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December 21 2013 – Weekend Market Comment

December 21 2013 – What can I say we are enjoying a fantastic Santa Clause Rally. All the charts look like clear sailing and no one has a negative thing to say. In short the markets at least in the USA are on a parabolic buying spree.

U.S. stocks rose, with the Standard & Poor’s 500 Index capping its biggest weekly gain since October, as data showing faster-than-estimated growth boosted confidence in the world’s largest economy.

The Standard & Poor’s/TSX Composite Index (SPTSX) increased 7.40 points, or less than 0.1 percent, to 13,399.60 at 4 p.m. in Toronto. That’s the highest level for the benchmark since Dec. 2 as it capped a gain for the week of 2.1 percent. The index trimmed earlier gains of as much as 0.8 percent in the final half-hour. Trading of stocks in the index was 75 percent higher than the 30-day average. Stronger-than-expected U.S. GDP is a positive for Canada and more so a positive for cyclical stocks like energy, materials and financials Energy and materials are creeping up and they weigh heavily on the indexes.

The NYSE new high low graph was looking fragile before the fed announcement, but now clearly the bull is back.

The NYSE above 50 day average graph is very positive and shows just how far this bull might run

Things are rosy on the NASDAQ as tech turns around and look poised for a run.

Of course the VIX is plunging. in reaction to the strength of the US economy. The VIX tumbling 12% after the Fed announcement. Prior to that, the VIX had risen mildly as traders took on "put" protection against their stock holdings. Those put positions were liquidated as the day went on and the VIX tumbled. That reflects a huge sigh of relief that the process of unwinding the five-year program of quantitative easing has finally begun. The fact that the tapering reflects stronger economic conditions has also made the modest Fed move easier to take. The markets like the fact that some of the uncertainty has finally been removed. The fact that the second half of December is usually strong also provides a tailwind for the stock market which should carry into the new year.

The YP primary sell is back in bull mode.

OK only one of my graphs are not in party mode, the green arrow graph is rather limp. This is because small caps are not leading the rally. That is very odd.

What Works Now
My top performing pick is Tripadvisor up almost 2% in a week

followed closely by CTSH

Also enjoying a nice week -- MasterCard

Dry Ships
Back in 2007 the darling stock was Dry Ships. As China consumed space on every cargo ship in the Atlantic the price of space rose. The befit went right to the shipping companies. Freight traders are hiring record numbers of iron-ore carriers in the spot market as mainland steel production expands at the fastest pace in three years, spurring the biggest rally in shipping rates since 2009. Daily rates for capesizes, each hauling about 160,000 tonnes, jumped to a 34 month high of USD 42,211 on September 25, according to the Baltic Exchange, which publishes shipping costs for more than 50 marine routes.

You can read all about it here in Benzinga. Also Bloomberg On Dec 17 had a great piece on the new demand from China.

As you can see from the graph DRYS is on a clear rebound

There are many implications for this, since the demand is from Iron Ore you might look at Canadian mining stocks, Shipping companies and even a potential rebound in Chinese equities. It could be 2006 all over again!

A Bit About 2014
The "presidential stock market cycle" says that stocks perform better or worse depending on the year of the president's term. The second year is the worst, and the third is the best, on average.

Specifically, since 1945, the second year of a president's term saw the S&P 500 gain 5.3% in price on average, versus 16.1% in the third, according to an analysis by S&P Capital IQ. No distinction is made between a president's first or second term. The clock simply starts over.

Of course, the figures are averages, so not all years follow the cycle in lock step. Still, the third year sees the index gain 88% of the time; the second year, only 59%. The second-year subpar performance is actually even worse for the first nine months of the year; losses average 0.5% then.

This is no new phenomenon. A 1992 analysis published in the Financial Analysts Journal compared the Dow Jones Industrial Average and the cycle from 1901 through 1990. That data also showed second years were subpar and third years best.

Looking at this graph, the vertical bars show the last six bottoms occurring in 1990, 1994, 1998, 2002, 2006, and 2010. Earlier four-year patterns (not shown here) occurred in 1970, 1974, 1982, and 1987 (the cycle skipped 1978 while 1987 was a year late). Most of those bottoms took place during the second half of those years (mainly around October), and have coincided with midterm congressional elections. Assuming the four-year pattern repeats, the next bottom is due in 2014 and most likely during the fourth quarter. 

But keep one thing in mind, all of this prior data was not in a period following the massive 2008 sell off. We are only now returning to a normal market. 

Merry Christmas to all