Has the market ever been this week in the month of December?
This might surprise you, but since 2000, considering the month of December alone, the market has actually only been weaker than it is now twice, and those years were 2002 and 2008. Otherwise, excluding 2002 and 2008 the month of December has absolutely witnessed intra month weakness since 2000, but the threshold to that weakness has been about a 2% decline.
The charts below were taken from a special report that was issued to clients of stock traders daily that focused on the probable action in the Dow Jones industrial average from here through the end of the year, as December continued. Our focus is on the double ETFs for the Dow Jones industrial average; the double long ETF (NYSEARCA:DDM), and the double short ETF (NYSEARCA:DXD).
This first chart shows us the difference between the starting value of the Dow Jones industrial average and its lowest value during the month of December. If we discount both 2002 and 2008, which I believe is appropriate because those were very weak years and this past year has not been nearly as weak as those so there is reason to believe that the environment is different, we can see that the trough and intra month weakness for the Dow Jones industrial average has been about -2%.
Interestingly, as I wrote these words that is almost exactly what the intra month loss for this December has been so far. Clearly, the loss can get worse, the market can become weaker than it already is, but absolutely the market is at the threshold defined by the chart above.
The logical next question is what will the market do if it stabilizes?
Although the special report that was issued to clients of Stock Traders Daily also offers specific recommendations and risk controls have been provided, this chart suggests that the average increase from the Dow Jones industrial average after having been down between one and 2% for the month of December has been approximately 2.71%. That does not represent the average gain from the trough; the average gain from the weakest levels in the month of December given this focus group is actually much more than that, but the chart below clearly demonstrates the probability of a significant market bounce if the market stabilizes at these intra month lows.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: By Thomas H. Kee Jr. for Stock Traders Daily and neither receives compensation from the publicly traded companies listed herein for writing this article. DDM may have been recommended to clients of stock traders daily with risk controls in place.