Eighth Year Pattern Back in Play & MACD Update: On Hold
By: Christopher Mistal
October 18, 2016
For the better part of a year we have been tracking the 8th Year of Presidential Administrations pattern. Early this year, the market was tracking the pattern closely, almost too closely as there were substantial declines in January and into early February before the market rebounded in March and April. From there the market moved sideways until breaking out in July. It was around that time we declared the worst case scenario had been taken off the table and the next timeframe to look out for was in September and October, most notably for DJIA and S&P 500. With the bulk of this period over we can look back and see the market did surrender to typical election-year weakness in September and thus far in October. September’s declines were modest; DJIA –0.5%, S&P 500 –0.1% and NASDAQ +1.9%. Declines so far in October have been greater. At today’s close DJIA is down 0.8%, S&P 500 and NASDAQ are off 1.3% so far this October.
[DJIA 8th Year Seasonal Chart]
[S&P 500 8th Year Seasonal Chart]
[NASDAQ 8th Year Seasonal Chart]
Looking ahead, there are two big dates on the calendar with market moving potential, Election Day, November 7 and the Fed’s announcement on December 15. The Fed does meet on November 1-2, but this meeting will likely be used to indicate to the market that rates will (most) likely be going up at the December meeting. As of today, the outcome of the Election could be the biggest wild card and it is also a dividing line in the charts above.
Whether looking at “All Presidential Election Years” or just “Eighth Years,” the market is usually in rally mode near the end of October. Should the election go as polls suggest then the market will most likely track the “All Presidential Election Years” pattern to finish the balance of 2016. However, the Fed could spoil the last few weeks. Should the election results be too close to call and trigger a recount, then the “Eighth Years” pattern is back in play. An undecided outcome similar to November 2000 (an Eighth Year) would produce uncertainty and could lead to declines similar to those that occurred then. DJIA dropped 5.1%, S&P 500 plunged 8.0% while NASDAQ imploded 22.9% (tech bubble burst, not likely to occur again as valuations are not as extreme now) in November 2000. In the undecided scenario, it would not be surprising to see the Fed skip a rate hike in December in order to provide some relief to the market.
Seasonal MACD Buy Signal Update
As of today’s close, our Seasonal MACD Buy Signal is still on Hold. Our 8-17-9 MACD “Buy” indicator applied to DJIA, S&P 500 and NASDAQ are all negative. In order to issue our Seasonal MACD Buy Signal, DJIA, S&P 500 and NASDAQ MACD “Buy” indicators need to signal a new “Buy” and all be in agreement.
[DJIA Daily Bar Chart]
[S&P 500 Daily Bar Chart]
[NASDAQ Daily Bar Chart]
While we await the all-clear signal, numerous open trade ideas in the Almanac Investor ETF and Stock portfolios can still be considered on dips below their respective buy limits. Election and Fed uncertainty has created volatility that is delaying the start of the “Best Months,” but we still anticipate respectable market performance in the wake of the election outcome and the Fed. It will likely be a bumpy road, but as long as fundamentals don’t take a turn for the worse and earnings continue to hold up, the path higher is available.