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.
Last week we published the 2018 End of Year Special Edition of the Weekly Macro Themes report – a summary of some of the best, worst, and most notable charts of 2018 (and the ones to watch in 2019). This article brings you a look at an interesting section of the report: “The 2018 People’s Choice Charts”. In this post we look at the 5 most popular charts we tweeted this year as ranked by views and engagement. I’m sure you along with our Twitter followers will find the charts interesting and insightful – of course if you think we missed one that should be included please get in contact.
Also, keep an eye on our Twitter account as we’ll be posting updated versions of these charts shortly [n.b. these charts are not updated to the latest (to help explain why folk were so interested in them at the time)]
1. This one raised a lot of eyebrows – a combined view of leveraged bets on US stocks… close to half a trillion in leverage added by traders in the past 5 years. The unwind however has begun.
Equities bottomed early on Wednesday the 26th and rocketed higher, partially undoing the damage for the Christmas Collapse. The Dow managed to tack on about 1500 points to its low, and I suspect equity bulls will enter 2019 limping but relatively optimistic.
As I look at the charts, some of them make me wonder “is that all they’ve got?” In other words, it only took a few trading days to push prices back up to shortable levels, such as with the NASDAQ:
Or the “Ultra Dow” (this is a two-times leveraged fund against the Dow 30):
The Federal Reserve hiked interest rates for the 9th time this month, bringing the Fed Funds Rate up to a range of 2.25% – 2.50%.
The move should have surprised no one, as the bond market was pricing it in for some time. Over the past 3 years, at every FOMC meeting where the market expected a Fed hike (9 meetings), they got one.
While many were critical of the move, a hike was necessary for the Fed to maintain its credibility. They had been signaling a December hike for months, and had they refrained many would have viewed it as a sign of weakness, bowing to political pressure from President Trump.
The last day of the year used to be consistently bullish for the market. But that has changed since the turn of the century. This is true across a number of indices. The most dramatic example is the NASDAQ, which I highlighted here on the blog a few years ago. I have updated the chart below.
Closing up 29 years in a row is fairly astounding. Just as astounding is the abrupt reversal and move lower for 15 of the next 18 years. I have no good explanation for why such a formerly consistent edge changed, but it did.
Even though I believe we’re in for more big “up” days similar to yesterday in the near future, I have preserved a small stable of short positions whose patterns are still good enough to keep (at least until such time as they may be stopped out). I therefore offer you my tiny gallery of twelve remaining shorts:
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The big bounce day on Dec. 26, 2018 saw NYSE Up Volume of more than 10x the amount of Down Volume, distinguishing it as a “10-1 Up Volume Day”. These are pretty special days, because they do not come along very often. They are also special because the interpretation of what one of them means depends on the context in which it appears.
Generally speaking, a 10-1 Up Volume Day which appears in the middle of an up move can mark a blowoff end for that up move. But a 10-1 Day which appears right after a serious decline usually marks strong upward initiation, and a reversal of that decline. This latest instance fits into that latter condition.