Technical Market Report

By: Mike Burk | Sat, Dec 26, 2009
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The good news is:
• All of the major indices closed at recovery highs last Thursday.

Short Term

The market is overbought, but, at this time of the year, that is irrelevant.

Since 1886 the Dow Jones Industrial Average (DJIA) has had an average gain of slightly over 1% during the last 4 trading days of the year accounting for a little over one seventh of its average annual gain of 6.9%.

Intermediate term

New highs picked up last week, hitting the highest levels we have seen since early October. New lows continue to be non existent so the ratios are high enough to trigger no sell filtersĀ in a number of trading systems.

Seasonality

Next week includes the last 4 trading days of the 1st year of the Presidential Cycle.

The tables below show the return on a percentage basis for the last 4 trading days of the 1st year of the Presidential Cycle. NASDAQ composite (OTC) data covers the period from 1963 - 2008 and S&P 500 (SPX) data from 1928 - 2008. There are summaries for both the 1st year of the Presidential Cycle and all years combined.

Over the last 4 trading days of the year the market has been up about 80% of the time with an average gain of a little over 1%. During the 1st year of the Presidential Cycle it has run a little above average.

Report for the last 4 days 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 Totals
1965-1 -0.75% 2 -0.63% 3 0.35% 4 0.09% 5 -0.94%
 
1969-1 0.51% 5 0.46% 1 -0.15% 2 0.38% 3 1.20%
1973-1 1.71% 3 1.18% 4 0.47% 5 0.56% 1 3.92%
1977-1 0.02% 2 0.08% 3 0.37% 4 0.60% 5 1.06%
1981-1 -0.29% 1 -0.63% 2 0.39% 3 0.61% 4 0.08%
1985-1 -0.02% 4 0.77% 5 0.12% 1 0.39% 2 1.25%
Avg 0.39% 0.37% 0.24% 0.51% 1.50%
 
1989-1 0.16% 2 0.80% 3 0.26% 4 1.08% 5 2.29%
1993-1 0.46% 2 0.36% 3 0.49% 4 0.74% 5 2.05%
1997-1 0.79% 5 1.73% 1 1.79% 2 0.35% 3 4.65%
2001-1 0.83% 3 0.80% 4 0.55% 5 -1.85% 1 0.33%
2005-1 -1.00% 2 0.09% 3 -0.48% 4 -0.58% 5 -1.97%
Avg 0.25% 0.76% 0.52% -0.05% 1.47%
 
OTC summary for Presidential Year 1 1965 - 2005
Averages 0.22% 0.45% 0.38% 0.21% 1.27%
% Winners 64% 82% 82% 82% 82%
MDD 12/31/2002 2.69% -- 12/30/1982 .82% -- 12/30/1986 .77%
 
OTC summary for all years 1963 - 2008
Averages 0.20% 0.13% 0.30% 0.34% 0.89%
% Winners 69% 53% 64% 76% 73%
MDD 12/29/2000 3.41% -- 12/31/2002 2.69% -- 12/31/2007 2.65%
 
SPX Presidental Year 1
  Day4 Day3 Day2 Day1 Totals
1929-1 -0.10% 5 -0.77% 6 1.11% 1 2.68% 2 2.93%
1933-1 1.36% 3 2.88% 4 -0.20% 5 1.30% 6 5.34%
1937-1 -3.55% 2 1.07% 3 1.34% 4 -0.09% 5 -1.24%
1941-1 0.36% 6 -0.95% 1 4.42% 2 -0.57% 3 3.26%
1945-1 -0.75% 4 0.17% 5 0.29% 6 0.00% 1 -0.28%
Avg -0.54% 0.48% 1.39% 0.66% 2.00%
 
1949-1 0.48% 3 0.12% 4 0.66% 5 -0.18% 6 1.08%
1953-1 -0.36% 1 -0.65% 2 0.86% 3 0.20% 4 0.05%
1957-1 1.01% 4 -0.35% 5 -0.50% 1 1.04% 2 1.19%
1961-1 0.16% 2 0.89% 3 0.06% 4 -0.20% 5 0.90%
1965-1 0.01% 2 0.31% 3 0.42% 4 0.25% 5 0.99%
Avg 0.26% 0.06% 0.30% 0.22% 0.84%
 
