S&P In the Process of Forming its First Down Week of December
By
Rennie on Monday, December 1st, 2008 at 11:30 pm
Seasonally, buying the first down week in December is typically a winning trade. The table below lists each of the last thirty instances in which the S&P posted its first lower bar on the weekly chart during the month of December (no signals were triggered in 1991 or 2003 as there were no down weeks.) Note that in every case but one, the S&P posted a higher weekly close within six weeks.
S&P500 Posts its First Down Week in December
12/14/07 Buy SPX 1467.95… +1.1% one week later
12/01/06 Buy SPX 1396.72… +0.9% one week later
12/02/05 Buy SPX 1265.08… +0.2% two weeks later
12/10/04 Buy SPX 1188.00… +0.5% one week later
No Down Weeks in December 2003
12/06/02 Buy SPX 912.23… +1.7% five weeks later
12/14/01 Buy SPX 1123.07… +1.9% one week later
12/01/00 Buy SPX 1315.18… +4.2% one week later
12/10/99 Buy SPX 1417.04… +0.3% one week later
12/04/98 Buy SPX 1176.46… +1.0% two weeks later
12/12/97 Buy SPX 953.39… +2.3% three weeks later
12/06/96 Buy SPX 739.60… +1.3% two weeks later
12/15/95 Buy SPX 616.34… +0.1% three weeks later
12/09/94 Buy SPX 446.97… +2.6% one week later
12/10/93 Buy SPX 463.93… +0.5% one week later
12/24/92 Buy SPX 439.77… +2.1% six weeks later
No Down Weeks in December 1991
12/14/90 Buy SPX 326.82… +1.5% one week later
12/08/89 Buy SPX 348.69… +0.4% one week later
12/16/88 Buy SPX 276.28… +0.6% one week later
12/04/87 Buy SPX 223.87… +5.1% one week later
12/12/86 Buy SPX 247.35… +1.0% one week later
12/27/85 Buy SPX 209.61… +0.6% one week later
12/07/84 Buy SPX 162.26… +0.3% one week later
12/02/83 Buy SPX 165.44… +2.3% five weeks later
12/17/82 Buy SPX 137.49… +1.6% one week later
12/11/81 Buy SPX 124.93… -7.6% six weeks later (*)
12/05/80 Buy SPX 134.03… +1.9% three weeks later
12/21/79 Buy SPX 107.59… +0.2% one week later
12/15/78 Buy SPX 95.33… +1.0% one week later
12/02/77 Buy SPX 94.67… +0.0% three weeks later
12/03/76 Buy SPX 102.76… +1.9% one week later
While it looks like the S&P is in the process of posting its first down week of December, I won’t be adding this setup to the board despite its solid track record. The reason is the same reason that I declined to add the market’s typically strong performance in the last two months of the year. From my November 5th commentary…
“Given that the current environment more closely resembles the early 1930′s than the past thirty years, we should examine the Dow’s performance in the November-December period back then to get an idea of how that seasonal setup might play out this time around. In the fifteen-year period from 1929 through 1943, the Dow managed to rally the last two months of the year only six times. That 40% win rate is far below the 87% win rate over the last thirty years. And when you examine the nine years in which the market fell in November-December, there were some unusually steep losses… So while we’re in what has been a seasonally bullish time frame in recent years, I think it’s dangerous to presume the market will follow its usual sideways-to-up path this time around.”
TICKscore settled at -67 Monday, Cumulative TICK at -112,500, sending the 20-day average below its November low. Institutional sellers were out in force, leading to a 99% down volume day on the NYSE, with declining volume outpacing up volume by a massive 80:1 margin. As I noted in my November 19th column concerning down/up volume ratios in excess of 20… “While the market has a tendency to rally the next day, it’s not a statistically significant edge. And given the extreme nature of today’s reading, not just 20:1 but over 50:1, caution should be exercised. In the last fifty years, there have only been six days in which down volume outpaced up volume by a 50:1 margin. Half of the time the market was lower three sessions later”
On October 23rd, I wrote… “The Nasdaq/NYSE Volume Ratio continues to move in the wrong direction. We should be seeing a reduction in NASDAQ volume relative to NYSE volume as the market trades lower – but we’re not. This is due to a combination of light institutional participation and stubbornly high speculative participation, and it’s bad news for anyone hoping for a sustainable bottom.” I bring this up today because over the past week, we’ve finally seen a string of average and even below-average readings from this sentiment indicator, suggesting speculators are finally starting to throw in the towel. The 20-day average closed below the 1.50 level and looks like it might actually stay below, which would mark the first time in seven months that the ratio has closed definitively below 1.50. That’s not necessarily a positive sign. Back in 2000, when the 20-day average held above 1.50 for nineteen months (the only comparable period), the market didn’t bottom until the moving average had fallen all the way to 1.0. It took a near-total elimination of speculative excess before the market shifted from weak hands to strong, and it’s quite possible we’ll need to see a similar purging of speculative excess this time around. The good news is that unlike a month ago, it looks like this process may finally be underway. The bad news is that back in 2000, when the 20-day average closed below 1.50 in June of 2001, it took another fourteen months before the average hit 1.0. And the Nasdaq, despite being down 60% from its peak in 2001, was cut in half yet again in that fourteen-month period.
