When this happened before, stocks never lost

Another thrust in participation

In early December, buying interest across stocks was broad and urgent. More than 80% of volume on the NYSE flowed into advancing securities, triggering a rare breadth thrust.

Within the most benchmarked index in the world, buying interest has been just as impressive. The percentage of S&P 500 member stocks trading above their 10-day moving averages cycled from only 25% on December 20 to more than 90% by last week.

More than 90% of S&P 500 stocks are above the 10 day moving average

Our Backtest Engine shows that since 1998, the S&P 500 performed well after more than 90% of its stocks traded above their 10-day averages, preceding a positive one-year return after 187 out of 193 signals. 

When these short-term trends cycled from below 25% (rounded) to above 90% on consecutive days, the S&P never lost ground over the next 6 months.

But it's even more impressive than that. By December 27, more than 90% of stocks were trading above their 10-day averages, and it hasn't dropped below 90% since then. This 5-day streak is tied for the 4th-longest since 1950.

Stat box

For only the 7th time in its history, the ProShares Ultra VIX Short-term Futures ETF (UVXY) declined for 9 consecutive days. Volatility tended to increase in the weeks following the prior signals.

Extending gold miners' seasonal window

In December, Jay noted a particular positive seasonal bias in gold mining stocks during the latter half of December.

Now let's consider the standard Santa Claus Miner Rally period during post-election years and extend the holding period through the close of January Trading Day of Month #11 in the mid-term election year.

The chart below displays the growth of $1 invested in HUI ONLY during the extended Santa Claus Miner Rally period every four years. 

Gold mining stocks favorable seasonal window

Out of 16 cycles, this pattern showed a profit 14 times.

If history proves an accurate guide, the rally in gold miners that started on 12/16 may extend through 1/18/2022. Nevertheless, traders must recognize the speculative nature of trading gold mining stocks and remember that significant loss is possible.

The post titled When this happened before, stocks never lost was originally published as on SentimenTrader.com on 2022-01-04.

At SentimenTrader.com, our service is not focused on market timing per se, but rather risk management. That may be a distinction without a difference, but it's how we approach the markets. We study signs that suggest it is time to raise or lower market exposure as a function of risk relative to probable reward. It is all about risk-adjusted expectations given existing evidence. Learn more about our service , research, models and indicators.

Follow us on Twitter for up to the minute analysis of market action.

Not ready to signup up for a free trial yet?

Signup for our Daily Lite email to receive highlights of our daily report, research and studies.

Follow us on Twitter:

Subscribe to our Youtube Channel:

RSS Feed

Subscribe to the Blog RSS feed