actual stats on the most observed Hebrew holidays have been compiled in the table here. We present the data back to 1971 and when the holiday falls on a weekend the prior market close is used. It’s no coincidence that Rosh Hashanah and Yom Kippur fall in September and/or October, two dangerous and opportune months. We then took it a step further and calculated the return from Yom Kippur to Passover, which conveniently occurs in March or April, right near the end of our “Best Six Months” strategy. Perhaps it’s Talmudic wisdom but, selling stocks before the eight-day span of the high holidays has avoided many declines, especially during uncertain times. While being long Yom Kippur to Passover has produced 55% more advances, half as many losses and average gains of 7.2%. It often pays to be a contrarian when old bromides are tossed around, buying instead of selling Yom Kippur – and selling Passover. From Passover to Yom Kippur DJIA averages just 1.6% and is littered with nasty declines.
Pre-election year Mays: Just 10th overall DJIA and S&P 500 May officially marks the beginning of the “Worst Six Months” for the DJIA and S&P. To wit: “Sell in May and go away.” Our “Best Six Months Switching Strategy,” created in 1986, proves that there is merit to this old trader’s tale. A hypothetical $10,000 investment in the DJIA compounded to a gain of $1,008,721 for November-April in 68 years compared to just $1,031 for May-October. The same hypothetical $10,000 investment in the S&P 500 compounded to $757,335 for November-April in 68 years compared to a gain of just $9,079 for May-October. May has been a tricky month over the years, a well-deserved reputation following the May 6, 2010 “flash crash”. It used to be part of what we called the “May/June disaster area.” From 1965 to 1984 the S&P 500 was down during May fifteen out of twenty times. Then from 1985 through 1997 May was the best month, gaining ground every single year (13 straight gains) on the S&P, up 3.3% on average with the DJIA falling once and two NASDAQ losses. In the years since 1997, May’s performance has been erratic; DJIA up ten times in the past twenty years (three of the years had gains in excess of 4%). NASDAQ suffered five May losses in a row from 1998-2001, down – 11.9% in 2000, followed by eleven sizable gains in excess of 2.5% and four losses, the worst of which was 8.3% in 2010. Since 1950, pre-election-year Mays rank poorly, #10 DJIA and S&P 500, #7 NASDAQ, #6 Russell 1000 and #5 Russell 2000.
Time to Sell in May? One of the most popular investment axioms is about to take over the airwaves: “Sell in May and Go Away.” That’s because the upcoming six months(from May until the end of October) have historically been the weakest six-month stretch of the year, as our LPL Chart of the Day shows: Over the next few days, we’ll take a closer look at the reasons you should—or should not—sell in May this year. Stocks are up 25% from the December low, and we’re entering a historically weak seasonal period. However, stocks typically have been up on average these six months and they’ve been up 6 of the past 7 years. “Yes, ‘sell in May’ has a nice longer-term track record,” said Senior Market Strategist Ryan Detrick, “but that doesn’t make it gospel.”