1969-1 0.78% 5 -0.70% 1 0.38% 2 0.50% 3 0.97%
1973-1 3.06% 3 2.09% 4 -0.20% 5 0.01% 1 4.95%
1977-1 0.00% 2 0.06% 3 0.20% 4 0.17% 5 0.43%
1981-1 -0.22% 1 -0.49% 2 0.52% 3 0.20% 4 0.01%
1985-1 0.25% 4 0.94% 5 0.51% 1 0.28% 2 1.99%
Avg 0.77% 0.38% 0.28% 0.23% 1.67%
 
1989-1 -0.18% 2 0.58% 3 0.53% 4 0.78% 5 1.71%
1993-1 0.09% 2 -0.08% 3 -0.41% 4 -0.47% 5 -0.87%
1997-1 0.40% 5 1.80% 1 1.83% 2 -0.04% 3 4.00%
2001-1 0.41% 3 0.68% 4 0.34% 5 -1.11% 1 0.31%
2005-1 -0.96% 2 0.13% 3 -0.30% 4 -0.49% 5 -1.61%
Avg -0.05% 0.62% 0.40% -0.27% 0.71%
 
SPX summary for Presidential Year 1 1929 - 2005
Averages 0.11% 0.39% 0.59% 0.21% 1.31%
% Winners 60% 65% 75% 55% 80%
MDD 12/31/1986 1.92% -- 12/27/2002 1.91% -- 12/29/1978 1.45%
 
SPX summary for all years 1928 - 2008
Averages 0.14% 0.31% 0.49% 0.21% 1.07%
% Winners 62% 62% 74% 64% 78%
MDD 12/28/1937 3.55% -- 12/29/1987 2.95% -- 12/28/1931 2.51%

Next Year

2010 will be the 2nd year of the Presidential Cycle, which, on average, has been the worst of the 4 years in the cycle.

Since 1885 the DJIA has had an average return of 3.8% during the 2nd year of the Presidential Cycle, slightly more than half of its average return of 6.9% over all years.

The following charts have 2 lines, one has been calculated by averaging the daily return over all years and by averaging the daily returns during the 2nd year of the Presidential Cycle.

The 1st chart shows the DJIA from 1885 to the present showing the average for all years in magenta and the average for the 2nd year of the Presidential Cycle in green.

The next chart is similar to the one above except it covers only the last 50 years. This breakdown was selected to show how the pattern of a weak year 2 has become more pronounced in recent times.

The following charts are similar to those above, but the indices have shorter histories than the DJIA. They also offer different capitalization break downs.

The next chart covers the period from 1928 through the present showing the SPX over all years in red and the 2nd year of the Presidential Cycle in green.

The next chart covers the period from 1963 through the present showing the OTC over all years in blue and the 2nd year of the Presidential Cycle in green.

The next chart covers the period from 1979 through the present showing the Russell 2000 (R2K) over all years in light green and the 2nd year of the Presidential Cycle in dark green.

The pattern of weakness from early May through early October during the 2nd year of the Presidential Cycle has become more pronounced.

I have written a report on the Presidential Cycle that was updated at the beginning of last year. You can read it at: http://alphaim.net/research/Pres_Cycle/index.html

Conclusion

Next week has been, seasonally, one of the strongest periods of the year.

I expect the major averages to be higher on Thursday December 31 than they were on Thursday December 24.

This report is free to anyone who wants it, so please tell your friends. They can sign up at: http://alphaim.net/signup.html. If it is not for you, reply with REMOVE in the subject line.

Will the stock market average 10% (or more) annually over the next decade?

Alpha's current newsletter takes a look at the common expectation of investors that they will get the market's long-term average. To see our take on this issue go to www.alphaim.net and sign up for our free newsletter.

Thank you,

 


 

Author: Mike Burk

Mike Burk

Mike Burk independently publishes a weekly newsletter on the stock market from a technical perspective.

Charts and figures presented herein are believed to be reliable but we cannot attest to their accuracy. Recent (last 10-15 yrs.) data has been supplied by CSI (csidata.com), FastTrack (fasttrack.net), Quotes Plus (qp2.com) and the Wall Street Journal (wsj.com). Historical data is from Barron's and ISI price books. The views expressed are provided for information purposes only and should not be construed in any way as investment advice. Furthermore, the opinions expressed may change without notice.

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