Technical Stock Market Report

The good news is:  At the rate of decline for the year so far, the end must be near.

The negatives:  The major indices were down 6% - 8% last week.  There is not much more I can say.

The chart below covers the past 6 months showing the S&P500 (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 vertical lines have been drawn on the 1^st trading day of each month.  Dashed horizontal lines have been drawn at 10% levels for the indicator, the line is solid at the 50%, neutral level.

Heading for the bottom in a hurry.

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

Similar pattern, but with a clear sequence of lower highs and lower lows.

The positives:  By the time this is over all of the weak hands will have been shaken out.

Nothing suggests we have reached that point.

Money supply (M2) & Yield curve

The charts were provided by Gordon Harms.

Money supply growth stabilized to increase.

The next chart shows the yields of 2yr – 30yr Treasuries over the past 25+ years.  An inverted yield curve has always been a reliable indicator of an impending recession.  There is no suggestion of that in the chart below, on the other hand, interest rates have never been this low or subjected to this much blatant manipulation.

Presidential Year 4 (PY4)

Since 1963, over all years, the OTC has been up 73% of the time with an average annual gain of 13.3%.  In the 4^th year of the Presidential Cycle the OTC has been up 77% time with an average annual gain of 8.3% making it the 3^rd best year of the 4 year cycle.  The best ever 4^th year for the OTC was 1980 (+33.7%), the worst 2008 (-40.5%).

The chart below has been calculated by averaging the daily percentage change of the OTC in a pattern similar to what I use to calculate the monthly charts.  The monthly charts are then strung together to make an average year.  Dashed vertical lines have been drawn on the 1^st trading day of each month.

In the chart below the blue line shows the average of the OTC over all years since 1963 while the black line shows the average during the 4^th year of the Presidential Cycle over the same period.

Since 1928, over all years, the SPX has been up 67% of the time with an average annual gain of 7.5%.  In the 4^th year of the Presidential Cycle the SPX has been up 73% time with an average gain of 7.0% making it the 2^nd best year of the 4 year cycle.  The best ever 4^th year for the SPX was 1928 (+37.5%), the worst 2008 (-38.5%).

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

Since 1979, over all years, the Russell 2000 (R2K) has been up 69% of the time with an average annual gain of 11.3%.  In the 4^th year of the Presidential Cycle the R2K has been up 67% time with an average gain of 7.8% making it the 3^rd best year of the 4 year cycle.  The best ever 4^th year for the R2K was 1980 (+33.8%), the worst 2008 (-34.8%).

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

Since 1885, over all years, the Dow Jones Industrial Average (DJIA) has been up 65% of the time with an average annual gain of 7.1%.  In the 4^th year of the Presidential Cycle the DJIA has been up 69% time with an average gain of 6.9% making it the 2^nd best year of the 4 year cycle.  The best ever 4^th year for the DJIA was 1928 (+48.2%), the worst 2008 (-33.8%).

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 4^th year of the Presidential Cycle in black.

Conclusion

The market is in free fall.  There could be a spectacular bounce at any time! However,  there has been no sign of a bottom.

I expect the major averages to be lower on Friday January 15 than they were on Friday January 8.

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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.