S&P In the Process of Forming its First Down Week of December
By Rennie on Monday, December 1st, 2008 at 11:30 pmSeasonally, buying the first down week in December is typically a winning trade. The table below lists each of the last thirty instances in which the S&P posted its first lower bar on the weekly chart during the month of December (no signals were triggered in 1991 or 2003 as there were no down weeks.) Note that in every case but one, the S&P posted a higher weekly close within six weeks.
S&P500 Posts its First Down Week in December
12/14/07 Buy SPX 1467.95… +1.1% one week later
12/01/06 Buy SPX 1396.72… +0.9% one week later
12/02/05 Buy SPX 1265.08… +0.2% two weeks later
12/10/04 Buy SPX 1188.00… +0.5% one week later
No Down Weeks in December 2003
12/06/02 Buy SPX 912.23… +1.7% five weeks later
12/14/01 Buy SPX 1123.07… +1.9% one week later
12/01/00 Buy SPX 1315.18… +4.2% one week later
12/10/99 Buy SPX 1417.04… +0.3% one week later
12/04/98 Buy SPX 1176.46… +1.0% two weeks later
12/12/97 Buy SPX 953.39… +2.3% three weeks later
12/06/96 Buy SPX 739.60… +1.3% two weeks later
12/15/95 Buy SPX 616.34… +0.1% three weeks later
12/09/94 Buy SPX 446.97… +2.6% one week later
12/10/93 Buy SPX 463.93… +0.5% one week later
12/24/92 Buy SPX 439.77… +2.1% six weeks later
No Down Weeks in December 1991
12/14/90 Buy SPX 326.82… +1.5% one week later
12/08/89 Buy SPX 348.69… +0.4% one week later
12/16/88 Buy SPX 276.28… +0.6% one week later
12/04/87 Buy SPX 223.87… +5.1% one week later
12/12/86 Buy SPX 247.35… +1.0% one week later
12/27/85 Buy SPX 209.61… +0.6% one week later
12/07/84 Buy SPX 162.26… +0.3% one week later
12/02/83 Buy SPX 165.44… +2.3% five weeks later
12/17/82 Buy SPX 137.49… +1.6% one week later
12/11/81 Buy SPX 124.93… -7.6% six weeks later (*)
12/05/80 Buy SPX 134.03… +1.9% three weeks later
12/21/79 Buy SPX 107.59… +0.2% one week later
12/15/78 Buy SPX 95.33… +1.0% one week later
12/02/77 Buy SPX 94.67… +0.0% three weeks later
12/03/76 Buy SPX 102.76… +1.9% one week later
While it looks like the S&P is in the process of posting its first down week of December, I won’t be adding this setup to the board despite its solid track record. The reason is the same reason that I declined to add the market’s typically strong performance in the last two months of the year. From my November 5th commentary…
“Given that the current environment more closely resembles the early 1930′s than the past thirty years, we should examine the Dow’s performance in the November-December period back then to get an idea of how that seasonal setup might play out this time around. In the fifteen-year period from 1929 through 1943, the Dow managed to rally the last two months of the year only six times. That 40% win rate is far below the 87% win rate over the last thirty years. And when you examine the nine years in which the market fell in November-December, there were some unusually steep losses… So while we’re in what has been a seasonally bullish time frame in recent years, I think it’s dangerous to presume the market will follow its usual sideways-to-up path this time around.”
TICKscore settled at -67 Monday, Cumulative TICK at -112,500, sending the 20-day average below its November low. Institutional sellers were out in force, leading to a 99% down volume day on the NYSE, with declining volume outpacing up volume by a massive 80:1 margin. As I noted in my November 19th column concerning down/up volume ratios in excess of 20… “While the market has a tendency to rally the next day, it’s not a statistically significant edge. And given the extreme nature of today’s reading, not just 20:1 but over 50:1, caution should be exercised. In the last fifty years, there have only been six days in which down volume outpaced up volume by a 50:1 margin. Half of the time the market was lower three sessions later”
On October 23rd, I wrote… “The Nasdaq/NYSE Volume Ratio continues to move in the wrong direction. We should be seeing a reduction in NASDAQ volume relative to NYSE volume as the market trades lower – but we’re not. This is due to a combination of light institutional participation and stubbornly high speculative participation, and it’s bad news for anyone hoping for a sustainable bottom.” I bring this up today because over the past week, we’ve finally seen a string of average and even below-average readings from this sentiment indicator, suggesting speculators are finally starting to throw in the towel. The 20-day average closed below the 1.50 level and looks like it might actually stay below, which would mark the first time in seven months that the ratio has closed definitively below 1.50. That’s not necessarily a positive sign. Back in 2000, when the 20-day average held above 1.50 for nineteen months (the only comparable period), the market didn’t bottom until the moving average had fallen all the way to 1.0. It took a near-total elimination of speculative excess before the market shifted from weak hands to strong, and it’s quite possible we’ll need to see a similar purging of speculative excess this time around. The good news is that unlike a month ago, it looks like this process may finally be underway. The bad news is that back in 2000, when the 20-day average closed below 1.50 in June of 2001, it took another fourteen months before the average hit 1.0. And the Nasdaq, despite being down 60% from its peak in 2001, was cut in half yet again in that fourteen-month period.