One potential positive about the intermediate-term low Wednesday is that it came on a Fed Day. I looked back at other times SPX made an intermediate-term low on a Fed Day.
Results over the first few days are underwhelming, but once you get out 1 week they look quite impressive.
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The study below appeared in the Quantifinder on Friday. It is one I last showed on June 3, 2013 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. 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.
The numbers here are all very impressive and suggest a strong bullish bias. Traders may also want to take notice of the note at the bottom of the table. A failure to bounce today could be a warning that the market is not following historical norms and the environment is becoming more dangerous.
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Martin Luther King Jr. Day was on Monday. The NYSE has only observed MLK Day as a holiday since 1998. But over that 16 year period the market has not done too well during MLK week. I showed this last year in the 1/22/12 blog. I’ve updated the chart below.
MLK week has seen the market rise the last couple of years, but prior to that it had some real struggles. Maybe the downside tendency is fading, or maybe it was just a blip and the downward inclination will reassert itself. It’s tough to tell at this point. I’m still inclined to view seasonality as favoring the bears this upcoming week.
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The study below looks at days like Tuesday where the market gaps higher, never fills, and moves higher from open to close without making a higher high. It was last seen in the 3/27/13 blog. I have updated the results.
Implications here appear somewhat bearish, with most of the damage occurring on day 1. This may be worth keeping in mind as traders formulate their plan.
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As I discussed last month, opex week in December has historically been wonderful. But January – not so much. Below is a list of the last 15 January opex week returns (updated from the study shown last year). While it is not the case this year, January opex week often occurs in conjunction with Martin Luther King Day. So some of these weeks contained four trading days and some contain five.
Even with the positive performance the last 2 years there has been a decided downside tendency over the last 15 years. The drawdown / run-up stats at the bottom remain quite compelling for the bears. This study still appears worthy of some consideration.
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Thursday 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 a higher high and a lower low than the day before.) It’s quite unusual to see 2 consecutive outside days. I last examined back-to-back outside days for SPY in the 5/23/13 subscriber letter. I have updated that study below.
The numbers look very impressive.
It is also worth noting that this pattern has also done well with QQQ in the past.
I’ve discussed many times in the past that Tuesdays have a well-earned reputation for being a day when the market will often halt a decline. The study below is one from the larger Turnaround Tuesday study published in the 9/25/12 blog. All statistics are updated.
As you can see the market has strongly favored a quick move higher. And when that move hasn’t happened on Tuesday it has often happened in the next few days.
SPY has now gone 11 days without closing below its 5ma, and it closed Tuesday at another new high. The study below is one I’ve shown a few times over the years, most recently in October. It looks at other instances in which SPY has traded above the 5ma for at least 2 weeks and is now closing at a 10-day high. All results are updated.
In the past this setup has commonly been followed by a short-term pullback. The downside edge doesn’t last long, though. It seems to pretty much play itself out over the first 2 days. It is not an overwhelming edge, but it is still worth noting that SPY has been short-term extended for a while and the normal course of action at this point is a little pullback.
The table below is from a study I showed in last night’s subscriber letter. It shows how SPY has performed every year, during the last 15 minutes of trading for the year.
On average SPY has lost 0.25% in the last 15 minutes of trading. And if you just look at the losers, the average loss was 0.345%. Last year was the 1 big up year (excitement over avoiding the Fiscal Cliff?). If you are a daytrader with a long position, this might be a good day to close up shop 15 minutes early…
Thursday we again saw the VIX and VXO close well below their recent mean. Such stretches suggest a collapse in fear has taken place among investors. The study below looks for stretches of 15% or more below the 10-day moving average that have persisted for three days.
Based on the stats table there appears to be a downside inclination. I find the note at the bottom of the study to be especially interesting. Nearly every case has experienced an almost immediate pullback, but those that didn’t went without pulling back for a long time.
I’ve been posting and updating the “Twas 3 Nights Before Christmas” study on the blog here since 2008. The study will kick in at today’s close. This year I will again show the Nasdaq version of the study. While all the major indices have performed well during this period, the Nasdaq Composite stands out as the big winner.
The stats in this table are strong across the board, and the note at the bottom shows reliability that has been nothing short of incredible. Traders may want to keep this one in mind over the next couple of weeks.
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 have shown the table below every year since 2008, and have updated the results again this year.
The stats here are extremely strong. Have a happy (and most likely bullish) December Opex Week!
I’m going to be participating the The Festival of Traders this month for the 1st time. It is a 2-day event that features presentations from 8 traders.
I’ll be speaking about Fed-based edges in regards to numerous time-frames (from short-term to long-term, and in between). My talk is scheduled for 5:30pm EST on Tuesday, Dec 10th. Time not convenient? No worries! Register using this link and recordings of all speakers will be automatically sent to you at the conclusion of the Festival.
And beyond my talk, the line-up looks very impressive. In fact, on Wednesday 2 of the 7 guys I placed on my list of “Real Deal Traders” will be talking – Scott Andrews and Dave Landry.
This is a Quantifiable Edge I suggest you take advantage of 🙂
Again, the link to register is available here. (Nothing but an email address required.)
The employment report is due to be released Friday morning. News there could certainly send the market in either direction. But anxiety about the employment report has largely been unfounded over the last year and a half. The table below was published in Wednesday night’s subscriber letter. It looks at how the VIX, XIV and SPX have all performed on employment days since 7/1/12.
These 17 instances have shown a strong propensity for the VIX to drop, and XIV and SPX to rally. We’ll see how it works out today, but the recent tendency has been bullish on employment days.
One notable bit of action is that Wednesday marked the 7th day in a row that the VIX has risen. That is a very unusual streak. I decided to look back at all other times the VIX had risen for 7 days in a row while SPY was above its 200ma. Below are results of SPY assuming a 3-day holding period.
Instances are low, but so far the returns are overwhelmingly bullish. Very little drawdown compared to both the run-up and the average trade. This appears to be worth some consideration.