May Usually Finishes With Strength Memorial Day Week may not be as bullish as it once was, but the last four or five trading days in May do tend to post gains. In the following seasonal pattern chart the performance of DJIA, S&P 500, NASDAQ and Russell 2000 in May from 1995 to 2015 has been graphed. Over the past 21 years, the major indices have generally reached a low point sometime around the seventeenth to the nineteenth trading days in the month. In this next chart are the same indices performances this May. Although not an exact match for the above chart, similarities exist. May 2016 did open on a positive note that quickly faded. There was also a bounce from early month losses followed by more sideways meandering through mid-month. Today’s gains could mark the typical late-May turnaround and the beginning of subsequent strength. Whether or not the market can hold onto and even add to today’s gains will likely largely depend on news and data over the next three trading sessions. Market confidence is not exactly high, so any hint of trouble could lead to profit taking and risk avoidance, especially ahead of the long 3-day holiday weekend.
hey hey! good to see you as well @CPAin! yea this market is a little weird to say the least lol! it doesn't know what it wants! every little talk of rates and this market goes ballistic! one week we're looking uber bearish, then we have a week like this one where things take a complete U-turn to the north side! and we're once again within handles of ATHs! make up your mind already mr. market! i read somewhere the other day that the market hasn't been this range bound (between spx 2135 - 1810) for this long (over 2 years) in about 20 years! wild stuff would like to see some conviction/direction with this market here, whether its up or down does not matter to me! just make up your mind already lol personally i wouldn't mind to see one final lasting blow off top before things really fall apart perhaps later on in the year in the fall around the elections ... we'll have to see! stay tuned
Memorial Day – Tepid Before & Bullish After In the Stock Trader’s Almanac we show how the days after Memorial Day have been rather bullish. In the table below I went back to 1971, the year the Uniform Monday Holiday Act took effect, moving Memorial Day and most other federal holidays to Monday. Improved performance since 1986 is also highlighted. In what used to be the “May/June Disaster area” the S&P was down 15 of 20 Mays from 1965 to 1984. Then May was the best month from 1985 to 1997. Some of this bullishness after Memorial Day can be attributed to the strength of the first two days of June (like this year). In recent years, the Friday before Memorial has become getaway day on The Street and volume is often diminished and trading uninspired. NASDAQ exhibits a similar pattern to S&P 500 over the same time periods.
1st Five Months Election Year Dow Up 2% – Clinton Beats Trump? Political, economic, fundamental and technical crosscurrents continue to plague the stock market. On the positive bullish side of things the Dow and S&P have posted gains for the first five months of this election year. In election years when the first five months have been positive it has been an indication that the incumbent party retains the White House. And when the incumbent party stays in power the market has performed better for the full year. Hence we can deduce that the market expects Hilary Clinton to win and that will be just fine, because it will mean a likely continuation of the same or similar policies and agenda as under the Obama administration, providing a greater degree of certainty as to what to expect from Washington. With Donald Trump as a political newcomer, running an unpredictable campaign, Wall Street can’t possibly have a clue as to what a Trump administration would do and mean for the market. If Trump begins to gain traction and the Clinton and Sanders continue to divide the Democratic Party, the market may falter in fear of an uncertain and unpredictable presidency. Today’s sell off, though intraday losses were pared, is an illustration of how fragile this bull is. This very volatile May is up for the month across the board, ending on a less the stellar note and NASDAQ remains in the red for the year.
so i had some rare free time this weekend and thought to take a look at the super long term charts of the indices in particular the dj30 just for the hell of it... in my observation i've found that we go through these secular bear/bull market cycles about every 17 years with cyclical bear/bull markets within each ... so seeing as the current secular bear that started in y2k (?), would suggest a conclusion to this secular bear in the next year and the start of the new secular bull? here's the chart i whipped up tonight: this is an 80yr chart of the dj30 thoughts?
Regardless of election outcome, S&P 500 advances 72.2% of the time For all the heated discussion, debate, worrying, slicing and dicing of numbers, the actual presidential election outcome appears to have little bearing on S&P 500 performance in November and December. Since 1944 election-year Novembers have been up 55.6% of the time with an average gain of 0.6% and election-year Decembers have been up 83.3% of the time with an average 1.4% advance. The two-month combo of November and December is collectively up 72.2% of the time with an average gain of 2.0%. Regardless who wins, history still favors a typical yearend rally.
