A Shift In “1st of the Month” Market Behavior

Wednesday will be the 1st day of a new month. A couple of months ago I shared a chart that showed that the first day of the month has weakened substantially in recent years. Today I will use a couple of other charts to show just how drastic the change in market character has been. These charts compare the “1st of the Month” versus “All Other Days”. They show SPX points gained (or lost) for 2 time periods. The first one looks at 2000-2010. The 2nd one shows 2011 – present.

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Quite the contrast. The first of the month used to be strong even when the rest of the time the market was struggling. But over the last 4+ years, “1st of the month” has failed to make any gains even though the overall environment has been strongly bullish. If “1st of the month” can’t manage gains in this environment, what will happen when the next bear market arrives?

 

 

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Opex Week Performance By Month, And Why March Opex Is Notable

There is a seasonal influence that could have a bullish impact on the market this week. Op-ex week in general is pretty bullish. March, April, October, and December it has been especially so. S&P 500 options began trading in mid-1983. The table below is one I have showed on the blog in years past. It goes back to 1984 and shows op-ex week performance broken down by month. All statistics are updated.

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While December has been more reliable, March op-ex week has seen the most in total gains. Traders may want to keep this in mind this week.

 

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Historical Returns Following Very Bad Fridays (updated)

The study below appeared in the Quantifinder on Friday. It is one I last showed on January 27, 2014 and it examines large drops on Fridays. Both the Crash of ’29 and the Crash of ’87 happened on Monday. The Crash of ’87 is still remembered by many traders that are active today. In 1987 there was a strong selloff on Friday and then all hell broke loose on Monday. But since then strong Friday selloffs have commonly been followed by bounces on Mondays. Perhaps this is due to the fact that fear of a crash causes what might otherwise be an ordinary selloff to become exaggerated and overdone on Fridays. Or perhaps it is just that people don’t want to hold over the weekend. Whatever the reason, the tendency to bounce has been very strong. All results are updated.

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The numbers here are all very impressive and suggest a strong bullish bias over the next 1-6 days.

 

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What Follows Relatively Large Drops From New Highs

Tuesday saw the 1st somewhat sizable drop for the market in a while. And the action triggered the study below, which looks at relatively large drops from intermediate-term highs. I have updated all the stats.

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Over the last 11 years the stats are impressive. And the 3-4 day consistency is strong. Traders may want to take this into consideration when setting their bias over the next few days.

 

 

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A Big Move Up Followed By Narrow Range on Light Volume

I’ve been seeing mixed evidence over the last few days. In yesterday’s blog I showed a study that suggested short-term bullish inclinations. This morning’s study makes a case for the bears. It suggests that big intraday rallies like we saw on Friday that have been followed by tight consolidations like Monday have often seen the market roll over.

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Instances are quite low, but the stats are strongly bearish. To take a closer look I have listed below all 10 instances.

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The last 7 instances closed lower 5 days later, and all by at least 1.3%. Additionally, the Avg Drawdown is nearly 3x the Average Run-up. Even with the low number of instances, I feel this study is worth some consideration.

 

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Double Outside Days for SPY

Notable about Friday’s market action is that it marked the 2nd day in a row that SPY posted an outside day. (An outside day is a day where the security or index makes both a higher high and a lower low than the day before.) Back-to-back are fairly rare. I last discussed this setup in the 1/10/2014 blog. Below are updated results.

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The numbers look very impressive. Most of the upside edge has been realized in the 1st 3 days.

It is also worth noting that this pattern has also done well with QQQ in the past.

 

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How The Friday Before Presidents Day Has Changed

It is notable is that Friday is the last day before the President’s Day holiday. Historically the Friday before President’s Day has been a poor performer. But more recently the downside edge has not persisted. This can be seen in the curve below.

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Market behavior changes over time. This includes seasonal tendencies. At this point I do not view the Friday before President’s Day as having any seasonal edge. Another example of seasonal behavior changes is the last day of the year.

