A few times over the years I have shown studies related to “Turnaround Tuesday”. The bottom line is that when the market has pulled back for multiple days, going into a Tuesday, then Tuesday has seen a bounce begin on a more reliable basis than any other day of the week. That sure didn’t happen yesterday. Historically, when there hasn’t been a close higher on Tuesday after a 3-day pullback, what does that mean for Wednesday and beyond? The test below addresses that question.

Results here have been very strong over a long period. In the past the “Turnaround Tuesday Failure” has just been a temporary setback.

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Opex week in January is one that the market has seen some struggles over the last 18 years. Below is the list of January op-ex weeks from 1999 – 2016 with their full week performance results. There have been 7 years in which January op-ex week occurred in conjunction with Martin Luther King Day. These were 4-day weeks and they are denoted with blue boxes around them.

There has been a decided downside tendency during January opex week over the last 18 years. The run-up / drawdown stats are especially notable. Traders may want to keep this in mind this upcoming week.

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Over several time horizons op-ex week in December has been the most bullish week of the year for the SPX. The positive seasonality actually has persisted for up to 3 weeks. I’ve shown the study below in the blog many times since 2008. It looks back to 1984, which was the first year that SPX options traded. The table is updated again this year.

The stats here remain extremely strong. Have a wonderful (and bullish?) December Opex Week!

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The time around Thanksgiving has shown some strong tendencies over the years – both bullish and bearish. In the table below I show SPX performance results based on the day of the week around Thanksgiving. The bottom row is the Monday of Thanksgiving week. The top row is the Monday after Thanksgiving.

Monday and Tuesday of Thanksgiving week do not show a strong, consistent edge. But the data for both Wednesday and Friday looks quite strong. Both of those days have seen the S&P 500 rise over 70% if the time between 1960 – 2015. The average instance managed to gain about 0.3% for each of the 2 days. (This is shown in the last column “Avg Trade where $300 would equal a 0.3% gain.) That is a hearty 1-day move. Meanwhile, the Monday after Thanksgiving has given back over half the gains that the previous 2 days accumulated. It has declined 64% of the time and the average Monday after Thanksgiving saw a net loss of 0.37%.

Of course I am not the first person to notice this. Strong Thanksgiving seasonality has been noted by many analysts over the years. So one (valid) concern that traders have with well-known seasonal tendencies is that they can be easily front-run. If people know there is a good chance that the market will rise Wednesday through Friday, they will look to get long on Tuesday. And if all the people buy ahead of the bullish period, then that may either dilute or eliminate the seasonal edge.

From 1960 – 1986 someone who bought Tuesday’s close and sold Friday’s close would have seen the SPX decline only 1 time. But from 1987 – 2015 there were 8 instances where SPX did not close higher on Friday than it did on Tuesday. So perhaps the edge became so well known that it was diluted by front-running.

To determine whether the Wednesday – Friday Thanksgiving edge may have been front-run a particular year, you could examine price action. I have repeatedly found that a market that is oversold going into a strong seasonal period will perform better than a market that is overbought going into a strong seasonal period. A very simple metric that could be used in this case would be to see whether the market closed in the top or bottom half of its intraday range on Tuesday of Thanksgiving week. To do this I used SPY instead of SPX, because it had better intraday data.

Since 1993, I found that years in which SPY closed in the top half of its intraday range on Thanksgiving Tuesday posted a 7-5 record from Tuesday’s close to Friday’s close. When SPY closed in the bottom half of its range on Tuesday the performance over Wednesday to Friday was 10-1. And the average instance posted a 0.8% gain these years versus a 0.1% average gain the other years. So Tuesday’s action appears worth watching as we approach this potentially seasonally bullish period.

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From a seasonal standpoint option expiration week is often a pretty good week for the market. October is one of those months where it has been especially good over the years. The study below examines performance during October op-ex week.

I decided to exclude 2008 because action that week was such an incredible outlier that it greatly skewed all the stats. (The week started with an 11.5% gain on Monday of 2008.) Results 1-4 days out look pretty solid. So the bulls appear to have some seasonal forces on their side this week.
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From a seasonality standpoint, there isn’t a more reliable time of the year to have a selloff than this week. In the past I have referred to is as “The Weakest Week”. Since 1961 the week following the 3rd Friday in September has produced the most bearish results of any week. Below is a graphic to show how this upcoming week has played out over time.

As you can see the bearish tendency has been pretty consistent over the last 55 years. There was a stretch in the late 80’s where there was a series of mild up years. Since 1990 it has been pretty much all downhill. Below is a table showing results of buying Sept. op-ex Friday and then selling X days later from 1990 – 2015.

The consistency and net results appear quite strong. I note the only instance that didn’t post a lower close at some point during the following week was in 2001. And the 9/11 attacks certainly made for unusual circumstances that year.

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