Buy Yom Kippur, Sell Passover Earlier this month we examined “selling Rosh Hashanah” and now let’s take a closer look at buying Yom Kippur. Last week’s table has been trimmed and condensed to show the last 26 years results. DJIA has advanced 22 times and declined just four times since 1990 between Yom Kippur and Passover with an average gain of 8.6%. The worst decline was 7.4% in 2000-2001 and the best was 25.4% from 1998-1999. Over the last seven years of the current bull market, DJIA’s average gain has been 10.6%.
DJIA performs best under newly elected Democrat Presidents In the below chart, “All Post-Election” years since 1953 is the baseline to which “All 1st Elected,” “Dem 1st Elected,” and “Rep 1st Elected” are compared. “All 1st Elected” years are the first years of a new president. “Dem 1st Elected” are first years of a new president that was a Democrat and “Rep 1st Elected” are new Republican presidents. For the first half of a post-election year all four are quite close. Under 1st Elected Democrats DJIA was weaker in January and February on average as a result of early losses in 2009. By the end of July DJIA’s performance begins to show significant deviation and by the end of the year DJIA has performed best under a newly elected, 1st-year Democrat. Should polls hold and Hillary Clinton become the next President, DJIA’s performance in 2017 could resemble the green line. If Donald Trump can defy odds and polls then DJIA could follow the path of the black line.
Welcome to the Historically Best Six Months of the Year Posted by lplresearch As the old trading axiom goes, selling in May and waiting six months to buy is a time-proven strategy. The good news about that is the November-to-April time frame is the strongest six months historically for equities. According to Ryan Detrick, Senior Market Strategist, “The strongest six months of the year are upon us. After a historically tight range the past three months, coupled with an improving earnings outlook and strengthening economy, it could be seasonality that helps the S&P 500 break out to the upside of its range.” As this chart shows, going back to 1950,* the November-to-April time frame is indeed the best of all six month combinations (up 7.4% on average), while the May-to-October period is the worst, (up only 1.4% on average). In other words, nearly all of the gains tend to happen during the next six months. What about the November-to-April time frame based on the Presidential Cycle? Going back to 1950, during the first year of the presidential cycle (November of an election year to April following the inauguration) those six months have averaged +3.4% and been higher 75% of the time. Looking at recent history though, these six months were down 9.9% from November 2008 to April 2009 and down 12.6% from November 2000 to April 2001. In other words, more recent Presidential cycles haven’t been too kind. Of course, both of those times were recessions and the economy is on fairly firm footing currently – one big difference as we head into 2017. Lastly, what does it mean (if anything) when stocks climb higher during the historically weak May-to-October period during an election year? Remember, the S&P 500 has actually gained 2.9% over the last six months. Turns out, a gain between May and October in an election year (like we just saw in 2016) is a very good sign. Going back to 1980, the following six month period (November to April) has been higher seven out of seven times with an average return of +8.2%.
Could There Be A Big Sell-Off After The Election? Posted by lplresearch With the S&P 500 down eight consecutive days for the first time since October 2008, many are wondering what this could mean for the rest of the year. Election jitters are pulling equities lower, and the big question is: could we see a big sell-off after the election? For starters, November and December are historically two of the strongest months, and this plays out in an election year as well. Going back to 1950, the last two months of the year during an election year have averaged +2.5% and been higher 75% of the time. End-Of-The Year Equities Tend To Be Strong Breaking it down by the party in power shows that Republicans have returned 2.6%, whereas Democrats have returned 2.4% the last two months of the year during an election year. In other words, there is very little difference in performance depending on which party wins the election. What appears to matter more is how the economy is doing. The two largest declines below were in 2000 and 2008. In late 2000, the economy was months away from a recession, while in late 2008, it was in the midst of a recession. With the economy on firm footing now, this is another positive for the rest of 2016. Why A Big Sell-Off Is Unlikely The Rest Of This Year Here’s another way to look at things. The S&P 500 is currently beneath the low daily close in October (2126.15 on October 31); how often will it close the month of November beneath this level? In other words, make a “lower low.” Looking back at history, a close beneath the October low is very rare. In fact, only five times (2007, 2000, 1991, 1973, and 1950) has that ever happened. Incredibly, looking out to December, only once has the month of December closed out the month beneath the low close for the month of November—and that was in 1969. In other words, we could see some volatility, but a big drop from here is simply rather rare. Close Beneath October Lows Is Very Rare Last, should there be a pullback, how big of a pullback could we see? Again going back to 1950* and breaking it down by presidential cycle, election years see a 3.3% average drop from the end of October until the end of the year. This though is greatly skewed by a 22% drop in 2008 and an 11% drop in 2000. Turning to the median returns, an election year sees a median pullback of only 1.2%. Be aware that after three days in 2016 though, November has already pulled back 1.8%. If There Is A Pullback, It Should Be Contained According to Ryan Detrick, Senior Market Strategist, “Election anxieties have many on edge and questioning if we could see a big drop in equities during the rest of this year, given the recent eight-day losing streak. Well, the good news is history would say no. In fact, the only time we’ve seen large drops in the final two months of the year during an election year going clear back to the election in 1952 were in 2000 and 2008. Both of those times, the economy was a larger factor in the weakness than the election. With the earnings recession finally ending and the best gross domestic product (GDP) print in two years in the third quarter, the economy is fortunately on improving footing as we head into 2017.”
