t’s cliche, but what a difference a year makes. We started 2018 with a very bullish market for metals and mining stocks. The euphoria, however, was short lived with the market starting to roll over in February with another leg down starting in July and a horrendous December. In fact, the major US indices recorded their worst December since the Great Depression. The Chinese Zodiac calendar had 2018 as the year of the Dog. In hindsight, I’d say that was pretty apt. RIP 2018!
Since we’re on the topic of the Chinese Zodiac calendar, 2019 is the year of the Pig (starting Feb. 5). I don’t believe in zodiac signs or horoscopes but, interestingly, analyzing S&P 500 returns over the past 90 years indicates:
Below are the nine S&P 500 sector ETFs and their performance for the 14 days heading into the December 24th market bottom, and then their performance for the 14 days since.
As you can see, the sectors that were stretched the farthest to the downside have bounced the highest to the upside. The sectors that held up a little better during the selling have not had nearly the same bounce. This is typical of a market coming off a V-bottom. This does not mean the groups that have bounced the most to this point are the ones that are most capable of leading a new bull market. Those potential leaders are yet to be determined. It simply shows the rubber-band effect off the deeply oversold low.
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Just yesterday, I mentioned 2626 as an important limit for the ES. Well, just to screw with me, they managed to get it to 2626……..and a quarter point. But at least it retreated rapidly afterwards.
Thanks for late-day news about Huawei (which is bound to do wonders for the completely stalled China/US trade talks), the NASDAQ actually managed to close……….gasp……….ever-so-slightly in the red. I thought this was outlawed in 2019.
15 of the last 20 January opex weeks have closed down. And the average January opex week lost about 1%. The max run-up during the week was about 0.8%, while the average drawdown during the same period was about 3x that, at 2.2%. And the stats are all this poor despite last year posting the 2nd strongest up move on a January opex week over the 20-year sample. Here is a chart that shows how the edge has played out over time.
Can’t deny that it’s been a wild few weeks in the financial markets. Although it seems like an eternity, it’s only been ten trading days since U.S. Secretary of the Treasury, Steve Mnuchin, called a special meeting of the President’s Working Group on Financial Markets to ensure that banks had “ample liquidity”. It was Sunday night, a day before Christmas Eve, and the stock market had been falling precipitously for the previous few weeks. Mnuchin was under a lot of pressure from Trump to fix the problem and he figured he needed to do something.
It’s quite evident that the past two weeks of baseless equity strength have infected the minds of everyone, including snarky smoking Slopers who like to pretend the bear market is over. It isn’t. Some choose to be fooled by politicians. I elect to think for myself.
We can see the “spring” in the small caps, for instance, as it nears resistance.
This kind of buying error is worldwide. The emerging markets, still in a yearlong descending channel, are tagging their upper boundary.
With all the griping and bellyaching I do, allow me to just be positive and upbeat for a moment: I think it is so cool we can live in a day and age where I can actually make a living, and provide a valuable service, on a $35 laptop while flying seven miles above the United States. This is just too spiffy. I’m merrily charting away and working on this post, all while airborne. Hurray for living in the modern age!
A few months ago, I would repeat the mantra over and over that “2820 matters”. I was just dying for us to break through that level. When it finally happened, what used to be the floor became a ceiling (see yellow tint below). On three separate occasions, prices tried to get “back on top”, the last of which was the ridiculous Trade Truce G20 nonsense. Thus, support had become resistance, and what a formidable resistance it was.
The strong breadth we have seen recently has caused the 10-day exponential moving average of the NYSE Up Issues % to rise up to 62%. A move through 61.5% after being below 40% within the last 2 weeks is considered a Zweig Breadth Thrust trigger. This is a signal created by Martin Zweig. Over the long haul it has been a rare but powerful signal. Below is a list of all signals since 1970 along with their 20-day returns (using Tradestation data).
All 8 instances saw a runup of at least 3% over the next 4 weeks, and only once did the market pull back as much as even 2.5%. I last showed this study on the blog in 2015. Today I decided to show SPX charts for all the signals. I have labeled the 20-day holding periods shown above on the charts as well.
“Goldilocks with a capital ‘J’,” exclaimed an enthusiastic Bloomberg Television analyst. The Dow was up 747 points in Friday trading (more than erasing Thursday’s 660-point drubbing) on the back of a stellar jobs report and market-soothing comments from Fed Chairman “Jay” Powell.
December non-farm payrolls surged 312,000. The strongest job gains since February blew away both estimates (184k) and November job creation (revised up 21k to 176k). Manufacturing jobs jumped 32,000 (3-month gain 88k), the biggest increase since December 2017’s 39,000. Average Hourly Earnings rose a stronger-than-expected 0.4% for the month (high since August), pushing y-o-y gains to 3.2%, near the high going back to April 2009.
Just 90 minutes following the jobs report, Chairman Powell joined Janet Yellen and Ben Bernanke for a panel discussion at an American Economic Association meeting in Atlanta. Powell’s comments were not expected to be policy focused (his post-FOMC press conference only two weeks ago). But the Fed Chairman immediately pulled out some prepared comments, perhaps crafted over the previous 24 hours (of rapidly deteriorating global market conditions).
“If Santa Claus should fail to call, the bears may come to Broad and Wall.”
That’s the old saying in the financial markets, referring to the “Santa Claus Rally” period which consists of the last 5 trading days of the year plus the first two of the next year. Yale Hirsch first took on the task of quantifying this in his Stock Traders’ Almanac, and in his book, “Don’t Sell Stocks On Monday”.
One disease that afflicts writers of financial commentary…actually, probably commentators in all fields come to think of it…is that when the landscape gets in a ‘rut’ so does our writing. Eventually, if nothing changes about the economy or the market landscape, there isn’t much left to say and thus we (and I really mean “I”) are left repeating ourselves. For those of us who – despite all efforts – aren’t paid for our work, it means that sometimes the right thing to do is to just shut up.
And so that’s what I have done over the last year. As the equity market melted up in somnambulant sameness, as the economy chugged along without major crises or roadblocks…or, anyway, no change in those roadblocks…I wrote less and less. To be sure, part of that was because business was picking up, and this remains an impediment to me writing as frequently as I used to, but much of the reason I didn’t write so much was that not much was changing. There just aren’t many ways you can keep saying “stocks are too expensive, commodities are too cheap, interest rates aren’t at neutral levels, the Fed is screwing up, inflation markets are too low and inflation is rising,” so I took the time to work on other important things.