June Outlook: New Highs Elude End of NASDAQ Best 8 Months
By: Jeffrey Hirsch & Christopher Mistal
May 31, 2016
Political, economic, fundamental and technical crosscurrents continue to plague the stock market. On the positive bullish side of things the Dow and S&P have posted gains for the first five months of this election year. In election years when the first five months have been positive it has been an indication that the incumbent party retains the White House. And when the incumbent party stays in power the market has performed better for the full year.
Hence we can deduce that the market expects Hilary Clinton to win and that will be just fine, because it will mean a likely continuation of the same or similar policies and agenda as under the Obama administration, providing a greater degree of certainty as to what to expect from Washington. With Donald Trump as a political newcomer, running an unpredictable campaign, Wall Street can’t possibly have a clue as to what a Trump administration would do and mean for the market.
If Trump begins to gain traction and the Clinton and Sanders continue to divide the Democratic Party, the market may falter in fear of an uncertain and unpredictable presidency. Today’s sell off, though intraday losses were pared, is an illustration of how fragile this bull is. This very volatile May is up for the month across the board, ending on a less the stellar note and NASDAQ remains in the red for the year.
With economic data and corporate results mixed, and the presidential campaign resembling something of a daytime talk show, the inability of the market to log new highs and struggle to gather momentum technically at the outset of the end of the Best 8 Months is quite a bit disconcerting. The longer we go without making a new high the greater the chance of a deeper decline.
Pulse of the Market
As of last Friday’s close, both the faster and slower moving MACD indicators applied to DJIA were positive (1) after spending the previous five weeks negative. The same indicators applied to NASDAQ were also positive and it would take a massive 380 point (7.7%) single-day drop to turn them negative. June 1 is the earliest we can issue our Tactical Seasonal Switching Strategy MACD Sell for NASDAQ. Based upon that sizable one-day loss, this will most likely not happen on the first trading day of June.
For the first time since February, DJIA slipped below its 50-day moving average (2) (solid black line) in May. A frequently considered bullish “golden” cross, defined as when the 50-day moving averages rises above the 200-day moving average, appeared on DJIA’s chart just as it stalled out just below its previous all-time high in mid-April. Aside from last week, this “golden” cross was followed by four straight weeks of DJIA losses (3).
Dow Jones Industrials & MACD Chart
Since the start of April, DJIA has been down in five of the last nine weeks (3). In this same time period, DJIA’s performance on Fridays and Mondays has been a seesaw battle between bulls and bears. Neither has gained and held an advantage as an up Friday was followed by a down Monday and vice versa (4). Over the same period S&P 500 and NASDAQ have fared about the same a DJIA. NASDAQ (6) has five declines in nine weeks; S&P 500 (5) has one less decline.
Other than end ending May 20th, NYSE Weekly Advancers and Weekly Decliners (7) have behaved as expected. Decliners did outnumber Advancers that week even as S&P 500 and NASDAQ posted weekly gains. The steady rise in New 52-week Highs in late-April and early-May was most likely the result of strength in precious metals and energy as major indices actual posted losses. Both New Highs and Lows have declined for two straight weeks (8) somewhat confirming the muddled nature of the market.
Weekly CBOE Put/Call sank to its lowest level of 0.59 last week (9). The last reading this low was logged during Christmas week last year. This was just before the market came unraveled in January.
Click for larger graphic…
Pulse of the Market Table