DJIA Averages 14.1% Under a Republican President and Congress Ahead of Election Day we examined DJIA’s historical returns based upon political alignment and DJIA’s performance in post-election years. Both posts covered scenarios applicable to both political parties. Now that Election Day has passed, we can focus solely on the scenario of a newly elected Republican President with a Republican Congress. Post-election years are generally weak however; they have been even weaker under a newly elected Republican president, the first year in office. But, 2017 will be just the first year of a four-year term and the combination of a Republican President with a Republican Congress has been the second best combination in D.C., averaging 14.1% across all years this combination existed since 1949.
Dr. Copper Prescribes Buying S&P 500 Dips Last week’s election results triggered numerous notable market events. The U.S. dollar surged to multi-month highs and is on the verge of breaking out to multi-year highs, 10- and 30-year Treasury bond yields surged as prices slumped, DJIA broke out to new all-time record highs and copper surged 10.77% last week. Today we look at the historical significance, if any, of copper’s sudden move higher. In the following table, the 15 previous weekly gains by copper in excess of 10% appear. We used continuously-linked, non-adjusted, front month futures contract prices since August 22, 1972 for all copper data. These past 15 weekly surges were followed by S&P 500 losses averaging 3.58% during the month following the weekly copper surge. At 3 months after the weekly copper surge, S&P 500 was still down on average 0.48% however, by 6 months after S&P 500 had turned the corner and by 1 year later S&P 500 was up 13.8% on average with just a single loss. Last week’s copper surge could be signaling the end of its bear market that began in 2011. If we believe Dr. Copper does have a PhD in economics and its performance is indicative of future economic activity, then last week’s big advance could be a signal to buy stocks on any dips in the near term. Past weekly surges were followed by S&P 500 volatility in the near-term, but within 1 year, the S&P 500 was higher 93.3% of the time. Even when DJIA’s Daily Winning Streak Ends, Further Gains Likely Since 1950, DJIA has enjoyed 85 previous daily winning streaks of seven consecutive days or longer. When these past streaks ended, DJIA typically continued its rally just at a less brisk pace. In the following chart, the 30 trading days before and the 60 trading days after DJIA’s daily winning streak ended are graphed. The winning streak’s brisk pace of gains is readily visible. Once the streak ended, there was usually just a brief dip and then the rally resumed with DJIA climbing a further 3% or so over the next 60 trading days.
Is This 100-year Old Indicator Suggesting Market Strength? Posted by lplresearchbos The Dow Jones Industrial Average (Dow) gained for the sixth consecutive day yesterday and closed at a new all-time high for the third straight day. The Dow Jones Transports (Transports), meanwhile, had another big day yesterday and has been one of the top performers since the election. The Dow and Transports will forever be linked, as they are the two components to Dow Theory. Charles Dow created the Dow Theory in the late 1800s, and it revolves around needing confirmation from both industrials and transports before establishing market direction. Think about it—if both the industrials and transports are strong, this likely suggests an improving economy. The flipside is if both are going lower, the economy is weakening. Another way to look at the relationship between the two indexes is to compare them on a relative strength chart. When the ratio of the Transportation Index to the Dow increases, this means that transports are outperforming. We have found that when this ratio on a weekly chart moves above its 40-week simple moving average for more than three weeks, stocks tend to move higher over the next year. This signal triggered recently; the last time it happened was in late 2012, right before a huge equity rally in 2013. Looking at historical data going back to 1979, this signal triggered 20 times. Take note, we removed the two largest recessions over the past 20 years, as we don’t see any signs of a coming recession. The S&P 500 gained more than 9% on average six months later and was higher 80% of the time. Going out a full year, the S&P 500 has been up more than 16% on average and higher all 20 times. Could this newfound strength from the transports be telling us the economy could be set for strong improvement as we head into 2017? It very well could be, and this could be another reason to expect the equity bull market could possibly continue as well.
