Dow Now Overbought 24 Trading Days and Counting
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The Dow Jones Industrial Average has now closed in “overbought” territory (more than one standard deviation above its 50-day moving average) for 24 consecutive trading days, which is also the number of trading days we have seen since Election Day. Below is a chart showing consecutive “overbought” closes for the Dow since the current bull market began back on March 9th, 2009. As shown, while 24 consecutive “overbought” days is one of the longer streaks we’ve seen over the last 8 years, there have actually been 9 streaks that have gone on longer.
While the Dow’s current streak of consecutive “overbought” days is only the 10th longest streak of the bull market at the moment, it’s likely going to last quite a bit longer because of just how extended the index still is. Below is a chart showing the number of standard deviations that the Dow has traded above or below its 50-DMA on a daily basis since March 2009. As shown, the post-election surge recently took the index to its most overbought level of the entire bull market when it crossed above three standard deviations. Even through yesterday, the Dow was still more than 2.25 standard deviations above its 50-DMA, so it’s now going to take either a significant drop or a multi-week period of sideways trading for the index to move from “overbought” back to “neutral.” One way or the other, though, this streak will end.
The Closer 12/13/16 – Import Prices, Small Cap Surge
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Looking for deeper insight on global markets and economics? In tonight’s Closer sent to Bespoke Institutional clients, we review recent changes in import prices, flows in to small cap ETFs, and the relative bullishness of options markets on small caps versus large caps.
The Closer is one of our most popular reports, and you can see it and everything else Bespoke publishes by starting a no-obligation 14-day free trial to our research!
S&P 50-Day Moving Average Spread Approaches +5%
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We know it’s easy to get caught up in “rally mode,” but always remember that prices do go down from time to time. Earlier today we published two B.I.G. Tips reports looking at year one of the Presidential Election Cycle and Fed rate hikes after long pauses that actually throw a splash of cold water on the thesis that equity prices are set to surge even further. If you’re not yet a member, you can sign up for one month of Bespoke Premium at this page to see the two reports. We think it’s worth pointing out that the S&P 500 is currently 4.8% above its 50-day moving average. Below is a chart of this S&P 500 “50-day moving average spread” reading going back to early 2008. While 5% is not the be-all, end-all that marks a top, as you can see, it is a level that has typically marked a near-term peak in this reading over the last five years. Just something to keep in mind as we approach the new year.
Forget 20,000, What About S&P $20 Trillion?
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Dow 20,000 is currently the “talk of the Street” with the index trading less than 100 points from this psychological milestone that has never been reached. But a much less widely followed milestone that also has a “20-handle” has come into play during the “Trump Rally” as well. What is it?
Last Wednesday, the combined market cap of the S&P 500’s members crossed $20 trillion for the first time ever. Below is a chart showing the S&P 500’s market cap going back to the turn of the millennium. After touching a low of $6.1 trillion at the lows of the Financial Crisis in early 2009, the S&P’s market cap has risen by more than $14 trillion to its current level of $20.2 trillion. Beat that Dow 20,000.
Dow Jones Thousand Point Thresholds
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With the Dow Jones Industrial Average (Dow) getting ever so close to 20,000 after only first crossing 19,000 to the upside 21 days ago, we wanted to provide a look at prior 1,000 point thresholds in the DJIA and how many times the index has crossed above (and below) each one of them. The table below lists each 1,000 point threshold for the DJIA from 1,000 to 20,000. For each level we have included the date the DJIA first crossed each 1,000-point threshold to the upside, the number of days that elapsed between the first cross of that 1,000-point threshold and the prior one, what percentage 1,000 points represents of each threshold, and then finally how many upside, downside, and total crosses each threshold has seen.
Looking at the table, a couple of trends are worth highlighting. The first is that with each 1,000-point threshold the DJIA crosses, the percentage that 1,000 points represents declines. For example, when people were focused on Dow 10,000 in 1999, 1,000 points represented 10% of the index. At 20,000, though, 1,000 points only represents 5%. That’s just basic math but is important to remember. A second notable aspect of the table worth pointing out is that even though equities remain in one of their longest bull markets on record, the road from 18,000 to 19,000 was a relatively long one. Even though it represented a gain of just over 5%, it took the DJIA nearly two years to get to 19,000 after first crossing 18,000. Of the 18 other 1,000 point thresholds shown, the time that elapsed between 18K and 19K was the sixth longest. In other instances, long gaps between thousand point thresholds were due to either a bear market or the fact that 1,000 points represented a large percentage of the index. From 18K to 19K, though, neither of those factors played a role. Instead, the market just did nothing for over a year.
