As of yesterday’s close DJIA was up 6.2% year-to-date.
S&P 500 was up 7.3% and NASDAQ was up an impressive 14.2%. S&P 500 and NASDAQ are well above historical average performance compared to past post-election years. DJIA is also above average, but by a lesser degree. The magnitude of outperformance can be seen in the following charts.
Although the major indices have clearly diverged from historical post-election year tendencies up until this point, there is still a possibility that they could revert to the mean before long. All three of the above charts have three distinct patterns that reasonably tracked one another until sometime in the second quarter of the year. S&P 500’s patterns converged in mid-April, DJIA’s patterns converged in April too and move in relative unison until mid-May. NASDAQ’s historical patterns also converged in mid-April and remain intertwined until mid-June.
This would seem to indicate that the market could be at a major inflection point. At this point in the past, all post-election years, on average, tended to see the market move sideways. Newly elected Democrats historically enjoyed continued market gains while newly elected Republican presidents were not as fortunate as early gains where surrendered.
At this juncture the market could go either way. DJIA and Russell 2000 could catch up to S&P 500 and NASDAQ and trade at new all-time highs. This would confirm the upside breakout is for real and the rally still has some legs. In this situation our Seasonal MACD Sell signal would most likely be delayed further. If the market should decide to go the other way and DJIA and Russell 2000 pull S&P 500 and NASDAQ back down, then our Seasonal MACD Sell signal would arrive much sooner. It has also been 460 calendar days since S&P 500 had a 10% or greater correction which is close to the average duration between corrections since 1949 of 514 calendar days.