Will the Markets Pull a BRExit on Trump Election Win? Our good friend and crack market technician Alex Spiroglou emailed out this fantastic chart yesterday comparing the similar moves the market has made following the surprise BRExit vote in June and the Trump presidential election win last week. Both shocked the world, the pundits and the pollsters. Without getting into the political, geopolitical and ideological impact of either result market action looks interestingly comparable in both instances. The difference was that after BRExit the initial 6.5% selloff transpired over the two-day shock phase. The Trump win selloff occurred overnight intraday. Both recoveries were swift and both entered a sideways phase shortly after the bounce back of which were are now currently in. In his email sent to his followers, Alex writes: “Will the S&P pull a BRExit? I am not a fan of "scenario-based” investing, but I could not help but notice a few similarities, between how markets reacted with “BRExit” and “Trump”. Maybe worth keeping in mind if the market continues behaving in a similar fashion" As Alex’s chart intimates, “If history repeats and we get a similar size rally, then we may see a New High (>2191) and subsequently a False Breakout.” As Founding Chairman of the UK Chapter of the Market Technicians Association in London and Co-Chairman of the Hellenic MTA Chapter in Athens, Alex was a gracious host when he set up my visits and presentations to both chapters in April 2015. I highly recommend his email communiqués. He is a keen market observer, technician, analyst and trader. If you would like to receive his email notes contact him at [email protected].
Market Waiting on Tech Last week the Russell 2000 index of small-cap stocks enjoyed its sixth best weekly gain ever, up 10.2%. It narrowly missed besting its most recent and fifth place overall 10.3% weekly gain from December 2, 2011. Russell 2000 is also trading at new all-time highs above 1300. Small caps have finally caught up. Technology shares are now the laggard that is holding back market. Looking at the above four charts we can see DJIA and Russell 2000 have broken out to trade at new all-time highs while NASDAQ and S&P 500 have not. Today’s gains have moved S&P 500 and NASDAQ closer to breaking out, but their respective old highs appear to be formable resistance. If S&P 500 and NASDAQ can break out and join DJIA and Russell 2000 with new all-time highs, then this rally has much better odds of surviving to yearend and beyond.
Small Caps Up 10 Days in a Row—Too Late To Buy? Posted by lplresearch Small caps have been on fire, as the Russell 2000 has been up 10 consecutive days for the first time since March 2013. As we noted in our Weekly Market Commentary: “What A Week,” small caps could be one of the groups to benefit from a Trump presidency, due to easier credit standards and their greater domestic focus. This huge run brings with it many questions—most specifically, can this rally continue? Going back in history, the Russell 2000 has been higher 10 consecutive days 19 other times and the median return a month later has been 2.8%, twice the average median monthly return of 1.4%. Then going out three months, again the returns were stronger than usual. Once you get out to six months, returns normalize. In other words, the near-term returns after long win streaks on small caps tend to see an extension of the near-term strength. According to Ryan Detrick, Senior Market Strategist, “The recent strength in small caps is a nice sign for the overall market, as small cap strength tends to reflect more of an appetite for risk. Not to mention, when the Russell 2000 is up 10 days in a row, this actually leads to stronger returns going out.” Another way to look at this is the Russell 2000 is up more than 13% the past 10 days, the best 10-day rally since July 2009. You’d think big moves like this could suggest a near-term pullback, but surprisingly that may not be the case, as the Russell 2000 has been up another 6.0% on average a month later after big 10-day surges. Below we looked at the largest 10-day rallies, looking at only the initial rally when several 10-day rallies were clustered together, as often happens. Last, if you simply looked at the Russell 2000 relative to the S&P 500, small caps have delivered above-average returns going back nearly three years. This could be another clue that small caps are finally improving after lagging their large cap peers for years.
