The Nasdaq 100 has lifted enough out of its mid-summer spill to generate a “golden cross.” This occurs when the 50-day average of an index crosses up and over its 200-day average. It shows that a recent negative period has been largely erased, and that buyers are once again ascendant.
Most of the smarties in the technical analysis subculture pooh-pooh this indicator because it is so simplistic. But let’s face it: The cross signifies a change of sentiment, and that is worth recognizing.
Bespoke Investment Group analysts are largely in the skeptical camp, but they checked their database and found eight prior instances in which one occurred for the Nasdaq 100 throughout its history. Below is their table highlighting the performance of the index over the next week, the next month and the next three months following the day that the cross happened.
As you can see, in the week after the golden cross, the Nasdaq 100 has actually averaged a decline of 1.05% with positive returns just 37.5% of the time. So, instead of being bullish, in the very near term the cross has been bearish, at least for the Nasdaq 100 specifically.
Over the next month and three months, though, the index has done well, according to the Bespoke analysis. The average change in the month following a golden cross for the Nasdaq 100 has been 2.44% and positive returns have occurred five out of eight times. Over the next three months, the index has averaged a gain of 1.89% with positive returns 75% of the time, the data shows. In the three-month period, the median is much stronger at +4.65% due to one huge down move of 20% in the three months following the golden cross on June 4, 1990. That was when Iraq invaded Kuwait.
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While there might be some hesitation or consolidation short term, the data suggest that bulls have a fighting chance of finding success through the end of the year despite the many troubles in the world of finance and geopolitics, including stretched valuations, widening bond spreads, relatively weak corporate earnings and flat revenue growth. Hey, can’t have everything.
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Couple more items of note:
— What a turnaround for the market last week after the prior week had been so brutal. Ironic that many investors felt this week would be worse due to the terror attacks after the Nov. 13 market close. Futures prices didn’t take a big hit that Sunday overnight, then firmed up in the first hour and soared 1.5% for the day. Then came a consolidation day, and another big 1.6% gain Wednesday and a +0.5% Friday. That’s an ideal pace. You don’t want recoveries to happen all at once.
— Consumer discretionary and technology posted the biggest gains last week on Wall Street, while Brazil and Russia were the best gainers overseas. Hate to sound like a conspiracy theorist, but I believe there was some government intervention if not coordination to get the ball rolling in the right direction on Monday — something we’ve seen before. We learned after the 9/11 attacks that terrorists short futures and buy put options ahead of their big attacks to help fund their operations. Yes, can you imagine, insider trading by these schmendriks? The rally this week gave the terrorist short-sellers big losses, which is about as much as capital markets can muster for punishment.
— U.S. Census quarterly data released in the past week shows that the leakage of retail sales from malls continues apace, with 7.4% of all retail spending done online. Bespoke analysts report that the data shows the growth rate of e-commerce is over 15%, a figure that contrasts with traditional retail sales growth in the low single digits.
Bespoke then went further into the data by stripping out gas stations, groceries, autos and parts, home improvement, dining, and e-commerce from total retail sales to arrive at a “core” retail sales number. The analysis shows that traditional mall retailers, and particularly department stores, are in big trouble: Core retail sales at malls is shrinking by more than $5 billion per year and accelerating.This looks grim, but don’t count the Macys and Nordstroms of the world out yet, as sentiment is already terrible and companies with good management will find a way back toward success when everyone least expects it.
— And finally, keep in mind that Thanksgiving week has historically been one of the best of the year for the stock market, led by tech (XLK), consumer discretionary (XLY), industrials (XLI) and health care (XLV). Some stocks with the best historical record for the last 10 days of November, with average gains of 3% to 7%, include Teradyne (TER), Weyerhaeuser (WY), Omnicom (OMC), Raytheon (RTN), Nike (NKE), Northrop Grumman (NOC), L-3 Communications (LLL), Toro (TTC) and L Brands (LB).
Best wishes,
Jon Markman
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