#$ixic

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More Gains Likely in December, the Third Best Month of Year

December is the number three Dow Jones Industrials and S&P 500 month since 1950, averaging gains of 1.6% and 1.5% respectively. It’s also the third-best NASDAQ (since 1971) month. It is the second-best month for Russell 2000 (since 1979). The market rarely falls precipitously in December and a repeat of 2018 does not seem highly likely this year. In 2018, DJIA suffered its worst December performance since 1931 and its fourth worst December going all the way back to 1901. When December is down it is usually a turning point in the market—near a top or bottom. If the market has experienced fantastic gains leading up to December, stocks have consolidated in the first half of the month.

In the last eighteen election years, December’s ranking changes modestly to #2 for DJIA and S&P 500, NASDAQ’s slips to fifth place. Small caps, measured by the Russell 2000, have had a field day in election-year Decembers. Since 1980, Russell 2000 has lost ground just once in eleven election-year Decembers. The average small cap gain in all eleven years is a solid 3.5%. The Russell 2000’s single loss was in 1980 when the Prime Rate was 21.5%.

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Trading Mixed Before Memorial Day Weekend

Friday before the long Memorial Day weekend can be a getaway day on The Street and trading can be lackluster with light volume. Dow has been up 12 times in the last 21 years with an average gain of just 0.05%. S&P has a modestly better record, with one additional advance and an average gain of 0.16%. NASDAQ has the best record on Friday, up 14 of 21 and averages a decent 0.38% gain. Russell 2000 has the fewest advances on Friday, but a still solid 0.30% gain.

Based upon average performance, Thursday has been the best overall day before Memorial Day with average gains ranging from 0.07% from DJIA to a respectable 0.34% by NASDAQ. However, based upon frequency of gains is Friday is better, except for Russell 2000. Coming into 2025, NASDAQ was up 9 straight Fridays. Wednesday has been the softest of the three days with DJIA and S&P 500 performance turning negative.

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Market Historically Stronger Before Good Friday Holiday Than After

Good Friday is the one NYSE holiday with a clear positive bias before and negativity the day after (Stock Trader’s Almanac 2022, page 100). DJIA, S&P 500, NASDAQ and Russell 2000 all have solid average gains on the day before but are all net losers on the day after Easter since 1980.  NASDAQ has been notably strong, up 20 of the last 21 days before Good Friday with an average gain of 0.93%. The one loss occurred in 2017, off 0.53%. This year, the day before Good Friday is also April’s monthly options expiration day which also has a bullish historical track record. 

However, the day after Easter has the worst post-holiday record though average losses are steeper after Presidents’ Day. The S&P 500 was down 16 of 20 years from 1984-2003 on the day after Easter but is has been up 12 of the last 18 years.

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Strong Starts Hog Gains for the Year

Big gains the first four months of 2019 have some Wall Street pundits and analysts concerned. While strong starts for the market for the first four months of the year don’t leave much for the rest of the year, it is by no means a negative implication or bearish indication. S&P 500 leads the pack with its 17.5% gain coming in at #3 since 1950. NASDAQ’s 22.0% gain is the 5th best first four month since 1971. DJIA’s 14.0% rise is number 9.

In the tables below we have displayed the top 20 first four month gains for the three major U.S. market indices with the subsequent changes for May, Rest of the Year, “Worst Six Months” May-October, 2nd half July-December and full year performance. While most of the full year gains are clearly logged in these big first-four-month gains, there still upside to be had in the latter part of the year.

As you might expect May is weakest for DJIA and S&P and the Worst Six Months are hit hardest mostly after the strongest starts. The major blemish is course in 1987, with other critical givebacks in 1971and 2011. Other significant issues arose in 1975, 1983, 1986 and1998. Basically, if you take 1987 out of the equation the rest of the year after strong starts aint so bad. Average gains are about equal to historical average annual gains. Rest of the year gains sans 1987: DJIA 7.3%, S&P 500 8.7%, NASDAQ 12.6%.

[jeffhirsch]

NASDAQ’s Weekly Streak Intact: 6 of Last 8 Streaks Continued

Alright, so DJIA failed to stretch its weekly winning streak to ten last week. NASDAQ, however did post a weekly gain for its tenth week in a row. The current streak is NASDAQ’s ninth to reach ten or more weeks since 1971. During the current streak NASDAQ gained 19.93% at Friday’s close compared to an average gain of 23.93 for the previous eight streaks. Of the past eight streaks, six lasted into an eleventh week or longer. The longest weekly streak for NASDAQ was fifteen beginning in December 1971 and lasting until March 1972.

Click here to view full-size

Similar to DJIA’s performance following streaks of nine or more weeks, when NASDAQ streaks of ten or more weeks came to an end performance one month later was something of a mixed bag with NASDAQ higher just 50% of the time. At three months after NASDAQ’s performance was better, up 7.52% on average. Beyond this point, NASDAQ’s performance was rather lackluster with only the slightest improvement in gains at the six-month point and even less one year later. Even if NASDAQ’s 1999 streak is excluded from averages, performance is still essentially flat beyond three months after the previous streaks ended.