After taking 700 days to get from 18K to 19K, the DJIA is moving a lot quicker in trying to get to 20K, and if it gets to 20K between now and Christmas, it will be the shortest amount of time between 1,000 point thresholds in the index’s history. 19K is also one of only two 1,000-point thresholds the DJIA has never closed below after first crossing it to the upside. Obviously, it has only been three weeks, so that could change, but at this point, 19K and 5K are the only two 1,000-point thresholds that have never experienced a downside cross.
B.I.G. Tips – Market Performance Following Rate Hikes
B.I.G. Tips – Ominous S&P 500 Election Pattern
Chart of the Day: S&P 500 New Closing All-Time Highs By Year
The Bespoke Report — 2017 — “Seasonality”
Our 2017 Bespoke Report market outlook is the most important piece of research that Bespoke publishes each year. We’ve been publishing our annual outlook piece since the formation of Bespoke in 2007, and it gets better and better each year! In this year’s edition, we’ll be covering every important topic you can think of dealing with financial markets as we enter 2017. And to say that 2017 should be an interesting year for asset classes would be an understatement given the huge rotation we’ve already seen in just a few weeks since the Presidential Election was held back on November 8th.
The 2017 Bespoke Report contains sections like Washington and Markets, Economic Cycles, Market Cycles, The Fed, Sector Technicals and Weightings, Stock Market Sentiment, Stock Market Seasonality, Housing, Commodities, and more. In this year’s edition, we’ll also be featuring our new “Trump Index” of stocks that we expect to perform best in 2017 based on the new administration.
Over the next few weeks until the full publication is sent to paid members on December 29th, we’ll be releasing individual sections as we complete them. Today we have published the “Seasonality” section of the 2017 Bespoke Report, which highlights the seasonal tendencies of large, mid, and small cap stocks, as well as individual sectors and additional asset classes.
While we never recommend investing based solely on seasonal factors, we do think it should be a part of the investing equation. Take the chart below, for example, which shows the cumulative performance in 2016 of how an investor would have performed by investing in the three sectors that have historically performed the best and worst in each month of the calendar year. Beginning at the close on 12/31 and through 12/12, an investor who purchased an equal share of the three sectors that historically do best during the upcoming month and then repeated the process at the end of each month would have a gain of 22.1% in 2016 compared to a gain of 9.0% for a strategy of buying the three sectors that have historically performed the worst in each month. Over that same time period, the S&P 500 is up 10.3%. So even in a year where we saw some wild swings driven by outside forces, a strategy of buying the seasonal winners more than doubled the return of going long the seasonal losers.
To view our full “Seasonality” section immediately and also receive the full 2017 Bespoke Report when it’s published on December 29th, simply sign up for a 30-day free trial to Bespoke Premium. It’s that easy!
The Bespoke Report — 2017 — “Thematic Performance”
Our 2017 Bespoke Report market outlook is the most important piece of research that Bespoke publishes each year. We’ve been publishing our annual outlook piece since the formation of Bespoke in 2007, and it gets better and better each year! In this year’s edition, we’ll be covering every important topic you can think of dealing with financial markets as we enter 2017. And to say that 2017 should be an interesting year for asset classes would be an understatement given the huge rotation we’ve already seen in just a few weeks since the Presidential Election was held back on November 8th.
The 2017 Bespoke Report contains sections like Washington and Markets, Economic Cycles, Market Cycles, The Fed, Sector Technicals and Weightings, Stock Market Sentiment, Stock Market Seasonality, Housing, Commodities, and more. In this year’s edition, we’ll also be featuring our new “Trump Index” of stocks that we expect to perform best in 2017 based on the new administration.
Over the next few weeks until the full publication is sent to paid members on December 29th, we’ll be releasing individual sections as we complete them. Today we have published the “Thematic Performance” section of the 2017 Bespoke Report, which highlights the various market themes like large caps versus small caps, value versus growth, and stocks versus bonds that are currently outperforming and underperforming as we get set to enter the new year.
To view this section immediately and also receive the full 2017 Bespoke Report when it’s published on December 29th, simply sign up for a 30-day free trial to Bespoke Premium. It’s that easy!