The Inflection Point's  Instablog

This time of year, traders look to see if there are any correlations between various time periods and market averages. Along with this theme, I decided to take a look at the S and P 500 to see if any November, December and annual returns were correlated. For example, if November went up, did December go up? Well suffice to say, the only thing that jumped out at me was the December time period. 


The December S & P 500 returns seemed correlated with the returns for the year. For instance, for the 58 time periods I looked at, 39 Decembers matched the direction of the S and P 500 for the year. If the S and P 500 went up or down for December then in 39 out of 58 instances, the S & P 500's direction for the year matched it. Now this does not mean cause and effect rather just something I wanted to point out.


I included the entire table below in case some of the skilled Seeking Alpha readers can extract other interesting pieces of information.


 

Year	Oct. Last	Nov. Last	Dec. Last	Nov. %	Dec. %	Ann. %	Nov. Dir.	Dec. Dir.	Annual Dir.
1950	-	-	20.43	-	-	-	-	-	-
1951	22.94	22.88	23.77	-0.26	3.89	16.35	down	up	up
1952	24.52	25.66	26.57	4.65	3.55	11.78	up	up	up
1953	24.54	24.76	24.81	0.90	0.20	-6.62	up	up	down
1954	31.68	34.24	35.98	8.08	5.08	45.02	up	up	up
1955	42.34	45.51	45.48	7.49	-0.07	26.40	up	down	up
1956	45.58	45.08	46.67	-1.10	3.53	2.62	down	up	up
1957	41.06	41.72	39.99	1.61	-4.15	-14.31	up	down	down
1958	51.33	52.48	55.21	2.24	5.20	38.06	up	up	up
1959	57.52	58.28	59.89	1.32	2.76	8.48	up	up	up
1960	53.39	55.54	58.11	4.03	4.63	-2.97	up	up	down
1961	68.62	71.32	71.55	3.93	0.32	23.13	up	up	up
1962	56.52	62.26	63.1	10.16	1.35	-11.81	up	up	down
1963	74.01	73.23	75.02	-1.05	2.44	18.89	down	up	up
1964	84.86	84.42	84.75	-0.52	0.39	12.97	down	up	up
1965	92.42	91.61	92.43	-0.88	0.90	9.06	down	up	up
1966	80.2	80.45	80.33	0.31	-0.15	-13.09	up	down	down
1967	93.3	94	96.47	0.75	2.63	20.09	up	up	up
1968	103.41	108.37	103.86	4.80	-4.16	7.66	up	down	up
1969	97.12	93.81	92.06	-3.41	-1.87	-11.36	down	down	down
1970	83.25	87.2	92.15	4.74	5.68	0.10	up	up	up
1971	94.23	93.99	102.09	-0.25	8.62	10.79	down	up	up
1972	111.58	116.67	118.05	4.56	1.18	15.63	up	up	up
1973	108.29	95.96	97.55	-11.39	1.66	-17.37	down	up	down
1974	73.9	69.97	68.56	-5.32	-2.02	-29.72	down	down	down
1975	89.04	91.24	90.19	2.47	-1.15	31.55	up	down	up
1976	102.9	102.1	107.46	-0.78	5.25	19.15	down	up	up
1977	92.34	94.83	95.1	2.70	0.28	-11.50	up	up	down
1978	93.15	94.7	96.11	1.66	1.49	1.06	up	up	up
1979	101.82	106.16	107.94	4.26	1.68	12.31	up	up	up
1980	127.47	140.52	135.76	10.24	-3.39	25.77	up	down	up
1981	121.89	126.35	122.55	3.66	-3.01	-9.73	up	down	down
1982	133.72	138.53	140.64	3.60	1.52	14.76	up	up	up
1983	163.55	166.4	164.93	1.74	-0.88	17.27	up	down	up
1984	166.09	163.58	167.24	-1.51	2.24	1.40	down	up	up
1985	189.82	202.17	211.28	6.51	4.51	26.33	up	up	up
1986	243.98	249.22	242.17	2.15	-2.83	14.62	up	down	up
1987	251.79	230.3	247.08	-8.53	7.29	2.03	down	up	up
1988	278.97	273.7	277.72	-1.89	1.47	12.40	down	up	up
1989	340.36	345.99	353.4	1.65	2.14	27.25	up	up	up
1990	304	322.22	330.22	5.99	2.48	-6.56	up	up	down
1991	392.45	375.22	417.09	-4.39	11.16	26.31	down	up	up
1992	418.68	431.35	435.71	3.03	1.01	4.46	up	up	up
1993	467.83	461.79	466.45	-1.29	1.01	7.06	down	up	up
1994	472.35	453.69	459.27	-3.95	1.23	-1.54	down	up	down
1995	581.5	605.37	615.93	4.10	1.74	34.11	up	up	up
1996	705.27	757.02	740.74	7.34	-2.15	20.26	up	down	up
1997	914.62	955.4	970.43	4.46	1.57	31.01	up	up	up
1998	1098.67	1163.63	1229.23	5.91	5.64	26.67	up	up	up
1999	1362.93	1388.91	1469.25	1.91	5.78	19.53	up	up	up
2000	1429.4	1314.95	1320.28	-8.01	0.41	-10.14	down	up	down
2001	1059.78	1139.45	1148.08	7.52	0.76	-13.04	up	up	down
2002	885.76	936.31	879.82	5.71	-6.03	-23.37	up	down	down
2003	1050.71	1058.2	1111.92	0.71	5.08	26.38	up	up	up
2004	1130.2	1173.82	1211.92	3.86	3.25	8.99	up	up	up
2005	1207.01	1249.48	1248.29	3.52	-0.10	3.00	up	down	up
2006	1377.94	1400.63	1418.3	1.65	1.26	13.62	up	up	up
2007	1549.38	1481.14	1468.36	-4.40	-0.86	3.53	down	down	up
2008	968.75	896.24	903.25	-7.48	0.78	-38.49	down	up	down
2009	1036.19

Disclosure: The accounts likely have small S&P exposure.