 

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Rob Hanna Will Be On TimingResearch’s Weekly Webshow – 1pm EST on Monday

I have been asked to join a live discussion panel ​being put on by TimingResearch​. Each week, TimingResearch surveys a large group of traders to get their thoughts about current market conditions. TimingResearch then produces a report based on the survey.

The panel will discuss the market, our short-term outlooks, and the most recent weekly survey from the TimingResearch group.

Click here to learn more and sign up!


Date and Time:
– Monday, February 2, 2015
– 1PM ET (10PM PT)

Guest Host:
– Dave Landry of DaveLandry.com

Guests:

– Cameron Yost of DimensionTrader.com
– Rob Hanna of Quantifiable Edges.com & OvernightEdges.com
– Vince Vora of TradingWins.com

​Can’t attend? Register now anyway in order to receive the archive​d​ recording if you are not able to attend live.​

After registering, you will also be able to view archived reports & data. And you will also be registered to receive the weekly survey and report.

A Look At The January Barometer

The January Barometer is a fairly famous study from the Stock Traders Almanac. It says that “as goes January, so goes the year”. In other words, a positive January will typically lead to a positive year, while a negative January can be a warning. Let’s look at how the SPX has done for the remaining 11 months of the year based on how January performed.

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The numbers show that in years that January has done well, the rest of the year has typically fared well also. Below is a profit curve.

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That is a nicely steady upslope. Now let’s look at how Feb-Dec has done after a down January.

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Not as many instances, but there does not appear to be the same kind of bullish tendency here. More of a crapshoot. Below is a curve.

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Certainly not a chart to trade off of. So it would have been nice if January finished positive. But it is not a sign of impending doom. Just that we don’t have the kind of momentum that would be preferable.

 

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A Look At Struggling “1st Of The Month” Bullishness

Friday is the last trading day of January. The first day of the month is well known for having a seasonal bullish tendency. Interestingly, I have noted this tendency has not been prevalent over the last few years. This can be seen in the equity curve below.

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As you can see, 1st day of month profits peaked 4 years ago. Leading up to that, the 1st day of the month had spent years as bullish. It is curious to see that this edge has not persisted during such a strong bull market, and it will be interesting to see if it re-asserts itself going forward.

 

 

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Fed Days After 1% Drops

Selloffs as strong as we saw on Tuesday have been fairly rare just ahead of a Fed Day. In fact it was the 1st time since October 2012 that SPY closed down over 1% on the day before a Fed Day. Below are results of all instances since SPY’s inception in 1993.

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The stats here appear strongly bullish With a profit factor over 7 and the average trade nearly as positive as the worst trade was negative, risk/reward appears to heavily favor the bulls.

 

 

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After Monday’s Big Effort For A Small Gain

The mild action on Monday did not trigger a whole of studies Monday afternoon but the one below was fairly compelling. It suggests that when SPY closes strong (in the top 10% of its range) but still only manages a small gain on the day, that the next day has a downside tendency.

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As you can see there appears to be a bit of a bearish inclination. Of course futures are down a lot already, so it will be interesting to see how the day plays out. Will we see additional fear ahead of tomorrow’s Fed announcement, or will the market rebound in anticipation of it?

 

 

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What Wednesday’s Partial Recovery Hints At For Thursday

One thing that stood out about Wednesday’s action was that the market closed down but still enjoyed a strong reversal of the lows. In the study below I combined the multi-day pullback concept with the fact that the market saw a relatively strong close.

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The stats suggest a high probability of an almost immediate bounce. In fact, most of what I am seeing now is suggesting a bounce.

 

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A Combination Of Factors Suggesting A Bounce

There were a number of Quantifinder studies yesterday that looked at SPY and/or SPX making short-term lows, closing down 3+ days in a row, and/or leaving unfilled gaps down. The study below it combined all of these ideas.

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The stats suggest a high probability of an almost immediate bounce. In fact, most of what I am seeing now is suggesting a bounce.

 

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