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THE TODD MARKET FORECAST
Prepared by Stephen Todd
Very Bullish Seasonals Ahead
(December 2015) The period from now into January is the most reliably bullish of the entire year.
Back in the 1980s an analyst named William Lefevre studied market data from the end of World War II and found that the Dow had rallied an average of 9.5% from the low made in either November or December to the high made in either December or January.
This phenomenon has a perfect record since 1945 although the bear market year of 1968-69 was a near miss. Since 1968, the average gain has improved to 10.50%.
So far this year, the low was seen on November 13 at Dow 17,245. Since the Dow closed Monday at 17,720, the minimum criteria for this particular tendency has already been met unless the Dow drops below 17,245 sometime in December. Since this would mean a 475 point decline, we feel that it is unlikely.
But, there is more to it than just a point gain. There is also a time consideration. In 53 of the last 67 years, the ultimate peak occurred in January. And of the 14 December tops, nine occurred within the last four days of the month. Indeed, there have been only two instances in the past 45 years when the top took place within the first 10 trading days of December and that is a very important point to consider.
There is also a price consideration. The average gain over the past 41 years is 10.68%. Since 1968, there have been gains of less than 5% in only four cases, one of them last year.
The gain so far from the November low is 475 points or 2.75%. An average gain would give us an additional 1370 Dow points sometime between now and the end of January.
Sentiment wise, the 5 week moving average of the consensus of bullish advisors from Consensus Inc. was recently at 45%. That is one reason we saw a rally from the August September lows. We don't think the rally has fully reflected that dip in sentiment. (Presented with permission from Consensus, Inc. Current data available at www.consensus-inc.com, 800-383-1441)
The Put Call Ratio Is Bullish
Another reason for the big October move is the weekly put call ratio. The 5 week moving average was recently at 1.15. This is the highest level since 2011. Again, the indices do not appear to have fully responded to these high readings.
The monthly chart below is that of the GLD, or gold ETF. Things can and do change rapidly in the markets, but right now that chart, which is making a pattern of lower lows, looks absolutely dreadful.
We remain bullish on the Canadian markets, but it is a real struggle right now because they are not acting as well as U.S. markets due to their natural resource makeup. The Toronto Exchange was recently very oversold and it looks like it hasn't rallied enough from that condition.
Trading for November
For the month, we closed out gains of 5.47 SSO points. The SSO itself gained only .69 points for the month.
Since early 2010, our hotline advice has gained over 72 SSO and SPY points. The SSO itself has gained 48 points during this period as it went from 18 to 66. We can see the progress in the chart below.
Not everything is rosy. Insiders are selling at a rate not seen since May of 2011. This was prior to a significant decline. Nothing is ever 100%. If it were, I would think it was a bit too perfect. Also, small caps have been lagging. We would feel better if they were actually leading.
The market marches to its own logic. After the Paris attack, the indices went straight up. This was due to an oversold condition.
The Todd Market Forecast
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