Authored by Tom Henderson, Strategist JBH Capital

Statistics calculated by me from Yahoo finance.

As the Nasdaq moved to fresh 52 week highs two days ago, the semiconductors failed to confirm this move to new highs. After having recently broken back above their 50 Day SMA, the inability of the semiconductors to move to new highs alongside the Nasdaq is a negative divergence. Having been a big leadership group for the Nasdaq since equities bottomed in March, this recent negative action in the group bears watching in here with a potential top possibly being put in.

It will be interesting to see how the group acts today after being downgraded this morning by Bank of America Merril Lynch. Citing " a period of rapid replenishment of inventory and normalization of semi shipments to 'true' consumption levels, inventories in the supply chain are approaching a level suggesting a modest overshoot vs. equilibrium levels," the broker said. INTC, TXN, MRVL, & LSI were cut to neutral from a buy rating while MXIM, NSM, POWI, & MCHP were cut to underperform from a neutral rating.

Not surprisingly, the charts on all of the aforementioned chip plays seem to all have the same chart patterns. All of these stocks have recently moved back above their 50 day SMA's.  TXN is the only stock in this group to have recently made fresh 52 week highs. POWI and INTC's charts look the best after TXN with MXIM and NSM's charts appearing to be in trouble.

While not short any stocks in the chip sector yet, it seems as though the winners and the losers in the group have begun distinguishing themselves.  With some patience and perseverance a few could ultimately become good short sale candidates as the moving averages move into positions where supply seems ready to overtake demand.

Disclosure:  No position in any of the semiconductor stocks mentioned in this article.

 

More »

This morning, J.P. Morgan raised their rating on Human Genome Sciences to an Overweight rating, two trading days ahead of Monday's much anticipated top-line data from the second Phase III trial evaluating Benlysta in lupus.  Previously, the firm had a neutral rating on the shares and a $14 target on the stock, in comparison to the new price target of $25 on the shares.

After conducting a survey of 25 rheumatologists, Morgan has more confidence in the pending results due on Monday and assigns a 70% probablility of success.
According to the firm, most of the physicians surveyed were "widely enthusiastic about Benlysta, but more interestingly, 84% (21/25) predicted that Bliss-76 either had a 'good chance' of success or  would 'absolutely' work.  Assuming the drug got approved, this sampling of doctors stated that they would initially treat about 28% of their patients with the drug.

As for what could go wrong, most doctors simply stated: "it's lupus," a reference to the disease's heterogeneity. According to Morgan, their biggest fear is the unknown ("something that no one has thought of yet").

Even with the biotech group floundering of late HGSI shares have held up relatively well, trading near its 50 day moving average coming into Thursday's trading.  Morgan's positive comments have certainly helped the stock today, with shares currently trading up over 10% to $20.25 on heavy volume.

I am currently long a very small long position in the out of the money 23 Nov calls and in the Nov 17 puts, hoping that one side of this position should more than make up for the other leg of the spread before these options expire.  With the inherent risk of owning the stock into this binary event, I feel that this small spread position is the most prudent way to play HGSI ahead of next Monday.

Disclosure:  Long small call and put position in HGSI.

Below you will find closing prices for the Dow, S&P 500 and Nasdaq as of the close of October 23, 2009. I have included year-to-date stats and important moving averages as well.

For the week, the Dow and S&P and Nasdaq were all down slightly, with the Dow losing 0.24%, the S&P 500 losing 0.74% and the Nasdaq losing 0.10%. 

	Close	% Change	% Change	YTD %	20 dma	50 dma	200 dma
	10/23/2009	(1 Week)	(Month-to-Date)
Dow	9,972.18	-0.24	2.68	13.63	9845.86	9660.62	8556.98
S & P	1,079.60	-0.74	2.13	19.52	1069.70	1046.29	914.16
Nasdaq	2,154.70	-0.10	1.52	36.63	2130.98	2080.12	1773.62

More »

While not a Dow Theorist who gives much relevance to the confirming action in the Dow Transports in relation to the Dow Jones Industrials, I could not help but be struck with the high-volume selling in the Transport group on Friday. Known for being an early indicator of economic strength and weakness, could the Transports high-volume break back below its 50 day moving average be one of the first indicators of an impending double dip in the economy?

After nearly doubling from its February lows of 2146 to its most recent highs of 4045, the Transports seem to have become very toppy in here and should bear watching to see if recent multi-month support in the 3600-3700 range will hold. Conversely, any move through recent highs above 4045 would suggest that another up-leg is set to begin for the group.

As we look at individual names in the group, Burlington Northern(BNI), CSX Corp (CSX), and Kansas City Southern (KSU) all dropped between 5-6% on Friday on expanding volume. While sure to find short-term support at their up-trending 50-day moving averages, all of these stocks seem to be in the process of topping out and could ultimately make for good short-sale candidates on any light-volume bounce back up toward recent highs.

Needless to say, further weakness in the group would not bode well for the recent uptick in the economy or for further upside for equities as a whole. Add it all up and the action in the Transports bears close watching in the coming months.

Disclosure: We do not have any positions in the Dow Transport Average or in BNI, CSX, and KSU.