Technical Stock Market Report

The good news is:  Measured by the NASDAQ composite (OTC) January has been on average the strongest month of the year.

The negatives:  2015 was the 3rd year of the Presidential Cycle.  The 3rd year has been, by far, the strongest year of the Cycle.  Of, what I consider, the major averages, only the OTC was up last year.  It was up a little over 5% in a year that has averaged a gain of over 30%.  The worst was the Russell 2000 down a little over 5% in a year that it has averaged a gain of nearly 20%.

On Balance Volume (OBV) is like an advance – decline line (ADL) calculated from volume.  It can be calculated for individual issues or the market as a whole.  With individual issues the total volume for the day is added to the running total on up days and subtracted on down days.  For the market as a whole OBV is a running total of downside volume subtracted from upside volume.  I do not write about it much because it usually tracks the price averages very closely.  That has not been the case on the NYSE for the past year.

The chart below covers the past year showing the S&P 500 (SPX) in red and NY OBV calculated from NYSE data in black.  Dashed vertical lines have been drawn on the 1st trading day of each month.

OBV was tracking the SPX pretty closely until around May when it departed to the downside.

The next chart is similar to the one above except it covers the past 5 years and the dashed vertical lines have been drawn on the 1st trading day of each year.

In this chart the change in pattern is easily visible.

I looked at charts going back to the 1960’s could not find a similar pattern.  The opposite often occurred, that is OBV would head upward when the market was flat for a while, but never down.

The positives:  New lows have been a little elevated, but not alarming.  New highs have been disappointing.

The chart below covers the past year showing the SPX in red and a 40% trend (4 day EMA) of NYSE new highs divided by new highs + new lows (NY HL Ratio), in blue.  Dashed horizontal lines have been drawn at 10% levels for the indicator, the line is solid at the 50%, neutral level.

NY HL Ratio held comfortably in positive territory.

The next chart is similar to the one above except it shows the OTC in blue and OTC HL Ratio, in red, has been calculated from NASDAQ data.

OTC HL Ratio almost made it into positive territory.

Money supply (M2)

The money supply chart was provided by Gordon Harms.

Money supply growth continued to increase.

January

Since 1963, over all years, the OTC in January has been up 63% of the time in January with an average gain of 2.7%.  During the 4th year of the Presidential Cycle January has been up 69% time with an average gain of 2.2%.  The best ever January for the OTC was 1975 (+16.6%), the worst 2008 (-9.9%).

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 January over all years since 1963 while the black line shows the average during the 4th year of the Presidential Cycle over the same period.

Since 1928 the SPX has been up 64% of the time in January with an average gain of 1.2%.  During the 4th year of the Presidential Cycle the SPX has been up 55% of the time with an average gain of 0.3%.  The best ever January for the SPX was 1987 (+13.2%) the worst 2009 (-8.6%).

The chart below is similar to the one above except it shows the daily average performance over all years for the SPX in January in red and the performance during the 4th year of the Presidential Cycle in black.

Since 1979 the Russell 2000 (R2K) has been up 54% of the time in January with an average gain of 1.6%.  During the 4th year of the Presidential Cycle the R2K has been up 56% of the time in January with an average gain of 2.3%.  The best ever January for the R2K 1985 (+13.1%) the worst 2009 (-11.2%)

The chart below is similar to those above except it shows the daily performance over all years of the R2K in January in magenta and the performance during the 4th year of the Presidential Cycle in black.

Since 1885 the Dow Jones Industrial Average (DJIA) has been up 63% of the time in January with an average gain of 0.9%.  During the 4th year of the Presidential Cycle the DJIA has been up 52% of the time in January with no average gain or loss.  The best January for the DJIA 1976 (+14.4%), the worst 2009 (-8.8%).

The chart below is similar to those above except it shows the daily performance over all years of the DJIA in January in Magenta and the performance during the 4th year of the Presidential Cycle in black.

Conclusion

Holiday data does not count for much, but new highs have been getting weaker all year and new lows remained elevated in spite of the positive holiday bias.

I expect the major averages to be lower on Friday January 8 than they were on Thursday December 31.

Last week’s positive forecast was a miss.

The year to date record of my weekly forecasts is at the end of these reports.  For 2015 the final tally was: YTD W 21 / L 17 / T 14, slightly better than a coin toss, so you got your moneys worth.  In scoring the forecasts I consider 4 averages the DJIA, SPX, OTC and R2K.  If all 4 went in the direction of the forecast I consider it a win, if they all went in the other direction, a loss and if they did not all go in the same direction it is a tie.  Now the score will start over at YTD W 0 / L 0 / T 0.

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