In the above chart, the 30 trading days before and 60 trading days after the eight previous NASDAQ ten week or longer winning streaks are plotted (a typical month has approximately 21 trading days). Unlike DJIA’s chart, NASDAQ historically recovered much quicker after its streak ended with solid gains during the approximately three months after.

[jeffhirsch]

Flirtin’ With Disaster

The market has been showing is dissatisfaction with the Fed for the past two and a half months now. Today’s market action brought the Dow Jones Industrials, S&P 500 and NASDAQ Composite below their early 2018 closing lows intraday today: Dow 23533, S&P 2581 and NASDAQ 6777.

Only the Dow was able to rally enough at the end of the day to close above its 2018 closing low. S&P and NASDAQ did make new 2018 closing lows today. Two out of three is bad, but the Dow Industrials holding above that low is slightly encouraging – and holds off the dreaded Dow Theory Sell Signal.

If all three violate these 2018 lows more selling becomes more probable as there is little support below that. Next levels of support are found way back at the August 2017 lows around Dow 21700, S&P 2425 and NASDAQ 6200.

The Fed remains the single biggest risk to the market and the economy. As we said in our Market at a Glance last month: “After nearly a decade at zero, a brief pause to evaluate the impact of recent hikes does not seem unreasonable.” Stanley Druckenmiller echoed this in his commentary over the weekend in The Wall Street Journal.

If the Fed goes ahead as planned with its next quarter-point increase this week, or doesn’t raise rates, but conveys or emphasizes that it is data dependent and not committed to more hikes in 2019 and that rates are close to normal and if the market can hold here then Santa Claus has a chance for a ride down Wall Street. Any hints of hawkish rhetoric will not be well received.

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What Happened Last Time We Had 2% Moves?

The last time we had this type of market volatility with daily moves of 2% or more was February 2018. What happened there? Volatility spike, lots of business news “death of stocks” specials, investor indigestion, a bumpy ride for a few weeks, then a rally and new highs. The last time we had 2.0+% moves in a day prior to February 2018 were:

In November 2016 we had a big upmove the day before the Trump election. Change in party will do that. Ahead of that same election we were down over 2% on September 9, 2016, which ended S&P 500’s streak of trading days without a +/- 1% move at 43. From our September 13, 2016 Subscriber Alert: “Some will point to the Fed, others economic data, the election or some combination of these possible reasons for the spike in volatility and the market’s declines. Regardless of the exact reason, the outcome is stacking up to be rather typical September market behavior.”

On the day after Brexit Vote S&P 500 was down -3.6% June 24, 2016 in the teeth of the seasonally weak period at the end of June and Q2 Triple Witching options and index futures expiration. Prior to that we saw positive and negative 2% moves in January/February 2016 that came around that mini bear market bottom on February 11, 2016.Then in August- September 2015 deep in the heart of the Worst Six Months there was a host of moves of this magnitude. VIX also spiked then.

Our research shows we are most likely to see more of the same at present, so wait for our Tactical Seasonal Switching Strategy MACD Buy Signal before you jump back in with two feet.

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[jeffhirsch]

Can Oil, Rates & Stocks Rally Together?

Well, yes, sometimes, rarely actually. In case you were not up at 5am ET today for  my on-air chat with Brian Sullivan (@SullyCNBC) who is now hosting CNBC’s Worldwide Exchange (@CNBCWEX) show, you missed amongst other things, in light of the current rising oil and rate and shaky stock environment, our discussion on the  history of stocks being able to sustain a rally or uptrend when both oil prices and interest rates were on the rise.

The 10-Year closed above 3% yesterday spooking stocks along with the fear of peak earnings and growth deceleration. I think folks have over reacted a bit, but with the Worst Six Months (May-October) upon us, it’s worth taking note.

Initially I was hard-pressed to find an instance in history when oil, rates and stocks all maintained a sustained rise. Sully and the CNBC stats folks did not uncover any either. However, when I reconnoitered the data sets, time frames and reference points I made a potentially significant discovery.

Using the St. Louis Fed’s trusty and handy FRED® Database tool, I found that when comparing the NASDAQ 100 index to oil prices and interest rates we did have a noteworthy occurrence from late 1998 to early 2000 when all three rallied together. In the chart above I have crudely (pun intended) highlighted this period with a yellow circle and red arrows.

With the adjustments I made for the vast differences in price levels of interest rates, crude oil and the NASDAQ 100, the present somewhat resembles 1998-2000. I am not suggesting the market is at a similar juncture at this point in time – at least not yet – and perhaps I am a bit guilty of torturing the data, but nevertheless I find this discovery thought provoking.

For comparison with slightly different data sets that go back further so we can compare the halcyons day of the 1970s stagflation and epically high interest rates along with embargo and crisis fueled crude prices. As you can see stocks were unable to maintain a sustained rise until rates and oil came down in the mid-1980s.